U.S. hanger factories are hanging it up
Americans will always need hangers, but may not be making them much longer. Fortune's David Whitford reports on the last days of a low-tech factory.
(Fortune Magazine) -- Dan Baker had been almost 34 years at Laidlaw in Monticello, Wis., the last six as plant manager, when Tim Allen, the president, called from headquarters in Scottsdale one day last fall with bad news: The new owners were shutting down the factory and moving it to China. "He wanted me to tell everybody," says Baker. "I told him, 'Well, I don't think it's my job. But if you're not going to tell them, I will.' He decided to come, then."
So there they all were in the break room on the day before Halloween: the workers from the day shift who were just coming off the clock and the workers from the night shift, some of whom looked as if they'd just gotten out of bed, which they had. Twenty-eight worried souls with a combined 616 years on the job.
They were the children and grandchildren of former Laidlaw employees, a married couple who had met at work, a set of twins. Everybody knew the company was in trouble. On the other hand, hadn't Allen stood before them in this same room just six months ago, right after the company had been sold, and all but promised them job security? Maybe he was there to cut their pay, they figured, or make them kick in more for health insurance. They never imagined that it was really the end.
When Allen stopped talking, the room was silent. Nobody even asked questions. Before he left, Allen asked everyone to keep working long enough to draw down the raw material on hand and pack up the machinery for shipment overseas. As an incentive, he offered them one extra week's pay: their severance, such as it was. Baker wasn't sure how folks would respond to that. But when the night shift commenced, "everybody came in," Baker says. "Everybody came to work."
As long we keep wearing clothes, we'll keep buying hangers; the technology is in no danger of becoming obsolete. What we don't know is where they'll come from. Laidlaw, founded in 1917 in Peoria, Ill., was one of the last companies still making metal coat hangers in America.
William Alvin Laidlaw invented a machine for tying hay bales, then founded a company to make the ties. Later Laidlaw added fly swatters, barbecue forks and metal coat hangers, the last of which, in time, became the focus of the enterprise. As recently as 2003, Laidlaw was operating six coat-hanger factories in North America and employing 428 people.
The Monticello plant survived the longest. In boom times it ran three shifts around the clock, the workers stretching, cutting and bending into shape more than 1.5 million hangers a day. The pay was less than at the GM plant in nearby Janesville, but it was still pretty good for a little farm town: $10.45 an hour to start, as much as $13.65 after you'd been there awhile; plus incentives; plus health insurance for the family for $192 a month. And you didn't even need a high school diploma. "Do you like working?" That was the key question Bruce Meyers, 46, had to answer when he inquired at Laidlaw eight years ago. "Do you like working Saturdays?" Yes and yes. He got the job.
In 1985 the employees of Laidlaw bought the company through an employee stock-ownership plan (ESOP), and for a while that made a good place to work even better. Every year the ESOP deposited more shares in the employees' accounts, and every year their value rose. Laidlaw's share price reached a high of $30.80 in 1999, the same year net income peaked at $2.4 million on sales of more than $50 million.
Already, though, foreign-made hangers were invading the market, and in 2001 the ESOP's board signed a distribution agreement with a factory in Shanghai. Why Laidlaw's American employee-owners would think it wise to invest $2.8 million to shift production overseas is not clear, but it gets even weirder.
In 2002 some of Laidlaw's domestic competitors petitioned the U.S. government to impose a tariff on Chinese imports. Laidlaw wrote checks to lobbyists totaling $441,000 to try to block it. President Bush killed the measure. Whatever your feelings about free trade, it's hard to escape the conclusion that Laidlaw's employee-owners became agents of their own demise.
Chinese hanger imports soared, up 800 percent during the past five years, while one after another, American hanger factories closed. Today only two are left - and Milton M. Magnus III, the third-generation CEO of M&B Hangers in Leeds, Ala., sounded gloomy when I reached him on the phone. "We had one of our largest customers - Cintas Corp., which rents uniforms to American workers - just sign a contract to buy 100 percent of its hangers from China," he said, adding, "I can't guarantee how long [American hanger production] will last." (Cintas denies having signed such a contract but will not otherwise discuss business strategy.)
Those are trends that interest Bob Giles, managing partner of Silkroad Resources, a private-equity firm with offices in San Francisco and Beijing. Last spring Silkroad joined with another private-equity firm, JEB Inc. in Portland, Ore., to buy most of what was left of Laidlaw - its name, customers, intellectual property and machinery - for $12.3 million.
"The exclusive focus of my business is to provide a liquidity solution to these companies that basically have no other options," says Giles. "Typically what that means is, we end up keeping the front end of the business in place, and all those people remain employed. But the back end of the business - the production end of the business - is probably going to be shipped to China."
The deal as presented to the employee-owners in Monticello back in May was "either this or we go under," recalls former Laidlaw employee Matt Wittenwyler. There was some hope: "We want a presence in the United States," Wittenwyler remembers hearing from the new owners. Allen, who was president of the old Laidlaw before he became president of the new Laidlaw, was upbeat. "'I'd be feeling pretty good about your jobs right now' - those were his exact words," remembers Brad Green, another former employee. (Allen did not return calls from Fortune.)
On my last morning in Monticello, I met Green for coffee at Donna's Place on Main Street. Green lives with his girlfriend, his daughter and his 6-month-old grandson. He has small blue eyes, a red goatee, and a jaw that's clenched most of the time. After 22 years at Laidlaw, Green is collecting unemployment and going to trade school in Janesville, working toward a certificate in industrial maintenance. He's not learning anything new; it's just that no one will hire him without the certificate. His tuition is covered by a state retraining program, but the unemployment doesn't cover his bills. "I have a mortgage," he says, "vehicle payments, heat, electricity. Right now I have a choice of taking [health] insurance or eating" - he's chuckling - "so I chose eating."
What about his ESOP shares? Green has money coming one day from the sale. The first payments are due in April. But even at the most optimistic valuation, his 1,100 shares would be worth only about $25,000. What he really wants is a job.
In fact, as I found out a couple of days later, Laidlaw is hiring again. There's a posting on the Web site for a logistics manager. It's a good job, but not for Green. Among the requirements: "Fluent in Mandarin Chinese."