CIT: A Big Impact On The Garment Industry?

July 20, 2009

The garment industry is tied in knots over reports that CIT Group Inc. could file for bankruptcy.

Scores of Los Angeles businesses in the apparel industry rely on CIT for upfront financing, which provides them with cash until retailers pay their bills.

Now that the New York commercial lender is on the brink of bankruptcy, local business owners are wondering how they’ll get by. Many are scampering for alternatives to keep business moving.

It isn’t that easy.

CIT spent years snapping up competition, which limits businesses’ options. Compounding the problem, many smaller lending operations rely on CIT to vet borrowers. These firms’ abilities to insure transactions would be hampered if CIT goes down.

“It’s devastating,” said Steve Barraza, owner of Tianello, a Los Angeles women’s wear company. “There’s almost nowhere to run. If we have another week or two like this, I expect you’ll see a lot of businesses hitting the dirt.”

CIT is a major provider of factoring services, which supply quick cash for businesses such as those in the apparel industry, where upfront costs for material and labor are significant.

Barraza, who does 60% of his business through CIT, said the finance company’s troubles mean that other lenders know they have retailers by the throat. They can tack on extra fees and raise rates because there are few alternatives.

“They got us in a pinch,” Barraza said. “Everybody’s scrambling for a factor and they know it. Without CIT around, there’s no reason for them to be competitive with their rates.”

The factoring industry charges financing rates of 20% or more.

Here’s how it works: An apparel business will get an order from a retailer for, say, $100,000, but the retailer does not pay in advance. Instead, a factor comes in and gives up to $80,000 to the apparel manufacturer so it can continue to pay workers and buy material. The factor also takes the hit if the retailer doesn’t pay.

Under the arrangement, the retailer pays the factor, which holds on to the remaining money. The factor pockets fees and rates, which — all told — hover around 2%. Like a bank, the factor keeps the rest of the funds, which the manufacturer can withdraw or leave with the factor so it can mature with interest.

The arrangement is especially appealing to small and medium-size companies because factoring firms can be easier to deal with than banks, businesses say. Banks typically request a library’s worth of documentation to get a short-term loan — especially in the current economy.

Without the access to cash that factoring firms provide, the cogs of the apparel business seize up. “The industry is really fluid,” said Michael Rosen, president of Michael Stars, a women’s wear company based in Hawthorne. “Cash is the lifeblood of every company.”

Factoring firms also research retailers and tell manufacturers whether the retailer has the ability to pay them back on time. Such information is essential to any transaction, Rosen said, and can be particularly difficult to unearth on small specialty stores, which buy most of Michael Stars’ merchandise.

CIT did that digging for about 60% of Michael Stars’ sales, said Rosen, who worked as a CIT account executive for eight years. Rosen said he might take on some of the credit management himself if CIT collapses. “The future of factoring is very much in question,” he said. “They’ve been the major player for a long time. It’s hard to believe that another company will fill CIT’s shoes.”

Continental Business Credit Inc. is a factoring firm for smaller manufacturers. Vince Lionetti, a partner at Continental, said businesses usually come to his firm before moving on to a bigger one such as CIT.

Rather than seeing CIT’s fall from grace as a benefit to Continental, Lionetti said it puts his firm at a disadvantage. Continental “heavily relies” on CIT to operate, using its vast research information database when insuring businesses.

“CIT has the pulse on the apparel industry,” Lionetti said. “If they fall into bankruptcy, it puts a dent into our ability to do business like we did in prior years.”

Other factoring firms, such as New York-based Rosenthal & Rosenthal Inc. and Milberg Factors Inc., will be inundated with new opportunities, said Jeff Van Sinderen, a retail analyst with B. Riley & Co., a Los Angeles investment firm.

“There are a lot of businesses looking for factors right now,” he said, “many who will have disastrous cash flow issues if CIT goes under.”

David Reza, senior vice president and partner at Milberg, said that the number of business inquiries had spiked “several-fold” in the last week but that the company is not taking any pleasure in CIT’s misfortune.

Lonnie Kane, president of women’s sportswear business Karen Kane Inc., said the Vernon manufacturer has 98% of its business with CIT.

About two weeks ago, Kane, a 35-year veteran of the retail business, saw a problem developing and drew down a significant piece of his $10 million in financing.

“I’m an old dog and I’ve had to learn new tricks,” he said.

Kane believes that even if CIT files for bankruptcy, the factoring business will be sold off or emerge again.

“They’ll be back one way or another,” he said. “They’re too big of a part of the industry.”

For more information, visit: http://www.latimes.com/business/la-fi-cit18-2009jul18,1,529867.story

Reason For Traveling To The US: Shopping

June 17, 2009

The Grand Canyon, Statue of Liberty and Lincoln Memorial are enticing, but a majority of international tourists have shopping in mind when they visit the U.S. — even in the recession.

A newly released survey on the behavior of visitors in the last 12 months found that 53 percent said shopping was either a key reason for their trip or a factor in choosing their destination cities.

The findings are based on responses from about 1,800 travelers polled in January by Alexandria, Va.-based Mandala Research & Consulting on behalf of Taubman Centers and Shop America Alliance, an organization representing 200 U.S. shopping destinations, with the support of the U.S. Department of Commerce, Office of Travel & Tourism Industries.

The snapshot of the global consumer suggests that they are driven by value, particularly the favorable currency exchange rate. Sixty-four percent of those surveyed said good value was their top shopping priority, followed by 56 percent who cited a wide selection of brands. Other key motivators were: Helpful and friendly sales associates, 41 percent, availability of luxury brands, 35 percent, and special discounts for travelers, 26 percent.

The three most-sought-after labels were Nike, Levi’s and Gap.

“The popularity of international travelers coming here specifically to shop really puts things into perspective, because it indicates a great marketing opportunity for retailers and brands,” said Laura Mandala, managing director of Mandala Research. “If they enhance their own marketing strategies, they could actually grow their customer base by learning how to target these international shoppers more effectively.”

International shopping travelers contribute an estimated $38.6 billion to the U.S. economy annually, according to the U.S. Department of Commerce and Office of Travel & Tourism Industries.

The five countries that send the most tourists to the U.S. are Canada, Mexico, the U.K., Japan and Germany. Each respondent to the survey had visited the U.S. in the previous 12 months and spent a minimum of $250 on shopping for gifts and souvenirs. The study catalogued total spending, including apparel, footwear, accessories and electronics as well as gifts and souvenirs, with each person spending at an average of $1,063.

Average spending for tourists from the top five countries was: Canada, $757; Mexico, $1,310; the U.K., $968; Japan, $1,200, and Germany, $1,085.

The study found 50 percent of respondents who have visited in the last 12 months are likely to return in the next year.

“What stood out to us, despite current economic conditions, is nearly 20 percent of these travelers surveyed had already booked a trip to the U.S. again in 2009,” Mandala said.

Forty-four percent of the respondents said they would be very likely to attend a shopping festival — annual citywide celebrations highlighting culture and shopping. Another 29 percent stated they would be somewhat likely to attend, with their choice of destination influenced by a festival.

“This speaks volumes to the New York City shopping initiative, which was announced last month,” Mandala said, referring to “Fashion’s Night Out,” a major retail push set for the start of New York Fashion Week. Stores in 12 major cities worldwide will band together to stage special events in an effort to get consumers back in the stores.

The study noted, “International shopping festivals are currently very successful tourism and retail drivers in more than 10 countries including Dubai, China, Japan, Thailand, India and Singapore. For further information, visit: http://www.wwd.com/retail-news/world-view-shopping-top-lure-for-us-visitors-2172099?gnewsid=8e835d258c4b13c4678f683531e41d8f

Economic Crisis Calls For A Retail-Makeover

June 17, 2009

Fashion and retail executives are adding new ingredients like extensive customer data and streamlined websites to their marketing mix to get consumers to buy in the recession.

Yet the tried and true remain in the recipe, with an emphasis on quality and strategies such as holding back supply, said executives at the Reuters Global Luxury and Retail Summits this week.

“We are able to invest any amount to be able to produce something that is outstanding, that is our strategy,” Hermes Chief Executive Patrick Thomas said, adding that the key to the crisis was to remain focused on the long term.

“My financial strategy is making sure my grandchildren are proud of me,” he said.

Swiss watchmaker Hublot said its secret was to under-supply distributors.

“Never deliver what people need,” said its chief executive, Jean-Claude Biver. “Only give them half. You have to keep them hungry.”

Yet in a shift from the old model of luxury goods makers being dominated by their creative genius founders, some are warming up to the moves used by their lower-tier peers, said Milton Pedraza, chief executive of the Luxury Institute, a research organization that studies the luxury industry.

“This severe downturn really has been a catalyst for opening luxury executives’ minds from the Victorian age now into the 21st century,” Pedraza said. “What we’re seeing is … using the collective wisdom of your team, using the collective wisdom of your customers to drive and to help the creative genius.”

Saks Inc has embraced this approach, and Pedraza said it is paying off by allowing the luxury department store operator to suggest a light blue shirt to a customer it knows just bought a navy blue suit, for example.

Saks Chief Executive Steve Sadove said the company is speaking to customers and found out they are looking for a wider array of price points and better customer service.

“We have actually interviewed over 3,000 of them in terms of their mindset right now and how they are feeling … and I think we have learned quite a lot that has implications for both the ’09 holiday season and beyond,” Sadove said.

Saks is working harder to share that data with vendors and to localize its marketing, he said.

TINKERING AND TWEAKING

Aside from continuing to invest in its Nine West loyalty program, Jones Apparel Group Inc is broadening its array of casual shoes and enhancing its website.

Milton Pedraza said many high-end brands were now making their websites more streamlined and easy to navigate.

“They’re foregoing all the flash they used to put in front of their websites because it was like a 6-foot brick wall on the left lane of the Autobahn,” Pedraza said. “It took a while for the creative people to get that consumers want to get in and get out.”

Italian jewelry designer Roberto Coin launched a Capri Plus collection, offering pieces with identical designs but varying materials and price tags ranging from $2,500 to $50,000.

“We are saying, ‘put all five different price points (in the window) now … and let (customers) decide which price they feel comfortable with,” Coin said.

Liz Claiborne Inc is offering more lower-priced items at its Juicy Couture, Lucky Brand and Kate Spade brands and in some cases adding more basic designs to attract value-conscious consumers.

Yet for some, it is old-fashioned creativity that is guiding them through the retail storm.

“Over the last year or so I have just been feeling very inspired and creative,” said Jonathan Adler, who designs home decor pieces that are sold at Barneys New York and Neiman Marcus in addition to his own boutiques.

“Complacency is sort of the enemy of growth and a lot of businesses have grown complacent. So I think that this economic climate is a great climate to breed creativity.” For further information, visit: http://www.reuters.com/article/GlobalRetail09/idUSTRE55B5L020090612?pageNumber=1

Going Green Can Give Retail An Opportunity

June 17, 2009

The remodeling of a store is an ideal opportunity to capture the benefits of environmental sustainability in energy efficiency and recycling. A green remodeling program has incremental costs, but can deliver significant benefits in long-term profitability and consumer loyalty.

The timing to make this shift could not be better with a significant portion of federal stimulus money earmarked for building efficiency improvement, providing tax incentives to companies making green investments. State and local incentives are also available and range from a reduced state income tax bill to reduced property tax, sales tax rebates and even priority permitting. Permitting issues and on-site project re-engineering may be minimized as building efficiency standards such as Leadership in Energy and Environmental Design (LEED) are incorporated into local building codes.

A trend which has not been slowed by the current economic situation is shopper affinity with environmentally responsible retailers. A recent study by Deloitte and the Grocery Manufacturers Association (GMA) showed that retailers’ environmental reputation increased customer loyalty. The survey also revealed that consumers made a conscious decision to shop at retailers who were viewed as environmentally responsible. Based on these results, implementing a green remodeling program coupled with green branding efforts can help demonstrate real and measurable commitment to the environment.

The design strategies and building components that would be affected by a shift to green are often included in the typical remodeling schedule. These areas include lighting systems, waste disposal, refrigeration, and elements of the heating and cooling system and building envelope such as doors, temperature sensors and thermostats, or ductwork and ventilation systems. Incorporating greening into changes in these systems is made relatively simple by including sustainability as required criteria in product selection and design.

