Thursday, April 3, 2014

Fruit of the Loom to Close Last Kentucky Factory

Underwear maker Fruit of the Loom announced today that it is closing its last factory in Kentucky, in Jamestown, at the cost of 600 jobs. The company, which still has its headquarters and a distribution center in Kentucky, is moving the Jamestown operations to Honduras.

In Janet Patton's story about the announcement, the town's state representative is quoted as saying there was no warning, but there kind of was. Twenty-five years ago, Fruit of the Loom was one of the commonwealth's largest employers. Only General Electric was bigger. At the time there were many textile plants in Kentucky. OshKosh B'gosh also had several. Many were located in rural areas in the south-central region.

Fruit of the Loom started to close its plants in 1998. Every couple of years, another one would close. Jamestown went from 3,200 workers in 1990 to 600 today.

The Fruit of the Loom factory at Jamestown was built in 1981, so it lasted 33 years. That's the textile industry. Cutting plants, sewing plants, textiles move all over the world. They're always looking for the optimal balance of skills and wages. They know what skill level each type of plant needs and they go wherever the wages for people with that skill level are lowest. That's why Kentucky got a bunch of those plants 30-40 years ago and why it is losing them today.

This isn't a secret and shouldn't be a surprise.

This story is appearing in this space because of the story we reported on Tuesday. Many people reflexively condemn government 'handouts' to big business, but the purpose of those investments is to preserve existing jobs and tax revenue streams and create new ones. The new tax break for whiskey-makers was one small part of an overall budget bill that passed 91 to 9 in the House and 35 to 3 in the Senate. The Kentucky Senate, it should be noted, is ruled by Republicans while the House is ruled by Democrats, so passing a budget with those kinds of majorities is no small feat.

But let's look at the advantages of Kentucky investing in bourbon versus investing in boxer shorts.

'Made in Kentucky' never did a thing for underwear sales, but millions of consumers all over the world look for the word 'Kentucky' on whiskey labels. Every year, thousands of those millions personally bring their money to Kentucky because they want to experience the place where their whiskey is made. Just like underwear, you can make whiskey anywhere. You can make bourbon anywhere in the United States. But you can only make Kentucky bourbon in Kentucky.

(Pay attention, Tennessee.)

It is hard for many Kentucky legislators to support the whiskey industry because there are so many conservative, anti-alcohol voters in the state. They are to be commended for recognizing that an investment in the whiskey industry is a smart one. This particular change will be very good for the industry, but it merely eliminates a competitive impediment from which the state's whiskey-makers had long suffered, as Kentucky is the only state that taxes the value of aging whiskey. Producers are forced to balance the value of 'Kentucky' on the label against millions in taxes they can avoid just by moving to the next state. The value of that name on the label is proven by how few producers have (well, none), but you can't safely remain higher cost forever.

Just ask the soon-to-be unemployed workers in Jamestown.


Anonymous said...

How many people are working in whiskey business in Kentucky?

Brian B. said...

Spot on, anonymous. Distilleries can be viable with a handful of employees. Not one whiskey brand will ever rival the 3200 jobs Fruit of the Loom once created in Jamestown.

Also, 90%+ of bourbon is still made in Kentucky. Regardless of a tax break there hardly seemed to be a "competitive impediment" in the first place. Ask Buffalo Trace. Pre-tax break, they still can't adequately supply the nation's demand at its chosen price points on even their basic offerings.

As always, Chuck, huge fan of your posts and agreeing to disagree.

Chuck Cowdery said...

If you think this is about a choice between textiles and whiskey, Brian, you have missed the point entirely.

Also, you're not as right on the facts as you think you are. Bottling, especially, is labor-intensive and because the producers must make their bourbon in Kentucky, they bottle a lot of other things in Kentucky too. Most of the bottling in the new Wild Turkey bottling house will be for Skyy vodka, not Wild Turkey bourbon.

Plus a booming whiskey business is good for farmers, truckers, coopers, and everyone in the lodging and hospitality industries who is working because of whiskey tourism.

Your point about Buffalo Trace ignores the aging cycle. The products they are running short of now were distilled years ago. This is about the future and expanding so they can make enough to satisfy thirsty billions in China and India.

I'm glad Kentucky's lawmakers see the big picture, even if some of my readers do not. Whiskey is a good investment.

Brian B. said...

Didn't miss your point. Just dared to disagree. Of course whiskey is a good investment. For private corporations. The government shouldn't be in the taxpayer handout business picking industry winners and losers.

The idea that whiskey also benefits other businesses like farmers and truckers can be applied to Fruit of the Loom, too. Not sure how that bolsters the position of handouts.

Back to your original number. Fruit of the Loom employed 3200 people just in its Jamestown facility alone. According to the latest economic report commissioned by the Kentucky Distiller's Association (Page 12 at the ENTIRE state's distilling industry employs 3105. One underwear plant employed 95 more people than the entire state's distilling industry. Not whiskey. All sprits.

I will concede I was wrong on one count. Kentucky doesn't make 90% of the world's bourbon. It makes 95% according to this same report. Quite the "competitive impediment" warranting taxpayer subsidies indeed.