Guess Inc. to Move Much of L.A. Work South of Border

Dealing a blow to the Los Angeles area’s fragile economic recovery, Guess Inc.--the region’s biggest apparel manufacturer--is shifting much of its production from Southern California to Mexico and South America.

The move by Guess, which is locked in a bitter labor dispute locally, is feared to be a harbinger of an exodus of garment production from the Southland.

UCLA economists estimate that during 1996, employment growth in apparel manufacturing in Los Angeles County slowed abruptly to about 1,000 new jobs, after gaining 11,000 in each of the previous two years.

The slower employment increases in an industry that has been one of the few bright spots in the Los Angeles economy, analysts said, could foreshadow bigger problems ahead in the business. Guess’ move south “could be the thing that turns the tide,” said Jack Kyser, director of research for the Economic Development Corp. of Los Angeles County.

Other apparel makers, Kyser said, may conclude that “if Guess goes down there and is satisfied with the quality they find, then why shouldn’t we go?”

Although Southern California’s apparel industry is considered particularly vulnerable to the lure of Mexico’s low wages, it isn’t alone. Price Pfister, the nation’s third-biggest faucet company, is laying off several hundred workers at its plant in Pacoima and shifting the work to a lower-cost factory in Mexicali.

In the U.S. garment industry, at least 26,000 jobs have disappeared in the last three years because of Mexican competition, according to a recent UCLA report. Guess’ move, by the union’s estimate, could cost well over 1,000 additional jobs.

Even before NAFTA took effect in 1994, lifting trade barriers between Mexico, the United States and Canada, the apparel business enjoyed some special exemptions that helped ease its way south of the border. Consequently, the industry is further along than many others in plotting relocation strategies.

What’s more, apparel manufacturers from Southern California and elsewhere have been increasingly tempted by investments in Mexican industry that have improved production quality and speeded up deliveries.

Manufacturers also privately say that stepped-up enforcement of labor laws by federal and state regulators in the Southland’s abuse-ridden garment industry have pushed them to leave.

Guess and other major apparel firms in Southern California are able to switch production sites swiftly largely because they rely heavily on sewing contractors and do little of the work themselves. As a result, they can fire local contractors and line up new producers in Mexico or elsewhere when circumstances call for such a switch.

Typical of the trend is J. Michelle of California, a women’s sportswear and dressmaker, which says it has shifted about half of its production from Los Angeles to Mexico since December 1995.

Richard Tan, the company’s president, said that Mexico has long offered low labor costs but that the difficulties of doing business kept him away. But now that Mexican contractors have improved production quality and delivery time, he said, it has become an attractive place to do business.

“The bottom line is prices. If I don’t go to Mexico, I won’t get the business, because I’ve got to be competitive,” Tan said.

Another big-name local apparel firm to switch production to Mexico is Chorus Line Inc., a maker of women’s and girls’ dresses and sportswear with annual revenue of about $250 million. Five years ago, all of its production was done locally but today only 30% remains here. The rest is done in Mexico.

Because of tough price competition, “we’ve done the same thing Guess has done. . . . We’ve had no choice,” said Barry Sachs, the company’s chairman and chief executive.

The apparel industry, second only to aerospace among Southern California’s manufacturing employers, is notoriously low-paying. The latest figures put the average apparel manufacturing wage in California at $7.63 an hour, versus $20.13 in aircraft and related parts production.

Even so, the industry has been an important steppingstone for many low-skilled immigrant production workers, along with providing higher-paying jobs or lucrative profits for designers and entrepreneurs. The higher-paying jobs, to be sure, are expected to stay in Southern California even if production moves south.

Yet production jobs represent “an important part of the skill ladder that we might be at risk of losing. . . . We have to take a hard look at what’s being lost. I’m not in any sense tempted to say good riddance,” said Tom Lieser, associate director of the UCLA Business Forecasting Project.

In the case of Guess, observers said, the reasons behind the production shift probably involve its labor dispute as well as a desire to hold down costs.

UNITE, the garment industry union, has been waging a high-profile organizing campaign at Guess and its contractors since summer. As part of that effort, UNITE has turned over to authorities evidence of contractor workplace abuses such as minimum-wage and overtime violations and illegal work at home that have triggered government investigations.

One result was that Guess late last year was placed on probationary status on the U.S. Department of Labor’s Trendsetter, or “good guy” list--a roster intended as a consumer guide to firms making efforts to avoid doing business with sweatshops.

In addition, under pressure from the National Labor Relations Board, Guess recently agreed to reinstate 20 workers allegedly fired for union activities.

The company, however, said through a spokesman that its move was based “purely on economic factors.” The spokesman, Michael Sitrick, said the volume of Guess jeans and other apparel sewn locally will drop to 35% next month, down from 75% as recently as five months ago.

Citing foreign production by such industry giants as Levi Strauss and the Limited, Sitrick said, “We are one of the last of the major companies to respond to what has been an industrywide trend.”

In addition to the plants in Mexico, Guess will send work to factories in Peru and Chile.

David Young, UNITE’s assistant national director for organizing, called the move by Guess an act of “desperation” to avoid signing a union contract.

Guess and its contractors, he charged, “have violated every labor law that exists and their products are made in sweatshops, and they think they can run away to avoid responsibility for that. But it’s not going to work.”