More core structural building components, such as windows, the roof or air handlers are often not part of the traditional remodel. However, these can be cost-effectively included since the costs of engineering, project management, general contracting, and, most importantly, the lost revenue during the remodel, are already factored into the traditional remodel budget. Research has shown that incremental costs for using green options in HVAC and lighting are typically less than 10 percent higher than the cost of a regular remodel.

One example of an easy-to-execute change in the remodel process is the store’s lighting system. Existing cornice and display lighting are often modified, which provides an opportunity to evaluate new, higher efficiency fixtures that offer equivalent or better color resolution and luminosity with lower energy consumption. Even if the existing fixtures are to remain, re-lamping at the time of the remodel with higher efficiency bulbs will still yield operational savings. Federal lighting efficiency tax incentives are available as part of the Energy Policy Act 2005 legislation extended through 2013.

Although upfront costs may not be onerous, even without incentives or rebates, they still pose implementation hurdles, particularly in the current economic climate. The federal government, in both ongoing programs and those associated with the stimulus package, is taking a leadership role to help offset these costs and help retailers justify and make energy efficient choices through a variety of programs. State and local governments along with certain utility companies also have programs using federal and other monies. Tax incentives, rebates, and other funding mechanisms vary by location, but by including a step in the remodel decision process to evaluate available incentives and factor their cost reduction opportunities into the payback analysis, the initial costs of the green remodel might be more than justified.

The flip side to incentive programs is the increasing trend of including energy efficiency and recycling standards in local building codes. The most well-known is LEED, developed by the U.S. Green Buildings Council which includes prerequisites for recycling and base-level energy efficiency. Since remodeling schedules are intentionally very tight—so as to reduce the impact on store operations—any delays caused by permitting issues and subsequent re-design can be costly from both lost revenues and contractor idling costs.

Retailers will need to overcome challenges to realize the benefits of a successful green remodeling program. The first is the myriad of opportunity areas and associated technologies available. Selecting the “best” focus areas, design strategies, and vendors to pursue the benefits can be overwhelming. This is further exacerbated by the tax and incentive landscape mentioned earlier, which not only changes by geography, but is also in a constant state of flux as incentive programs expire and new ones are created. There are also internal hurdles including the difficult decision to increase capital expenditures for future reductions in operational costs. Since this often affects two different departments within a retail organization, accommodations need to be made using senior decision makers. Finally, the benefits of a green store can be nullified if store personnel are not on board with the changes. Appropriate store design, job descriptions, and training may all be needed to ensure the investment does not become a nuisance to staff and eventually abandoned.

Despite the challenges inherent in adopting a green remodel program, there are benefits that retailers stand to gain by embracing trends in the marketplace and regulatory environment. Green remodeling warrants serious consideration by any retailer looking to manage real estate operations and impact profits.

Scott Bearse is a Director with Deloitte Consulting LLP, in Deloitte’s Retail practice and leads the organization’s sustainability efforts in the retail industry. He is a specialist in retail operations and understanding the impact of the retail operating model on the customer experience. Scott also leads the team that developed Deloitte’s “Green Remodel” service. Scott has 23 years of experience working with Deloitte’s largest retail clients to help them in their efforts to improve performance and operations as well as develop sustainable retail strategies.

Jenny Bravo is a Director with Deloitte Tax LLP, and the tax leader for Deloitte’s Enterprise Sustainability group. She helps clients in their efforts to navigate available federal, state and local credits and incentives to fund and advance sustainability initiatives in the areas including energy efficiency and alternative energy. Jenny has 15 years of tax experience working with some of Deloitte’s largest corporate clients.

For further information, visit: http://www.retailingtoday.com/editorial.aspx?id=107275

Chapter 11 Saving Companies

June 15, 2009

The numbers from U.S. retail industry in the first two weeks of June tell many different stories depending on the bearish or bullish theory that you’re currently trying to support. New store opening figures have outnumbered store closing additions so far, but just as one publicly traded retailer finds 75 million ways to stay in business, rumors swirled around another major apparel brand that is expected to file Chapter 11 papers any day now. When you add them all together, the retail industry numbers so far this month don’t exactly total up to equal “recovery.”

Talbots feels pretty certain that most of its problems have been solved now that it has finally sold its J. Jill brand for $75 million. Golden Gate Capital is the purchaser of 204 J. Jill stores, which reportedly, they will continue to operate. Talbots has actively been trying to unload the J. Jill chain since November, 2008. Talbots’ leaders seem openly and publicly relieved to get those specialty stores off the balance sheet.

To get back on firm financial footing, Talbots will add the remaining 75 J. Jill locations that nobody wants, along with 16 underperforming Talbots operations to the 2009 retail store closings tally. Company leaders expressed confidence that these dramatic moves, coupled with a 20% reduction in its corporate staff, will allow it to focus on bringing Talbots back to profitability. If that means that they are now giving their focus to stocking their stores with relevant clothing that women actually want to wear, then they will definitely be traveling down recovery road.

Golden Gate Capital, by the way, has gobbled up a diverse collection of retail companies in the past five years. It is now the money and the management behind Express, Spiegel, Newport News, and Herbalife, among others. Since many of these companies were in trouble at the time of acquisition, one has to wonder what the Golden Gate leaders know that the original retail leaders couldn’t figure out. Whatever they know, it seems to work equally well for apparel stores, direct mail catalogs, nutritional supplement MLMs and high-tech businesses alike.

Maybe some members of the U.S. retail industry will start looking for some fresh leadership faces on the pages of Golden Gate’s website. Perhaps the current cadre of retail CEOs has been recycled between the major retail organizations quite enough.

Closings of a different kind are being utilized by some retailers who are still struggling to survive.

Neiman Marcus announced that it will be closing its doors an hour earlier at some of its stores this summer. This is another way the luxury chain is paring back on expenses without compromising the quality of its high class experience. Will it be enough, though? Since same store sales have been off by more than 20% for the past six months, maybe the store hours should be shortened by 20% as well.

Perhaps the Neiman Marcus team could take Sundays off and meet the Chick-Fil-A team for Sunday brunch. There would be no strategic retail value to these meetings, but the Neiman employees might find benefit in a break from the current pressures of luxury retailing, and hanging out with people who have plenty of experience with taking a day of rest every week.

The new Neiman store hours really are not that radical. Other major retailers like Macy’s and Kroger have cut hours at some of their stores this year. Dick’s Sporting Goods has trimmed 30 minutes off both ends of its operating schedule, and the Best Buy team members get an extra hour to party on Fridays and Saturdays because those stores are turning off the lights earlier too. Entire malls are cutting back on hours in order to cut back on expenses.

When was it exactly that Americans found a need to shop for 12 hours a day, seven days a week anyway? Adjusted store hours may be one more way that the retail recession demonstrates to the U.S. retail industry that less can be more.

The topic of closings wouldn’t be complete without mentioning a Houston restaurant named Saute’. Nearly 500 of its fans were notified about the restaurant’s demise through an official announcement made on Twitter. Reportedly, another Houston-area restaurant, Sireneuse Euro Bistro, had blazed that tweet trail in April, announcing its own shutdown via Twitter as well.

Both of these restaurants certainly gave a meaty answer to the foundational Twitter question, “What are you doing?” This may make a good case for retailers with Twitter accounts to learn how to creatively leverage this social media outlet before it’s too late. Finding successful Twitter strategies now might help keep some retail operations off the store closing list later. They’ll never know if they never tweet.

The biggest Chapter 11 story last week was found in the rumors swirling around Eddie Bauer, with many experts and media sources predicting that a filing from the company is imminent. The Chapter 11 filing may never happen, though, if the Wall Street Journal is correct in its speculation that the company or part of its assets might be sold. One of the possible purchasers identified is Gordon Brothers Group, the same company that liquidated both Sharper Image and Linens ‘n Things. That doesn’t really bode well for the future of Eddie Bauer as an ongoing member of the U.S. retail industry. Considering the Gordon Brothers option, claiming a spot on the retail Chapter 11 roster doesn’t seem like such a bad fate for Eddie.

The retail CEO quotable quote of the week belonged to Home Depot’s Frank Blake. When speaking on an investor teleconference about the home improvement company’s performance so far this year he said, “Getting to ‘less bad’ is not the same as getting to recovery.”

Well said, Mr. Blake! That pretty much sums up the state of affairs for most of the U.S. retail industry so far in June. For further information, visit: http://retailindustry.about.com/od/retailindustryweeklynews/a/retailweeklynewsjune1-132009.htm

Department Store Sales Down

June 12, 2009

While specialty stores joined with the overall economy in registering small gains in retail sales last month, department store sales were down and yearly comparisons still show the depths of the struggling economy.

Sales at specialty stores advanced a seasonally adjusted 0.4 percent compared with April, while department stores dropped 0.7 percent, the Commerce Department reported Thursday. However, compared with a year earlier, specialty store sales decreased 7 percent to $17.3 billion and department store sales fell 7.1 percent to $15.8 billion.

All retail and food service providers reported an increase of 0.5 percent last month, but compared with May 2008, sales were down 9.6 percent to $340 billion. The uptick in overall retail sales was driven primarily by higher gas prices. The retail sales change from March to April was revised to a decline of 0.2 percent from a previously reported drop of 0.4 percent.

“Nothing in the May data suggests that the retail picture has improved,” said Bob Duffy, leader of the retail industry practice for global advisory firm FTI Consulting.

The meaningful comparison for retail sales figures is the year-to-year picture, he said, and in that respect, apparel retailers continued to struggle in May. Sales for specialty stores and department stores also declined in April and March after showing early resiliency in the first two months of the year.

“At best you could describe retail sales as being mediocre, and that may be stretching it a bit,” said John Lonski, chief economist at Moody’s Investor Services. “The severity of the contraction incurred by retailers may be easing, but make no mistake about it, retail sales are well under what had been expected as recently as a year ago.”

Investors concurred, sending the S&P Retail Index down 6.09 points, or 1.8 percent, to 329.59 on a day when the major indices barely managed to hold onto gains earlier in the session. The Dow Jones Industrial Average finished ahead 31.90 points, or 0.4 percent, at 8,770.92, after hitting a new high for the year of 8,877.93 earlier on Thursday. The S&P 500 and Nasdaq Composite finished with larger gains, advancing 0.6 percent and 0.5 percent, respectively, to 944.89 and 1,862.37.

Consumers are still coping with negative macroeconomic trends like a weak housing market and job uncertainty. Economists said consumers are willing to spend on staple items in the current climate, but not on much else. Sales of luxury goods or discretionary items, like apparel, have not improved.

“Financially stressed consumers continued in May to concentrate their spending on essentials,” said Charles McMillion, president and chief economist at MBG Information Services.

Sales in most categories were “generally either up or down modestly,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight. “Overall, the state of retail sales remains weak.”

Lonski said, “Some of the gloom hanging over consumer spending is lifting; nevertheless, the outlook remains treacherous.”

Economists said retail sales results are likely to remain weak through the third quarter. Fourth-quarter results could show some year-over-year improvements, primarily because of easier comparisons to a dismal fourth quarter in 2008. As year-to-year comparisons continue to be weak for the remainder of the year, additional store closures or further market contraction should be expected, economists said.

“We will stabilize, but we’ll stabilize at the new lows,” said Duffy.

On Wall Street, retail declines were the norm, with only a few exceptions. Destination Maternity Corp. checked in with an 11 percent rise, to $17.17, one day after reporting that it will relaunch its Two Hearts Maternity collection in Sears stores and introduce it in 100 units of Kmart, Sears’ sister division at Sears Holdings Corp.

The Talbots Inc. also went against the grain, picking up 19 cents, or 3.8 percent, to close at $5.16. The company announced the sale of its J. Jill brand to an affiliate of Golden Gate Capital on Tuesday and reported a smaller-than-expected first-quarter loss and plans for additional staff reductions on Wednesday.

For further information, visit: http://www.wwd.com/business-news/retail-sales-fall-year-on-year-2165051