Galey & Lord, Inc.

1886–2004

Galey & Lord, Inc., develops, manufactures, and markets fabrics for the apparel and home furnishings industries, particularly high-quality woven cotton and cotton-blended apparel fabrics and printed fabrics. Galey & Lord sells its products to uniform and sportswear manufacturers of men's, women's, and children's wrinkle-free slacks, pants, and shorts. Known for innovative fabric dyeing and finishing techniques, this long-established company also produces khaki, corduroy, and wrinkle-free fabrics. Galey & Lord's acquisition of Dominion Textile's Swift Denim division in 1998 made it one of the largest producers of denim in the United States. Nevertheless, the company filed for bankruptcy protection in 2002 and again in 2004.

Origins in the 19th Century

Partners William Galey and Charles Lord founded Galey & Lord in 1886 to market fabrics to the apparel industry. The pair established the company as a selling agent for their other business, Aberfoyle, a mill in Pennsylvania. The firm grew steadily, and by 1922 it also functioned as sales agent for Camerton Mills. During the Great Depression, Galey & Lord manufactured a fabric common for civilian work wear--khaki. Though expensive, khaki earned its place as a conventional apparel fabric at this time.

World War II marked a turning point for the company's khaki fabric. During the war, Galey & Lord began selling khaki to the U.S. military. The trademark Camerton Army Cloth became the standard issue for uniforms. Thus, the company gained a reputation as the "King of Khaki," and Galey & Lord maintained its position as a leader in the khaki market into the 1990s. The company sold 75 million yards of the fabric in 1996. Manufacturers used 70 percent of that khaki for men's wear. In the past, only consumers 45 years old and older wore khaki. By 1996, though, 15- through 20-year-olds sported khaki, too.

Khaki itself changed a lot through the decades, especially with the advent of business casual wear. Modern khaki fabrics came in a variety of colors such as tan, putty, olive, black, navy, sage, and chocolate, and Galey & Lord manufactured about 70 percent of its khaki with special sueded or napped finishes during the 1990s. One thing about khaki that remained constant, however, was the fabric's competitive pricing. "Khaki is a category," explained Galey & Lord vice president Cheryl Blanchette in the Daily News Record. "It has staying power, and the fashion influence is driving it. It is really being driven by consumers looking for an alternative to denim. The overall popularity of khaki is in the casualization of America. The young generation has always liked denim and now is looking for an alternative. The fashion influence of khaki is big. There are a lot of new players in khaki apparel." Some of Galey & Lord's more well-known customers for khaki included Calvin Klein, Ralph Lauren, Tommy Hilfiger, Guess, Polo Jeans, Liz Claiborne, the Gap, Banana Republic, L.L. Bean, and Land's End.

Part of Burlington in the Postwar Era

Shortly after the end of World War II, J. Spencer Love, creator of Burlington Industries, purchased Camerton Mills--and Galey & Lord as part of the acquisition. Burlington manufactured fine cotton and cotton-blended fabrics under the Galey & Lord name, so blended fabrics became synonymous with Galey & Lord. The company remained a division of Burlington Industries until 1987, when Asher Edelman threatened a takeover of the company. Burlington management engineered a leveraged buyout of Galey & Lord to fend off the attempt. The division was spun off to a Burlington executive--Arthur Wiener--for $150 million. Citicorp Venture Capital financed the spinoff and retained 39 percent of the new company's shares. Wiener became chief executive officer of the now independent Galey & Lord, headquartered in New York City and Greensboro, North Carolina. The company's strategy for the future involved manufacturing fabrics that were made differently than those of competitors by experimenting with dyeing and finishing. Wiener eventually made Galey & Lord a public company in 1992.

That year the company also created a new synthetic fabrics division. A converting operation under the direction of Edward Delfoe, the division supplied dyed and printed synthetic fabrics to Galey & Lord customers. The company established a batch dyeing facility at its Society Hill, South Carolina, plant to print and dye polyester/rayon, acrylic, and wool blends, mainly for two-piece dressing.

The division was spun off to a Burlington executive--Arthur Wiener--for $150 million.

1992–1997

Corduroy Makes a Comeback: 1990s

In 1993, Galey & Lord once again saw a trend emerging in corduroy. The fabric, popular in the 1970s, began to regain acceptance after falling from favor with consumers in the 1980s. Corduroy sales for the company rose 7 percent in 1993 and remained strong in 1994 when clothing manufacturers began offering five-pocket jeans in corduroy. By 1996, more and more consumers considered the fabric another alternative to denim, causing a resurgence in its prominence.

