textile industry-and increased economic concentration among the retailers who buy the garment industry's finished product. I will deal with each of these factors in turn. The growing movement toward integration of the elements of the textile industry in the hands of an increasingly smaller number of giant combinations threatens the once-competitive character of that field of manufacture. "The proportion of the industry now embraced by the large integrated organizations is so considerable as to make them the characteristic form of industrial organization," concludes a recent study published by the Southern Economic Journal. It goes on to say: The "Stabilized competition," that is, that form of industrial competition in which the parties respect each other's prices, where price patterns are set by dominant producers, and where competition through nonprice factors is predominant, is increasingly becoming evident in the major sectors of the textile industry. levels of productive operations are now more quickly adjusted to variations in the volume of sales than ever before. The growth of industrial giants has also coincided with fewer fiber distinctions among companies. Most large interests are producing yarns and fabrics of varied fibers. The textile industry is no longer properly classified as a classic example of competitive industry.4 The concentration of production of the different products of the textile industry used in the manufacture of women's clothing is nothing new. Even though the various TNEC studies concluded that, when viewed on an over-all basis, the textile industry was competitive, the same studies revealed great concentration of production in specific products. Our exhibit VII summarizes for the benefit of your committee the concentration ratios for different fabrics in 1937. The CHAIRMAN. There has been a greater degree of concentration since 1937? Mr. TEPER. That is correct, sir. The CHAIRMAN. For example, we had plenty of exhibits presented to us in the case of the Burlington Mills Mr. TEPER. I was going to mention them, sir. The CHAIRMAN. Are you covering them? Mr. TEPER. Yes, sir. The CHAIRMAN. I will hold off, then. Mr. TEPER. AS can readily be seen from this tabulation, in 1937 out of the total number of 67 product classifications for which data are available, the largest four firms in the industry turned out more than 75 percent of the total output of 16 products, and between 50 and 75 percent in the case of 34 products. Concentration in the production of specific fabrics is unquestionably much higher today than it was in 1937. Although no such data are publicly available for any recent period, your committee can readily secure this needed information from the Bureau of the Census as a byproduct of its 1947 census of manufactures. We have, however, a sure indicator of increasing concentration in textiles. It is the large expansion of integrated organizations which has taken place during and since the war. Although mergers are not a new phenomenon in the textile industry," the movement for consolida Solomon Barkin, The Regional Significance of the Integration Movement in the Southern Textile Industry, in the Southern Economic Journal, April 1949, p. 395. In the period between 1918 and 1935, there took place 43 mergers and consolidations, involving the establishment of central control for previously independent operating units, and affecting between 150 and 200 companies. (S. J. Kennedy, Profits and Losses in Textiles, 1936, pp. 19, 115–121.) tion assumed gigantic proportions in the last decade. The war for that matter provided special inducements toward integration. A special inducement to consolidate operations at the different stages of processing arose from the fact that OPA regulations permitted weavers who acquired spinning or converting facilities to claim profits at each level of operation. Each new operation provided additional insurance of profit. The wartime fabric shortage on the other hand offered an additional incentive for converters to purchase mills so as to insure their own supplies of fabric. There were distinct advantages in both selling mills and acquiring them. The sellers found that they could convert current income into capital gains and thereby reduce their tax liabilities." This growing concentration is portrayed in our exhibit VIII which shows the expansion of the principal textile corporations. Even when one takes account of the substantial price rises of textile fabrics since before the war, the increases in sales volume appear spectacular and can only be explained in many cases by consolidations which took place. As a result, the garment industry has to deal more and more with the integrated textile giants. Before the war, according to the 1939 Census of Business, only 9.5 percent of the cotton broad goods were sold to the garment trades through outlets owned or operated by the mills. At the end of the war, Dr. C. T. Murchinson, president of the Cotton Textile Institute, estimated that 75 percent of cotton fabrics are now sold by integrated organizations. A recent investigation conducted by the market planning service of the National Credit Office, showed that integrated mill-converter operators now supply half of all the dress trade's fabric requirements. One of the largest integrated combines in the textile industry, Textron, Inc., controls a substantial percentage of all fabrics used in the manufacture of ladies' underthings. The same company also branched out into production of underwear and blouses on its own account thereby cutting down the supply of goods available to the garment trade, and creating for itself a preferred position in the garment industry as against the manufacturers who had to look to this company for their fabric supply. Burlington Mills, which before the war sold close to 90 percent of its output to converters, now sells only about 10 percent of its output as grey goods to independent converters and converts the balance itself. According to a recent study of this company, published by Fortune in its July 1949, issue: The official policy is that particular cloth constructions are not sold in the greige to converters that will in turn finish and sell them in the same fields as Burlington "Because most textile mills were capitalized at very low prices in terms of their wartime earnings, an impressive portion of their earnings were paid out in excess profits taxes. High personal taxes discouraged mill owners from withdrawing profits in the form of dividends. To avoid this tax and take out some earnings, some owners preferred to sell the mill and pay a maximum capital gains tax of 25 percent. Purchasers could afford to buy the mill at a handsome price because in that way they established a higher base for the calculation of their excess profits tax. The resulting tax savings more than compensated for the high purchase price. A number of integrated enterprises deliberately bought low-profit mills to offset for tax purposes the high profits earned in other activities. Some men capitalized on Federal tax laws by arranging the purchase of mills by charitable, educational, or personal trusts to gain exemption from capital gains taxes. They subsequently leased back these properties at high rentals, thereby reducing their corporate income-tax payments." The Southern Economic Journal, supra, p. 402. 7 Daily News Record. February 2, 1946. National Credit Office, Market Planning Service, Bi-Weekly News, August 10, 1948. and it adds that to the small converter or weaver, anything that giant Burlington does must have some of the overtones of the elephant's famous remark—“Everyone for himself" as he danced among the chickens." The same remark applies with equal force to garment manufacturers in their relation to the giants of the textile industry. Now, since you have mentioned Burlington, I would just like to quote some of the superlatives supplied by Fortune magazine in an article to which I referred, with respect to this company's newly acquired position. I quote: The largest United States weaver of mass-market rayon dress goods. One of the two largest weavers of women's underwear fabrics. The largest producer of men's rayon summer suitings. Substantial factor in high-style cotton dress goods. The largest maker of ribbons. The largest weaver of home-furnishings fabrics. One of the largest hosiery manufacturers. The largest consumer of nylon textile yarn. I quote this in order to indicate the kind of growth that was achieved by this organization. One type of pressure applied by the textile interests is to force. garment manufacturers to promote textile brands instead of their own business identity. Woolens and worsteds produced by Pacific Mills, we are told by a recent study are sold to clothing manufacturers under a written understanding that the finished garments will be identified with woven labels as made from Pacific fabrics. This understanding applies regardless of whether the garment is a skirt to retail at $3.98 or an expensive coat and suit.10 ** Under the In the case of Stroock fabrics, we are told thatThe cloth is channeled to a select group of manufacturers. terms of the franchise each garment is labeled with a Stroock woven label, and the manufacturers and Stroock together select the stores that will retail the garments. 11 Some of the fabric promotions may lead to undue control of the market in finished garments. The experience of the Palm Beach fabrics is a good case in point: # * In the days when Goodall Worsted sold its nationally advertised Palm Beach cloth to dozens of clothing manufacturers, price cutting on Palm Beach by retailers was a universal custom. So loud were the complaints of the retailers, and so obvious were the destructive possibilities in the situation that Goodall finally solved the problem cleverly by doing its own manufacturing. It was a step which was forced on Goodall by the price-cutting situation.12 Since Goodall stopped selling its fabrics to the trade, for all practical purposes its garments made from its own materials became pricefixed to the ultimate consumer. The dependence of the small garment manufacturers on the large integrated textile interests leads to numerous abuses. Manufacturers, who cannot forecast far in advance their fabric needs due to the unwillingness of retailers to make long-term commitments, have been forced to order their fabrics far in advance of need. Manufacturers Burlington Mills in Fortune, July 1949, p. 115. 10 James C. Cumming, Sales Promotion in the Textile Industry, p. 50. 11 Cumming, supra, p. 53. 12 Cumming, supra, pp. 27 f. find consistent uniformity in the prices of fabrics. Manufacturers are frequently required to accept fabrics they do not want, in order to be able to buy what they actually need. The CHAIRMAN. Do you mean that there are tie-in sales in that industry, too? Mr. TEPER. That is right, sir. A case was just brought to my attention of a Philadelphia ladies' coat and suit manufacturer who could not purchase gabardine fabrics from a certain mill unless he would also agree to purchase some other fabrics from the same mill. Mr. KEATING. That is like the liquor business. Mr. TEPER. It sounds like it. [Laughter.] It is generally known in the trade that at least one large producer of wool fabrics refuses to sell his fabrics unless they are made up into garments to sell above a certain price. The textile industry, secure in its position, has been able to command prices completely out of line with costs as data in our exhibit IX clearly demonstrate. Even in 1948, when the demand for textiles slackened, the average textile corporation was able to increase its profits by 10 percent over the 1947 level. Profits before taxes, on net worth, amounted to 37.2 percent. When viewed against the sales volume, the industry's profit before taxes represented 15 cents out of every sales dollar. The CHAIRMAN. Dr. Teper, if I may interrupt you there, you have indicated that the myriads of jobbers and manufacturers in the cloak and suit industry are being oppressed from above by the huge combinations in the textile field. Mr. TEPER. Yes, sir. The CHAIRMAN. Do you anticipate that for self-protection there will be a tendency amongst the jobbers and manufacturers in the cloak and suit industry to unite and merge to be able to fight the combines and mergers of the textile industry? Mr. TEPER. So far, sir, I have not found any such tendency. Mr. TEPER. Frankly, I doubt that such a combination could take place or become effective. There are too many manufacturers. Underthe-counter concessions could very easily break down such a combination even if one were to be threatened. The CHAIRMAN. As an economist, would you say that the competition that exists in the ladies' garment industry is for the welfare of the Nation? Mr. TEPER. I certainly do, sir. The CHAIRMAN. And that the mergers that exist in the textile industry insofar as they bear on the cloak and suit industry are baneful to the Nation? Mr. TEPER. Yes, sir. Mr. MICHENER. To what extent are the garment manufacturers organized to resist squeezing upon them by the textile manufacturers on the one hand and the retailers on the other? Mr. TEPER. Well, I would say that insofar as organization to resist the textile industry, it is probably nil. As far as resistance to retailers is concerned, so far as I know, at least certain groups of manufacturers tried to work out some traffic rules, some fair trade practices; however, some of these fair trade rules have been under attack by the Federal Trade Commission. Mr. KEATING. Successful attack? Mr. TEPER. There was no decision issued in this particular case. Mr. TEPER. That is right, sir. Mr. MICHENER. You have given a lot of interesting statistics. From what source do you get these statistics? Mr. TEPER. In each instance the sources are given in our exhibits. Virtually all of the data that I have presented come from sources which are readily available, the usual sources of business information. For example, I have cited data collected by the National Credit Office. This organization is a credit agency, a subsidiary of Dun & Bradstreet's. I have cited the Census of Manufactures. Many of our textile statistics come from two studies, one entitled "The Nation's Most Prosperous Industry," and the other "Profits Built a Financial Fortress." I was able to secure a limited number of copies of these studies which I would like to offer to the committee for its use. The CHAIRMAN. We would like to have them. Mr. TEPER. There are 10 copies of each of these studies here. In the case of the retailers a subject which I would like to discuss in a few moments-the data have been drawn from the following sources: Moody's. Standard and Poor's, the Fairchild Financial Manual, Fairchild Publications such as Women's Wear Daily and Daily News Record-these are the major trade publications in the field of women's wear-the publication issued by the Hearst magazines, Leading Department Stores in Leading Trading Areas, Phelon's New York Resident Buyers and Merchandise Brokers, a well-known trade directory, and other reputable sources. I may note that I would not mention firm names in my testimony unless I could present data as I am doing today, which could stand up and which would not be challenged as inaccurate. Mr. MICHENER. Well, you say "challenged." I am always a little leery-I am not an economist-I am a litle leery as to statistics and figures, because there are always two sets. Now, as to the figures you have given here. First, I am interested in the source. You have answered that. Then, the next question that would follow is: Are those statistics accepted by the manufacturers or the distributors? Mr. TEPER. I would say they are very definitely accepted by manufacturers and the industry, because they themselves use these figures all the time. For example, the studies made by the National Credit Office are used by textile mills in planning their merchandising activities. This organization publishes a semimonthly service for the textile trade, for example, which they would not sell me. I wanted to subscribe to it, but they would not sell it to me. The same applies to the reports issued by Dun & Bradstreet. They would not sell us their reports of credit investigations of particular establishments. However, we have drawn on information from sources like these, sources which are recognized by the business world as reliable. Mr. MICHENER. You feel that true competition does not exist among the retail distributors? Mr. TEPER. I think that true competition is very rapidly diminishing among the retail distributors, and that is the subject which I would like to cover as my next contribution to your committee's work. |