The Short List

CONVERSATIONS about free trade in 2005 and beyond often turn on a short list of subjects: strong sourcing relations, reliable supply chain management, strict quality assurance and timely deliveries.

However, in the market tumult that is likely to ensue during the early months of quota elimination, two other factors will be critical to survival: debt levels and access to capital. That is as true for overseas manufacturers as it is for U.S. suppliers.

Since late summer, we've begun to see several U.S. companies working to tighten up their operations and bank cash for just this reason.

Access to capital has proved difficult in recent years for the home textiles industry, but a few hopeful signs have cropped up. The high-profile investments in the industry by financial titan Wilbur Ross as well as the low-key activity taken by Carl Icahn have begun to spark curiosity elsewhere in the investment community. In addition, the announcement that Dan River had found a team of lenders to provide exit financing also is encouraging.

Finally, the idea that one or two sizable overseas operations may acquire U.S. suppliers appears increasingly likely.

Few dispute the view that quota elimination will roil the market. The question is how long the shakeout will run before the industry returns to some form of stability. Ironically, holding on to business during this period may prove easier for U.S. suppliers in the $10 million to $60 million range than for $100 million-plus suppliers.

The largest U.S. suppliers have, for the most part, unapologetically shifted their focus to a small coterie of key accounts. While it's true that the top 10 retailers own some 70 percent of the $23.5 billion home textiles market, that still leaves $7 billion (retail) to be had. That's small potatoes to big suppliers, but nice business for modestly sized wholesalers.

For all of the change that is to come, a sound balance sheet will be one of the keys not only to survival, but also to any company's ability to pounce on opportunity. The challenges will emerge quickly, and there will no doubt be many of them. The day will be won by the companies that are framing their operations to meet the challenges, rather than those that are simply hoping to ride out the storm.