At this time, Galey & Lord was the only vertically integrated corduroy manufacturer in the United States, and the company produced a very different corduroy than in the past. For example, the fabric became available in a wider range of colors and textures. Softness became a priority for corduroy. Consumer tastes dictated that eight-wale corduroy replace 14-wale corduroy (unless the 14-wale fabric was very soft), and four- or six-wale corduroy became the fabric of choice for fashion items. Alternate ribbing also varied the look of the fabric now, and the wearing season of corduroy lengthened as well. Although corduroy pants remained a staple throughout the fall and winter seasons, corduroy shorts became popular as an item for spring wardrobes.

Galey & Lord received substantial business in the United States and Europe from the sale of its corduroy. In 1996, the company saw a 30 percent increase in its corduroy business. As Bob McCormack, president of apparel fabric marketing for Galey & Lord told the Daily News Record in early 1997: "We see a very optimistic future for corduroy. ... The biggest growth is in the men's area." Buyers of Galey & Lord corduroy included Levi, Lee, Wrangler, Guess, Mossimo, Penney, and the Gap.

In 1994, Galey & Lord purchased the decorative prints division of Burlington Industries. This acquisition marked the company's entry into the non-apparel fabric market. Renamed Galey & Lord Home Fashion Fabrics, the new subsidiary supplied home decorator fabrics for bedspreads, comforters, and curtains. The company also launched Group II, a second printed apparel fabrics division. Galey & Lord Prints, the company's first such unit, printed on polyester and rayon blends or on 100-percent rayon. This new division printed on 100-percent cotton--and limited rayon challis--for the women's, men's, and children's wear markets. Galey & Lord executives appointed Leon Hecht and Joe Richards, both from Cranston Apparel Fabrics Company (a division of Galey & Lord's competitor Cranston Print Works) as heads of Group II. Galey & Lord located both the first division and Group II at its specialty plant in Society Hill, South Carolina. Late in 1994, Wiener explained to WWD that "we feel the print market is beginning to turn around, and the new division gives us additional products with which to address the market and pick up some additional."

Despite Wiener's optimism, printed fabrics did poorly for the year. In the middle of 1995, industry analysts predicted a "violent shakeout" in the printed fabrics industry, but they also anticipated an upswing the following year. Nevertheless, by the fourth quarter of 1995, Galey & Lord announced the closing of its printed apparel fabrics business. Conditions in this segment of the industry had been deteriorating since 1992. Raw material costs rose consistently during this time; the market remained soft, and low-price imports heightened existing competition.

Ironically, sales volumes for printed fabrics increased during this time; however, weak operating results ate away Galey & Lord's profit margins. Sales in 1994, for example, totaled $30.1 million for printed fabrics--6.7 percent of net sales. Yet the company sustained $9.4 million in operating losses that year. Likewise in 1995, sales in this area again amounted to 6.7 percent of sales--$33.8 million--but operating losses reached $13.4 million. In fact, losses for printed apparel in the first nine months ending in June 1995 were $9.7 million compared to an operating profit of $37.3 million for the apparel, woven apparel, and home furnishings divisions. As Wiener explained in the Daily News Record, "The losses had become too large to justify continuing the businesses without a firm belief that a turnaround could be completed near-term."

In addition to the operating losses, Galey & Lord expended $14 or $15 million more to close the divisions. The company also laid off 450 workers, most from the Society Hill plant in South Carolina and some from the sales office in Greensboro, North Carolina. Executives from the printed apparel divisions--Hecht, Richards, and Maria Damiano--left the company.

1995–2005

Ron Loeser, a partner with the converter Omega Textiles, summed up the situation in WWD: "It's really scary what's happening. When a company with the resources like Galey & Lord decides it can't make it in the print business, there are some serious problems with it, the overall business." David Caplan, chief executive officer of another converter Metro Fabrics, agreed: "I hate to see any of the competition go out of business. Good healthy competition is important. Arthur Wiener is a tremendously bright man who runs a fantastic company. This is a step backward for the industry."

At the heart of these concerns was the need for better margins among manufacturers. Demand for prints remained strong during this time, as was evidenced by Galey & Lord's sales figures, but the business itself shifted. Operating costs grew as the prices of raw materials rose domestically, which encouraged the purchase of imported goods. The implementation of the General Agreement on Tariffs and Trade (GATT) further cultivated import use since access to U.S. markets expanded with the elimination of textile and apparel import quotas for several countries by the year 2005.

However disappointing the performance of printed apparel, the showing by Galey & Lord's wrinkle-free fabrics compensated at least to a small degree. In 1995, Galey & Lord dominated this market with 100-percent cotton fabrics. Wrinkle-free fabrics accounted for 75 percent of Galey & Lord's men's wear sales and 14 percent of women's wear sales. One of Wiener's goals became expanding this area. As he revealed to WWD: "Developing more wrinkle-free products to fit into women's wear manufacturing and women's wear garments is one of the key challenges we've given to our merchants and product development people." Customers for wrinkle-free fabrics included Hagar, Levi Strauss, and Farah.

