Forget bank loans and public debt — the financing of fashion is increasingly about cash.
Fitch Ratings said its debt scores on retailers and consumer products firms are placing greater emphasis on internal sources of funding, such as cash reserves and cash from operations. Companies selling goods that are “wants” more than “needs,” including several apparel retailers, are expected to be especially challenged by the harsh retail environment.
“The credit crunch has continued to impact bank balance sheets and behavior, thus affecting the ability of corporations that rely on bank debt to access capital,” Fitch said in a report titled “Liquidity Focus: U.S. Retail and Consumer Products.”
The report essentially advises companies that they’re on their own. Most retailers have already gotten that message and have been in a protective crouch for months, closing stores and reducing expenditures.
“In the face of declining sales and escalating costs, companies are working to preserve cash and maximize cash flow,” according to the Fitch report. “Stable, predictable cash flow generation leads to strong liquidity while more volatile cash flow generation can lead to a weakened position.”
The 41 retailers and consumer product companies tracked by Fitch generally pass muster. Twenty-six were considered to have strong liquidity, and seven received a moderate score.
Eight firms, however, were considered to have “weak liquidity,” meaning there is some doubt if they will be able to renew bank facilities or find new sources of financing over the next two years, Fitch said.
Neiman Marcus Inc. and Sears Holdings Corp. are included in this latter group because they have committed bank facilities that will expire this year or next. Banks, while revisiting some agreements, are still in the midst of major restructuring and other challenges.
The Bon-Ton Stores Inc., Burlington Coat Factory and Saks Inc. also are considered to be in a weakened liquidity position. Their status could be pressured further over the next two years, either because they aren’t generating cash, they face vendor financing issues or they could violate covenants in their bank agreements. With funding in doubt, vendors may increasingly serve as a last resort for struggling retailers.
“Vendor financing provides an important source of liquidity for retailers to fund inventory purchases,” Fitch said. “Vendor tightening of terms can precipitate distress at a company, as it did for Linens-N-Things Inc.”
On an earnings call last week, Alexander Mason, president and chief operating officer at factoring giant CIT Group Inc., said, “We plan to continue to price commensurate with risk and therefore would expect our average commission rates to increase.”
Mason added, “I’m comfortable with our largest retail exposures. The smaller retail names on our credit watch list continue to grow, however, and these are the names we are proactively watching and managing down.”
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)
@heriethpaul and @gracebol have a moment on the @victoriassecret fashion show 2017. See every look from the runway on WWD.com. Link in bio. (📷: @giovanni_giannoni_photo) #wwdfashion #victoriassecret #VSFashionShow
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia