Textile survivors pick up the thread: UK firms are setting up abroad and cutting lead times to stay alive. Robert Cole reports

TAKE a trip through the heart of textile country and you are more likely to come across an industrial museum than a working mill. Yorkshire and Lancashire are full of silent looms and smokeless chimneys that tell the sorry tale of the decline of Britain's textiles industry.

Received wisdom says that cheap imports, mostly from the Far East, have dealt a fatal blow to UK spinning and weaving.

The decline is shown in stark terms by the waning influence of textiles companies quoted on the London Stock Exchange. The value of textiles companies as a proportion of the stock market total is now a third of what it was 15 years ago (see graph).

In 1978, textiles companies made up 1.8 per cent of stock market capitalisation. Today the sector is worth less than 0.6 per cent of the whole.

But while textiles companies are under intense pressure, it would be unfair to write the industry off. Large and small companies alike are still managing to eke out an existence.

The largest of the lot, and the textiles sector's only FT-SE 100 constituent, Coats Viyella, is big enough to have factories of its own in the Third World.

Of particular interest is India, where Coats has recently established a subsidiary, and China, where the company has earmarked pounds 50m for joint ventures.

Coats is also exploring new markets. In June it spent pounds 35m buying Berghaus, a clothes distributor. The purchase gives Coats access to Russia and eastern Europe. At present Berghaus supplies overcoats, but it wants to add new lines to the distribution chain.

Britain's largest textiles company is not ignorant, however, of the dangers in emerging markets. Losses incurred in Brazil have totalled pounds 20m over the past three years and the electoral success of the ultranationalist Vladimir Zhirinovsky in Russia shows how easily political changes can upset the best-laid plans.

Courtaulds Textiles, the second- biggest player, has tackled the problems head-on by dramatically reducing its output of commodity products from UK factories and increasing its exposure to goods that are not so sensitive to prices.

Mark Puleikis, the sector analyst at Smith New Court, the securities firm, says Courtaulds is a classic illustration of the way in which UK manufacturers have changed.

'When Courtaulds split itself into two four years ago, dividing the fabrics side from chemicals, Courtaulds Textiles had 31 spinning and weaving mills in Britain,' he says. 'Now it has four. The shut- down is a direct result of import penetration.'

Noel Jervis, Courtaulds' chief executive, says: 'We have been concentrating on this area for some time, progressively altering the product mix during the last decade.

'Stretch fabrics are now important, as is lace and other products with a much higher design input.'

Mr Puleikis adds: 'Quick response is also vital. Marks & Spencer demands goods for delivery in 48 or 72 hours. You cannot meet that schedule when your factory is 12,000 miles away on the Pacific Rim and shipping takes three months.'

It is a sentiment echoed by Richard Gilmour, corporate development director of Coats Viyella. 'One of the key issues in the whole question is speed of response,' he says. 'Sourcing from the Far East almost inevitably means the product is on the water for six or eight weeks. And generally longer production lead times lengthen that.'

Leeds Group, which colours cloth and yarn and counts Laura Ashley among its customers, succeeds in the UK precisely because it possesses the time advantage.

Clothes shops no longer restrict themselves to two or four seasons: shoppers now expect product ranges to be continually updated. And if a particular blouse is selling well, retailers want more of the same with the shortest possible delay. Sophisticated electronic point- of-sale devices have had an important influence here.

Leeds leaves the commodity end of the business to the Third World. It imports raw fabric and yarn by the mile and makes its money converting it into smaller amounts of material ready for garment makers.

The relatively small amounts of specially designed product also mean Leeds can earn wide profit margins. By investing in new and better machinery, it can cater for ever more diverse colours and intricate designs - and again can earn premium profit margins.

Slimma is another company that is succeeding by doing what the Third World cannot. Although its name suggests the reverse, Slimma makes clothes for large, or 'outsize', women.

Stephen Thwaite, chief executive of the Staffordshire firm, says: 'We have found our niche and we have to manufacture products for it in the UK because it is very difficult to source the wide range of sizes elsewhere.'

Slimma is planning a flotation on the stock market to give it access to capital for expansion.

Third World competition comes predominantly from the Far East, from countries whose currencies are linked to the US dollar. Life in the UK is now considerably less of a struggle, with dollars 1.50 or so to the pound compared to the dollars 1.90-plus rates of 18 months ago.

In May 1992, a dollars 100,000 order from a dollar-linked currency would have cost the UK importer pounds 52,630. Today, the cost of the same dollars 100,000 order is pounds 66,666 - 26 per cent more.

But despite current exchange rate advantages, it is not easy being a UK textiles company. You need look no further than the profit warning from Courtaulds Textiles earlier this month, or dreadful profit figures from Dawson International on Budget day, to see that.

The problems at Courtaulds are relatively short term and related to specific poor consumer demand in Europe.

Dawson's difficulties, however, illustrate exactly the kind of trouble that First World textiles companies can encounter if they try to compete directly with the cheap labour areas of developing countries. And with the signing of the Uruguay round of the Gatt agreement, Third World textiles exporters are set to gain further advantages as cheap commodity producers.

Dawson's North American subsidiary, which makes basic, low- price items, such as T-shirts and sweatshirts, has been a constant drag on profit in recent years. In half-year figures to last September, heavy losses on the US commodity manufacturing business led to a 40 per cent decline in the overall profits.

Mr Puleikis of Smith New Court says: 'It is a commodity operation that any idiot can run. And life for Dawson in the US will only be made harder by the Nafta (North American Free Trade Agreement) and Gatt.'

Mr Jervis of Courtaulds likens the UK textiles industry to the tale of King Canute trying to still the waves. Like Canute, textiles firms are helpless against the advance of Third World producers. Nor are rivals from developing countries standing still.

But for the time being Mr Jervis is content. 'The waves are a long way down the beach,' he says. 'King Canute will be sitting comfortably for some time to come.'

(Photographs and graph omitted)