Acquisitions in the Mid- to Late 1990s

In 1995, Galey & Lord signed a letter of agreement to purchase the South Carolina textile firm Graniteville Company, a subsidiary of Triarc Companies, Inc. Though this would have doubled the size of Galey & Lord, the company canceled the merger due to undesirable conditions within the retail, textile, and apparel sectors. Fees and expenses associated with the aborted venture totaled $1.6 million.

Nevertheless, Galey & Lord successfully acquired Dimmit Industries the following year. Dimmit Industries sewed and finished pants and shorts for the casual wear market. Galey & Lord purchased the company from Farah for $22.8 million and acquired six manufacturing facilities in Piedras Negras, Mexico, in the process. These plants were to produce men's slacks and shorts from Galey & Lord fabrics, launching the company into the business of apparel manufacturing. Galey & Lord, in effect, became a full-service supplier to its established customer base after the acquisition. The company used its fabrics to make garments--apparel made in North American Free Trade Alliance (NAFTA) countries as opposed to the Far East--for its established customer base, thereby increasing business at its six manufacturing plants in North Carolina, South Carolina, and Georgia. Bob McCormack, a Galey & Lord executive vice-president, explained the company's rationale in WWD: "We are trying to protect the business we have in the United States by better servicing our customer base. As competition from overseas intensifies, we will be able to offer them a complete package."

The company established a new subsidiary--G & L Service Company, North America, Inc.--to run operations in Mexico. In 1996, the six Mexican plants operated at full capacity. Galey & Lord planned expansions to the facilities in 1996 and 1997.

Throughout its history, Galey & Lord had been associated with innovations in fabric. The company historically dyed and finished fabrics to differentiate items that it produced from its competitors' goods. In 1996, Galey & Lord purchase special wet and face finishing equipment to further its reputation in quality yarn-dyed fabrics despite the expense. "It's not a question of whether we can afford this development work," said Wiener in the Daily News Record. "We can't afford not to do it."

1998–2004

During the late 1990s, the company's strategy was to continue to develop its practice of unique dyeing and finishing. It also planned to produce better and different fabrics of world-class quality and to change fabrics as dictated by market demands. Above all, Galey & Lord intended to grow. "We have four internal goals to execute," Wiener told the Daily News Record. "We will continue to grow our core fabric business in the Carolinas and Georgia, with product development, to supply apparel yard goods to domestic, NAFTA, and international customers. We will expand our garment business to use those fabrics. We are constantly looking at acquisitions. If we see the right one, we will do it. We will be in the Pacific Rim in a joint venture. There are 4.5 billion people in Asia, and 700 million can buy our products. We must find a way to participate in this market. We will be larger through acquisition and growth. G&L's good growth pattern won't be reversed. How big we will be depends on what comes along that is right."

The CEO's words foreshadowed the largest deal in Galey & Lord's history. In 1998, the company doubled its sales after completing a $480 million acquisition of Dominion Textile's Swift Denim division. The denim division was first transferred to the Polymer Group and then to Galey & Lord. The deal secured Galey & Lord's position as the second largest denim manufacturer in the world. The company also gained Klopman International and Polymer's foreign operations in Tunisia in this transaction. While Galey & Lord management applauded the deal, many analysts were concerned about the high level of borrowing the company undertook, mainly because the denim market had seen a marked decline during the 1990s.

Changes in the 21st Century

Sure enough, as early as 1999, there were distinct signs that Galey & Lord's financial performance was deteriorating. Indeed, losses began to mount as the company entered the new millennium. After struggling in a lackluster retail environment, Galey & Lord filed for bankruptcy protection in 2002. By that time, its losses had reached $850 million. The company pledged not to cut operations and continued to manufacture fabrics during the proceedings.

In March of 2004, Galey & Lord exited bankruptcy protection after more than two years. The company emerged as a private company with John J. Heldrich at the helm. (Arthur Wiener announced his retirement at this time.) As part of the company's reorganization plan, General Electic Capital Corp. provided a financing package worth $70 million.

Events happened quickly during the next few months in 2004. Galey & Lord announced in June that it would close a weaving plant in Georgia in August. Approximately 450 employees would be laid off by the decision to consolidate the plant. Overall, the company had cut about 2,200 jobs since 2002. In July, Galey & Lord revealed that Patriarch Partners LLC, an investment firm with major holdings in the textile industry, was interested in acquiring the company. The transaction, however, needed to be approved by the company's lenders.

Less than one month later, Galey & Lord filed for bankruptcy for a second time. The company had not been able to fulfill its post-bankruptcy obligations. Patriarch Partners made a $188 million offer to buy Galey & Lord out of bankruptcy court. As part of the deal, Patriarch Partners would assume $130 million of Galey & Lord's debt. Patriarch Partners seemed optimistic that if the acquisition were successful, Galey & Lord would eventually regain its financial footing and continue to be a leading producer of denim, corduroy, and khaki in the textile industry.