The Business of Going Broke

Mike Diamond at Republic Textile in York, S.C.

By PIETRA RIVOLI

Inside Republic Textile Equipment’s 60,000-square-foot warehouse, industrial-scale knitting equipment stands beside fabric-testing paraphernalia, which is next to printing machines and countless bins of spare parts. All of it, the remnants of factories and businesses gone bust, belongs to Mike Diamond, who has spent the last 50 years making a living in an industry that, for lack of a gentler term, might be called the going-broke business.

On a recent morning, Diamond was leading a tour of his facility for a client named Gamal Omar, who had traveled to York, S.C., from Egypt for, among other things, some discount shopping. Omar owns a fabric-and-apparel-manufacturing business in 10th of Ramadan City, and like virtually everyone in the apparel business, he struggles with competition from Asia. Buying new machinery is out of Omar’s budget, but older technologies bring productivity and quality problems. To remain competitive, he needs late-model textile machinery at used-car prices. And so he makes the trip to South Carolina about once each year.

Diamond, 73, walked Omar around his warehouse, extolling the virtues and histories of various contraptions. Omar looked at an Italian fabric-cutting machine from Main Knitting, a Montreal-based company that was once Canada’s largest producer of men’s underwear. Then Diamond showed him knitting equipment from a shuttered Vanity Fair lingerie factory. There was dyeing machinery from a shuttered South Carolina facility belonging to Delta Woodside, and a variety of lab equipment that tested everything from yarn strength to colorfastness. After about an hour, they stopped at a dozen or so sewing machines. “Five hundred dollars each,” Diamond said. “I’ll throw in the chairs.”

Unlike failed dot-coms or hedge funds, factories don’t vanish overnight. In my years studying the textile industry, executives of failed companies almost always told me that they saw the end coming. And that when it came, they needed help. “Most people don’t have a clue how to go broke,” Diamond told me. “Going broke is a business. You’ve got to know your suppliers. You’ve got to know your customers.”

The going-broke business in the textile industry is clustered around the I-85 corridor, from Gastonia, N.C., to Greenville, S.C. Diamond has three major competitors in the area and dozens of smaller ones, but he’s still been able to put five kids through college (“all at the same time,” he says proudly) and acquire a significant art collection. He competes by staying on top of the constantly shifting manufacturing technologies — knowing which machines will have a second life somewhere else and which ones he should sell as scrap metal.

These days, he says, 95 percent of the demand is from outside the U.S. I sat with Diamond one morning as he chewed a cigar and leafed through a stack of about 30 printed e-mails — from Pakistan, China, Indonesia, Bangladesh and India — and dispensed orders to his assistant about what to do with each request. Sometimes Diamond had the machinery that a customer wanted; other times, he knew where to find it. And there were occasions when he knew that the customers didn’t really need what they thought they wanted.

He knows from experience. Diamond joined his father in the going-broke business more than half a century ago. In its early years, Republic was based in New York, in proximity to the Northern textile factories that were closing. Diamond closed his first factory in his early 20s, staying in Shamokin, Pa., for six months to sell off the pieces­ of a plant that made fabric for bras and girdles. In 1972, Republic moved to South Carolina to follow the movement of the textile industry from New England to the Piedmont region. Soon after, Diamond started selling used textile machinery to Gamal Omar’s father in Egypt.

For about 50 years, Diamond has supplied used textile machinery to more than 40 countries and played a central part in the gradual movement of textile production from rich countries to poorer ones. Diamond remembers dismantling several yarn-spinning mills in New England and reassembling them in Tito’s Yugoslavia. He picked up other American mills, piece by piece, and put them back together in the Philippines, China and India. Even within a single country, textile production gradually shifts to poorer regions — just as it has in the United States — usually in search of lower labor costs. It’s a good business to be in.

Yet the past several years have been tough. Republic has laid off more than half its employees, and the 30 or so daily inquiries that Diamond now receives from Asia are down from about 100 before the recession. Many of Diamond’s overseas customers couldn’t get financing when the financial markets seized up. Consumers weren’t buying textiles and apparel anyway, so factories like Omar’s needed fewer machines. And then businesses everywhere in the apparel chain — from U.S. retailers to Republic — were hit by cotton prices that were driven to record levels by freakish weather and by Chinese government policies.

Omar, however, remains optimistic about his business in Egypt. He has a contract to produce logoed sports apparel, and rising labor costs in China have made his prices more competitive. And more orders from U.S. customers meant it was time to upgrade his machinery. We kept losing him as he circled one machine after another, snapping pictures and peppering Diamond with questions. Omar had heard of a newer heat-setting machine that quickly dried and set the dye on Lycra fabric.

“You don’t need that,” Diamond said. “Doesn’t really work.”

“What about warp knitting machines?” Omar asked.

“I’m sorry, Gamal. Nothing’s left in the whole country. China took them all.”

Omar then stopped to admire the Italian cutting machine and a circular knitting machine that could make T-shirts without side seams. Seamless T-shirt technology was a major advance, Diamond explained, because it allows manufacturers to cut most of the labor-intensive sewing from the production process. Omar also stopped to look at a set of five-year-old “QuickWash” machines, a technology that can simulate a product’s lifetime of laundering in just 30 minutes to test for durability. He might have use for this. A shirt that doesn’t hold up in the wash means an unhappy customer, particularly in the more demanding U.S. market.

Omar wasn’t in the bed-linen business, but we stopped anyway to admire a massive pillowcase-making machine that, brand-new, sold for more than $1 million. Labor costs have been a significant cause of the demise of certain segments of the U.S. textile industry, and here was a worker-free machine that took in fabric and spit out neatly folded pillowcases at the rate of 15 per minute. Diamond thought he might have a customer for the machine in Pakistan.

We soon lost Omar again and found him taking pictures of the Main Knitting cutting machine. At its peak, the company employed about 1,700 workers, but it struggled against foreign competition for years and finally went broke in 2008. As I watched Omar, I thought back to 1972, when I purchased my first car. It was a beat-up used Fiat, but I was giddy at the promise of a future with wheels. On the school bus I told one of the rich mean girls that I had a car. I knew I’d never catch up with her, but at least I now could be in the race.

“Is your car new?” the mean girl asked.

“Well,” I said, “it’s new to me.”

Pietra Rivoli is deputy dean of the McDonough School of Business at Georgetown University. Adam Davidson, who usually writes It's the Economy, wrote this week’s cover story.

A version of this article appeared in print on May 6, 2012, on page MM24 of the Sunday Magazine with the headline: Anybody Want a $1 Million Pillowcase Machine?.

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