As Bush Curbs China Imports,Mr. Nichols Sees Betrayal;
Mr. Cole's Mill Stays Open
'Head Buried in the Sand'
By GREG HITT and DAN MORSE Staff Reporters of THE WALL STREET JOURNALMay 27, 2005; Page A1
MOUNT AIRY, N.C. -- From an unassuming whitewashed building here, Warren Nichols runs one of the largest sock companies in the world. His Renfro Corp. churns out more than a million pairs a day, with more than 4,500 workers spread from North Carolina to Mexico and Turkey. Later this year, he plans to add China to his production empire.
But the Shanghai operation won't ship as many socks back home as Mr. Nichols had originally planned because of an import curb the Bush administration slapped on Chinese socks. Making him more bitter: A fellow member of the once-clubby American sock-making fraternity, Charles Cole of Alabama Footwear Inc., led the campaign for the restrictions.
"You're either for a global economy or you're an isolationist -- take your pick," says Mr. Nichols, who believes the Bush move "betrayed us." Mr. Cole responds that "there needs to be an equalizer" to help Americans compete with China. "I could move to Honduras," he says. "That would give me a job. But how about the 76 people who work here at this mill?"
The rift between Messrs. Nichols and Cole is a microcosm of how trade and globalization can ripple through, and then rip apart, an industry. Several industry associations have split between outsourcing multinationals and the little suppliers whose work is being outsourced.
The socks war pits big businesses against small ones and profit-driven executives against those also focused on preserving their hometowns. It also offers a window into the rise of anti-China sentiment in Washington, where some politicians are calling for trade curbs and pressuring Beijing to let its currency rise against the dollar. Adding to the sock restrictions, the Bush administration has moved in recent days to restrict imports on a range of Chinese-made products from cotton yarn to underwear. (
See related article.)
Mr. Nichols, 67 years old, and Mr. Cole, 58, are both native sons of Southern mill towns. But from similar roots, the two have traveled along different paths.
Mr. Nichols, who is partial to dressy business-casual clothes from Brooks Brothers, runs Renfro from one of a long row of neatly appointed offices in the company's executive suite. He traveled to China 20 years ago to study sock-making there, and spent three months at Harvard Business School in a midcareer program.
Renfro started out as a small, family-run firm in 1921. Mr. Nichols joined the company in 1959 and his appointment as chief executive in 1990 signaled the company's move away from family control, although it remains closely held today. Renfro socks are sold under brand names including Fruit of the Loom and Odor-Eaters.
Renfro's headquarters in Mount Airy, the hometown of actor Andy Griffith, has become the nerve center of a global business, but relatively few socks are made here. Last year, Renfro eliminated 280 jobs at its lone Mount Airy plant, a big block building on the banks of the Ararat River. The layoffs resulted in part from expansion in Mexico.
Mr. Nichols describes having "mixed emotions" at the loss. "I have sentiment for the American people," he says, but "essentially, I'm looking out for our business and our shareholders."
Mr. Cole, usually dressed in a golf shirt, khakis and tennis shoes, works out of a cluttered office within earshot of the factory floor. It's decorated with a large, framed print celebrating the 1992 national football championship of his alma mater, the University of Alabama, along with tiny bulldozer models from his days running a strip mine.
He started Alabama Footwear 23 years ago in Fort Payne, Ala., with $250,000, putting up his small house as part of the collateral for a loan. He still owns the company. Unlike some of the bigger companies in North Carolina, the Alabama sock industry chiefly consists of 75 small and midsize mills that effectively work as a kind of cooperative. The mills specialize in white athletic socks, many sold as house brands at retailers such as
Wal-Mart Stores Inc.,
Target Corp. and
J.C. Penney Co., Mr. Cole says.
Mr. Cole's company does knitting work, turning yarn into socks. Others act as "finishers," preparing products for retailers by dying, folding and packaging them. If one firm moves to China, it's not only hurting its own employees, it's also hurting the other companies in the network.
Mr. Cole bristles at the suggestion that companies seeking trade limits have failed to adapt to a changing world. He notes that Alabama Footwear has spent more than $4.5 million on equipment upgrades over the past five years. That includes 130 Italian-made machines that automatically turn spools of yarn into knitted socks, untouched by workers. After installing these and other machines, Mr. Cole gradually scaled back his work force to 76 from 105.
For most of its history, the Charlotte, N.C.-based Hosiery Association was able to represent both big companies and small. That was true even through the 1990s, when larger firms steered the group toward an embrace of free trade. Sock makers didn't fight in 1994 when the U.S. and other major trading nations agreed to phase out textile trade quotas over 10 years.
The Hosiery Association's consensus began to fray in 2000 over legislation to allow duty-free entry of textiles from the Caribbean. Renfro, with a plant in Honduras at the time, wanted to make sure the initiative included socks. The Hosiery Association agreed and hired lobbyists to pursue the issue.
At Alabama Footwear, Mr. Cole says he hadn't paid much attention to the association's position on trade until then. He feared Caribbean imports could hurt companies like his that don't have overseas plants. In Fort Payne, which welcomes visitors with signs declaring itself the "Sock Capital of the World," he spread the word among fellow sock makers. At a monthly meeting of the Hosiery Association's Alabama chapter, Mr. Cole stood before his colleagues in a back dining room of the local Western Sizzlin' steakhouse and explained how the national association's free-trade push conflicted with Alabama's interests.
"We intend to get that changed," he remembers telling about 50 sock makers.
He organized a campaign to write letters to Congress and had 4,000 envelopes delivered from Fort Payne mill workers to Washington. He personally piloted fellow Alabama sock makers to Washington aboard his six-passenger Cessna to make the case.
Meetings of the full Hosiery Association grew more bitter. Some Fort Payne factory owners politicked to force out veteran association president Sid Smith, who had pushed for free trade, according to one Fort Payne sock maker. In the summer of 2001 Mr. Smith announced plans to retire, though he says it wasn't related to the pressure. His last board meeting as president was in October 2001. At that meeting, the board overturned the association's free-trade positions, deciding not to take any trade stance. The group later formed a committee, headed by Mr. Cole, to lobby on behalf of the smaller firms that focus on U.S. production.
The shift on trade left the association deeply divided. Prior to the meeting, Mr. Nichols had tried to convince other sock makers they couldn't stop trade liberalization. "Look guys, it's coming," he says he told them. Mr. Nichols "just felt like the rest of us had our head buried in the sand if we thought we could do anything about global outsourcing," Mr. Cole says. When the time came to renew Renfro's membership in the Hosiery Association for 2002, Mr. Nichols chose not to.
Congress ended up deciding in late 2002 to give socks from the Caribbean limited duty-free benefits -- a victory for Mr. Nichols. But bigger fights loomed. As the old trade controls continued to be phased out and China ramped up production, the U.S. market share for American sock makers fell to 31.4% in 2004 from 64% in 2001, according to Hosiery Association data.
That trend and more efficient machines have caused employment at sock mills in and around Fort Payne to drop to 4,400 from about 7,000 three years ago, according to the local economic development authority.
In 2003, Mr. Cole started lobbying for a new law that would require the packaging of all socks sold in the U.S. to carry a prominent country-of-origin notice. Every label would have to say, for example, "Made in U.S.A." or "Made in China" in lettering as large as the lettering showing the size of the socks. Renfro was upset about the cost of ensuring its world-wide plants complied with the rule.
Mr. Cole also decided to seek outright limits on sock imports from China. While the U.S. had agreed to lift all quotas by the end of 2004, it retained the authority to impose annual "safeguards" for up to three years to protect against a flood of Chinese imports. In early 2003, Mr. Cole began meeting with lobbyists and government officials to get such safeguards put in place. He worked in particular to woo Jim Leonard, the Commerce Department's lead official on textile policy and the head of a government interagency group that rules on safeguard petitions.
In September of that year, Mr. Leonard visited Fort Payne, meeting with mill workers and executives over two days. On his first night in town, Mr. Cole set up a dinner at the old DeKalb Theater, catered by the Western Sizzlin'. Mr. Leonard remembers his name was on the marquee, along with "letters about a foot high" reading SOS. That stood for Save Our Socks. During the dinner, Mr. Leonard spoke of the steps the Bush administration was taking to promote trade.
The next day, Mr. Leonard toured several mills. He was impressed that mill owners were installing new machines and workers were trying to get more productive. "They're doing the right kinds of things," he says. "They're trying to be as competitive as possible, so they can survive." Mr. Leonard says the Bush administration also heard the views of companies on the other side of the trade issue.
In June 2004, a petition was filed on behalf of the Hosiery Association committee Mr. Cole chaired, requesting limits on imports from China of cotton, wool and man-made fiber socks. A few weeks later, the administration agreed to consider the petition. It had up to 90 days to make a final decision -- putting the deadline right before the Nov. 2 presidential election.
On Oct. 22, the Bush administration approved the petition for a one-year limit on sock imports from China. Then on Nov. 19 Congress passed a trade bill that included the labeling mandate. Mr. Bush later signed it, and the administration is now getting ready to implement it.
As of May 12, sock imports hit their cap under the limit imposed last October, meaning socks from China will be barred until this October when the limit comes up for renewal. Mr. Nichols is slowing development of the China project. Instead of going "200 miles an hour," he says, "we've put it down to about 50."
But Mr. Nichols thinks the U.S. attempts to curb imports will ultimately prove powerless to stop globalized production. "Hell, there are a lot of places you can make goods cheaply besides China," he says. "Things are fluid. You stop China, things will come in from elsewhere. It's kind of stupid."
Even some of Fort Payne's sock makers seem to agree that they must look overseas. In February of this year, Mr. Cole's brother, Bobby Cole, president of Prewett Associated Mills, the largest of Fort Payne's sock makers, announced the firm would soon begin "sourcing product offshore." In April, Prewett began shutting down one of its finishing plants in stages, costing about 50 workers their jobs.
