- Centre for Advanced Studies in Finance
Earlier this year, Professor Steve Toms spoke at an Ideas in Practice seminar entitled – “The revival of fashion and textiles in the North: building on opportunities in emerging markets”. The event included presenters from Heild China, men’s luxury clothing retailer; the UK Fashion & Textile Association; Hainsworth, Yorkshire textile manufacturing company, and was chaired by Keith Madeley, known locally as “Mr Yorkshire”.
I have previously blogged about survival strategies in the textile industry, detailing how textile employment has declined steadily in the West Yorkshire region and nationally over recent decades, and exploring strategies for the revival of former mill towns.
As part of my research in this area, I am currently working on a project with Professor Nick Wilson investigating potential investment and financial opportunities for textile companies in the Northern Powerhouse, the UK government’s project for boosting business growth across the North.
In the Alliance Report - the biggest study in twenty-years on supply and demand in UK textile manufacturing which was published by the Alliance Project, a not-for-profit organisation aimed at repatriating textile manufacturing to the UK – a number of employment opportunities in textiles were listed. These were in areas of high-end apparel, fast fashion, luxury clothing (export) and homeware (domestic) and in areas where products are manufactured with high or full automation, such as hosiery and socks.
Although there are employment opportunities, there are also, however, a number of barriers to the sector’s growth. These include: an asymmetric power balance between retailers and producers, skill shortages and an ageing workforce, poor supply chain integration, sustainability of demand, a ‘sweat-shop’ image discouraging potential entrants to the industry, and access to finance.
An important dimension of the Northern Powerhouse project and textile firms with growth potential, is access to finance. A large number of firms in the Alliance Report state that lack of access to finance is holding them back. There is a historic regional equity gap; firms need to consider how they might raise finance outside of London when accessing the City of London and its financial markets is problematic, particularly if they don’t have the contacts and the expertise. Research shows that it is much easier for London-based firms to access capital than it is for firms in the Northern Powerhouse.
Given this gap, which hasn’t decreased much over the years, and given the Northern Powerhouse agenda, Government initiatives, such as the Regional Growth Fund have been considered particularly important. However, although there have been some initiatives, they’ve mainly been disjointed and reflect the policies of the particular government and changes in government.
This lack of financial support and the need to look at alternatives has led us to our research investigation, identifying firms in the Northern Powerhouse that are potentially investible by private equity (PE) and venture capital (VC) type organisations. These financial providers typically support investments in medium sized established firms and new start-ups respectively. In both cases, growth potential is the main consideration.
We have started to explore what the key features of these firms are likely to be, considering the technology they use, produce range, location and size of organisation, and what are the potential gains in productivity, profitability and employment. We are also looking at what are the specific barriers to growth that these firms might face.
We are using a statistical prediction model, based on the general criteria used by PE and VC funds, to identify firms that would typically attract investment This allows us to discriminate between textile firms which are potentially investible and not investible by PE and VC funds according to their normal criteria, and therefore where investment might go in the local textile community.
Our data has the population of all UK textile firms through Companies House Filings, including small and private firms. The Northern Powerhouse region hosts almost a third of the national total of potential PE targets identified by the model.
The Yorkshire PE targets have a large cluster around the M62 area – South East Bradford, Mirfield and Dewsbury. They tend to be wool based, with close alignment between their technology and design functions, and stress their authenticity and their environmentally friendly credentials. In contrast, there are a few isolated firms located in cities that tend to focus on specialist clothing and are design-led.
Whereas PE firms tend to invest in larger, more established firms, VCs are more about growth and investing in younger organisations that are likely to grow quickly. Using a similar statistical prediction model, we found that these newer, high growth textile firms (organisations that VCs are more likely to invest in) are mainly in London and are mainly design-orientated.
Even so, 140 high growth textile firms were identified in Yorkshire, most of them in semi-rural clusters. These firms are in sites which have a well-known history of textile manufacturing, such as Keighley and West Bradford, Dewsbury, the North Leeds triangle (Bramley, Guiseley and Harewood) and South Huddersfield and North Sheffield. Although there are many cases of adapted older factories in these areas, quite a few textile firms have invested in new premises and equipment.
The next stage of our research project will be to examine these clusters and their key characteristics, quantifying the growth potential, and the sources and costs of the associated finance.
Professor Toms also discusses survival strategies in the textile industry in his forthcoming book with Professor David Higgins at Newcastle University - “British Cotton Textiles: Maturity and Decline”.
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