(Bloomberg) -- Mexico’s low production costs have made it a winner in the global trade war. Yet it just lost a big textile investment to countries where operation is even cheaper.
Canadian apparel giant Gildan Activewear Inc. on Thursday said it’s moving out of Mexico, where it employs about 1,700 people. It will transfer the equipment there to its cheaper, existing production hubs in Central America and the Caribbean. At the same time, it’s building a major production complex in Bangladesh to serve European and Chinese customers.
“As we looked at our cost structure in the future, we feel that we can achieve a much lower cost by limiting the facilities,” Chief Executive Officer Glenn Chamandy told analysts on the company’s earnings call.
The move is a blow for Mexico, which has seen its competitive status as a manufacturer eroded by a stream of threats from President Donald Trump, who renegotiated NAFTA with a deal that’s yet to be ratified by Congress. However, Mexico has made an effort to target more sophisticated operations in recent years, becoming a hub for the auto industry and attracting some aviation investment.
Montreal-based Gildan has built a global production chain ranging from yarn-spinning to clothes-stitching that has allowed the company to lower costs and compete with Hanesbrands Inc. and Berkshire Hathaway (NYSE:BRKa) Inc.’s Fruit of the Loom. It’s heavily invested in Honduras, while its two Mexican facilities came with its 2016 acquisition of Alstyle, a company that, like Gildan, sold T-shirts and fleece to screenprinters that customize them for clients.
Reduced Guidance
Gildan shares have lost 27% since it pared its guidance for revenue and profit on Oct. 17, citing a slowdown in its core business of printable basics like T-shirts. They gained as much as 4% on Thursday in Toronto before erasing the advance. The company sees growing opportunities in the private-label market as more apparel retailers seek their own brands.
Mexico accounts for 8% to 9% of Gildan’s global production. The company says the equipment transfer will take fewer than six months and result in higher overall capacity.