San Diego Mad Engine produces T-shirts for department stores, designer clothing lines, and specialty stores in the U.S. and 17 other countries. In 2000, they shipped $27 million of T-shirts worldwide. That number has dropped to about $15 million. Alby Amato, CEO of Mad Engine, tries to sound hopeful as he describes the mood of an industry that seems to face doom. "We've lost production to overseas importers. We manufacture T-shirts to all of our customers' specifications, whether they're screen-printed, embroidered, hand-painted, whatever they want. We don't actually make the shirts -- we subcontract the shirts out and work with suppliers who manufacture the garments for us. The other side of our business is selling to retailers like Miller's Outpost, JCPenney, Sears, Mervyn's, and some of the other major department stores. On our 'package' business, we work with Polo jeans, Calvin Klein, Lee, Wrangler, and Levi's. I'm one of the last American contractors for Levi's.
"It's sad to see how much of the business is leaving this country. I look around and say, 'What is actually going to happen to us manufacturers?' California's minimum wage has just gone up to $6.75, and we're competing with people across the border who work for about 45 cents an hour. We used to do a huge amount of contract printing. We used to do 85 percent of Reebok's T-shirts. There isn't that much contract printing left anymore because it's being done across the border."
When Amato started Mad Engine 15 years ago, he found that using high-tech machinery to design cutting-edge T-shirts could be profitable. His experience in the garment industry goes back to his native South Africa. "I actually owned the rights to the name Gap. I had no idea there was a Gap in the United States!" Overseas competitors and increasingly aggressive maneuvering by retailers has thinned out the profitability of his business and forced him to adapt to a changing market. "We've always been able to reinvent ourselves. All that these other people are interested in is price. It's pretty tough. If you're going to survive the recession, you have to start cutting back costs and see how you can run your operation on a lower budget."
Last summer's energy crisis made things worse. "It's been doubly tough for us in California because of the high utility bills. They went up from about $8000 to about $24,000 a month. We worked two ten-hour shifts seven days a week. We started one shift at 2:30 in the morning so we could beat the heat and avoid power outages -- and we actually got a bit of a price break for that as well. We had to cut back to one shift. And 9/11 didn't help the garment industry at all."
The slowdown resulted in a big layoff that has not recovered in what is normally the busiest season. "From our 2000 levels, we employed up to 220 people at our peak, during the busy season. Normally, we'll drop back down to 180. The first six months are the busy season. We normally slow down in July and August because we're in between seasons. We had to lay off half, maybe a few more. It was a good 120 people. We don't have a second shift anymore, and we're not working weekends anymore either. That's a reduction from an $80,000-a-week payroll to about $40,000. That was before 9/11. Now we've cut back even more, to about $30,000. We cut production people and in the front office."
While he feels terrible about laying off his employees, Amato says that most have managed to find work. "I have a really good manager here who trains people well, so we've always been like a training school for other screen printers. Our people get picked up pretty quickly. If we start to get a little busy, we'll try to get some of our people, and many of them have already found jobs. At this stage, I'm sure that our unemployment rate [payments] may have gone up, but I don't think that's really hit us. A lot of these people are really good printers, and they find jobs fairly easy.
"The results of winter weren't as bad as everybody thought they were going to be. The discounters did very nicely -- department stores like Federated and that. They were only 9 percent off where they had predicted to be -- I'm not sure of the exact numbers. A lot of places made their whole December the week after Christmas. Everybody just held out for the sales.
"We had an unbelievable 2000. This company just grew. But when we got into the fourth quarter of 2000, there was a change. The garment industry feels a recession before it hits everyone else, and we move out of it first and everyone sort of follows. The first quarter of 2001 was way off, and we knew we were in a deep recession, and we started to consolidate. Then we had the energy problems, which made it more expensive to produce, and retail started to slow down. The man in the street hadn't felt it yet, and we hadn't had the big layoffs. Those came in the second quarter. But when I looked around in July and August last year, I already had a sense of improvement. After 9/11, we didn't actually have cancellations, but everybody was put on hold. They basically froze their efforts to buy."
Since 9/11, Amato's company has been holding steady. "We work three to six months ahead for the seasons. We just finished holiday 2002 and we're looking at spring 2003 now. When you work with people like Levi's, you have to plan far ahead. That's the one asset that we have by manufacturing in this country: We can turn product fast. It's very difficult for them to do away with us completely, because we can give them a quick turn, and that's the way retailers are today. People don't want to have big inventories anymore. With that, they don't have to commit four or five months ahead of time. We work with Miller's Outpost and turn stuff for them in ten days. With the overseas places, they need five or six months.