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.”
“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
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast