By  on September 19, 1994

NEW YORK -- After a long period in which solvent apparel makers had little interest in visiting their bankers, the industry seems to be in a borrowing mood again.

Bankers servicing the industry say they have been seeing a pickup in both new and existing loan demand. The pickup has bolstered optimism about second-half prospects and apparel manufacturers' profitability levels.

However, the outlook is not without caveats. Bankers point out that retailing continues to be erratic and a strong fourth quarter is hardly a given. The continuing consolidation at retail also means manufacturers will have to be increasingly compliant to the demands of big stores.

(Accountants have an even dimmer view, as they point to the challenges faced by many apparel makers, especially smaller ones. See story, page 26.)

Nevertheless, according to bankers, the current lift in loan activity indicates there is a touch of renewed confidence about opportunities for growth.

"There has been significant new business for us in the last six to 12 months," said Anthony Scarpa, senior vice president, Chemical Bank, noting that Chemical has also been financing growth with existing accounts. As for the outlook on interest rates, bankers agree rates are unlikely to go down. "There's a potential -- depending on the Federal Reserve's view of inflationary threats -- for a modest uptick in interest rates," said Scarpa. He does not foresee a major impact on business conditions, however.

Donald Gibson, vice president at Chase Manhattan, said rates could rise anywhere from 25 to 50 basis points, but he does not see that denting growth substantially. Scarpa said the apparel business has been "more active and more positive this year than in the past two or three years." He observed strength in men's wear and children's wear. As to women's wear, he noted: "Sportswear has been tough, though we've seen some life in denim." Scarpa added that catalog retailers are also doing well. "It's definitely a better year in apparel now than last year," said Lissa Baum, senior vice president, Israel Discount Bank. "Women's wear is picking up in branded product."

Baum also said more of her company's customers are getting into home shopping, presenting "in-teresting product at low prices.""I think the consumers will be opening up their pocketbooks for the balance of the year," said Melvyn Plotzker, vice president, Bank Leumi Trust Co. of New York.

"The back-to-school situation is better than it was last year," he observed, adding that "the gamut of apparel, including sneakers, jeans, shirts and outerwear" is doing well.

Louis J. Cappelli, chairman and chief executive officer of Sterling Bancorp, said his company opened an office in the garment district, reflecting confidence in the apparel industry. As for the type of lending, bankers agree that there is an uptick in credit to finance growth, as opposed to restructuring.

"The number of bankruptcies seems to have gone down as opposed to last year. The mega-filings seem to be a thing of the past," Cappelli said.

While the picture is encouraging, bankers underscored the need for efficiency and said the key is offering quality products on time. "Wonderful product is the key," Baum said. The manufacturer has to be "terrific in everything today." She noted most of her bank's customers have shifted to business based on firm orders rather than producing in expectation of reorders. Her customers are also taking steps to diversify, she said, because there are not a lot of places to sell in the lower-end business.

Baum said, "The big question is what happens on the retailer's shelf. [That] will tell the final story for 1994."

Chase Manhattan's Gibson said, "I'm cautiously optimistic, but that doesn't change the fact that as opportunities for growth come, it's very competitive."

Gibson also expressed concern about final demand in the stores. However, he added, "What would help the outlook even more would be greater consistency in retail performance. We've had one or two good months followed by a bad month."

This lack of consistency tempers the picture of a universally bright future, he said. Beyond the wildcard of retail, there is also the question of whether increased business activity will translate into bottom-line gains for the apparel industry. Gibson noted that in 1990, 1991 and 1992, companies were looking inwardly, at cost structures. "Now that they've done that, they are pretty lean organizations. With business picking up, we should see improved profitability across the board."Scarpa, Chemical Bank, said , "Generally speaking, my major concern is margin pressures at the manufacturing level. The size of the retail giants could have an dampening effect on margins." -- Fairchild News Service

To continue reading this article...

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus