"I get out. You have to be out," said J. Michael Stanley, managing director and head of factoring for Rosenthal & Rosenthal. "I like being around people."The affable, extroverted Stanley is certainly a people person, and he's often seen at industry fund-raisers, cocktail parties, trade shows and conferences. At the Accessory Council Excellence Awards last year, he accepted the "business leadership" award on behalf of the Rosenthal & Rosenthal firm. If you didn't know his last name, you'd think he was part of the family.In the factoring field, you need a wide field of vision. It's necessary to have a pulse on the retail industry and his job, Stanley admitted, isn't getting any easier. "You have to be ahead of the curve and anticipate where our clients can run into a problem," he said. "You have to be very knowledgeable on how to avoid those problems and pitfalls. The landscape changed after 2008 and we are seeing radical and rapid change in the cycles. Many companies had a decent fourth quarter. Consumer sentiment is strong. Interest rates are still relatively cheap, the stock market is good. People are feeling good. But yet, our traditional retailers are being squeezed by online and by fast fashion."We are not convinced that it is a sustainable activity," he continued. "We are seeing the contraction of retail and a migration of how consumers buy. It's really a retail recalibration. Fashion is lagging. Consumers would rather spend money on the newest electronic gadget or restaurant or a pedicure, an experience. You have to be very mindful of how the channels are changing and shifting. It's happening very rapidly. Our support is needed to transform the old world model into more efficient, new world platforms. If they don't change, it becomes very hard for them."We are very attuned to those retailers that may not prevail during this period of disruption. There are certain retailers that we are very concerned about and we are watching those retailers very carefully. It comes down to one thing: liquidity. Do they have the sufficient liquidity to sustain themselves for a season? Because where we feel there is a liquidity issue or event, we can react. They are obliged to give us the information. These [chief financial officers] have to tell us how sales are going month-to-date, they will tell me how much availability they have over at the bank."For Rosenthal's clients, "Not only are we giving them working capital and other forms of financing but we are also managing their receivables — two very unique functions. Not only are they getting financing to survive or grow, but we are also managing what channels they can efficiently sell to. We are watching the marketplace and guiding them through this period of disruption. We can alert them if there is a retailer that may not be around. Do I start to cut back with this retailer? Do I start to build relationships with other retailers? Should I start to work on my own web site? So that's really what we do."Fundamentally, his job is about problem solving for his clients and "protecting and growing the assets of this institution."Stanley said his typical day at work is never typical. "Invariably, I've scheduled meetings either inside or outside the office and most of those meetings are clients because they need something. It could be that something very positive is happening and their business is starting to accelerate, which means they need extraordinary support to accomplish their surge in business. So we have to look for new and creative ways to accommodate and support their growth. In many cases we operate our arrangement with the client based upon a certain lending criteria and formula but when something extraordinary happens, you have to be creative and think outside that box."A client will call me over the weekend, saying I found a business that is up for sale and I need the money. Or they are developing a new line of business. Or they are doing a retail buildout. Or they are redoing their web site. They have bought another company."With Rosenthal & Rosenthal, "It's a relationship. They are buying a relationship. We know them. They know us. We are dealing with vendors. The Steve Maddens. The Rebecca Minkoffs." Other long-term clients include Rich Loom, which makes fabrics for home furnishings and has been with Rosenthal for 55 years, as well the Fashion Avenue knitwear company and Beverly Hills Polo Club fashion company.The client base is predominantly fashion, footwear, beauty as well as electronics. "It's growing and it's been spreading. It's people that are doing direct-to-consumer. It's a wide range and there is a need for capital. There is a need for what we offer. It's not only the money. Frankly, it's the creativity that enables us to be good partners with our clients, creativity in the sense that you have to think of new initiatives and strategies to enable our clients to accomplish their goals, whether they are positive goals generating new profits and growth. Or in many cases, it's a company having an economic challenge."We don't tell them how to make the boots. But we can tell them if we know a certain factory, a certain design team," that could help. "We know the marketplace. We know who does what."We have a lot of people at the CES [Consumer Electronics Show]. It's a very vibrant, rapidly changing market because, as an example, every time Tim Cook comes out with a different iPhone, all the different accessories that go with it have to change. We have to anticipate that," as do the vendors.The buy-now-wear-now movement is also a factor for vendors. "Ultimately it comes down to how their supply chain is working," Stanley explained. "The supply chain is such an important aspect of our clients' business. They need support for that supply chain. We have to fund those purchases."While Stanley and others from Rosenthal say the firm is growing, the overall factoring business is stagnant. Rosenthal does $11 billion in annual financings, establishing the firm as the largest independent factoring and finance company. Factoring, a form of secured lending that gives businesses working capital to run their companies, control the cash flow and expand, represents about 80 percent of the firm's business."We are predominantly a factoring institution," said Stanley. "It's an endangered species. There are only six of us left. The largest being C.I.T., Wells Fargo and Rosenthal."There is a very rich history and heritage to this company. Not only are we continuing to exist as a privately held family company, we are flourishing. The unique thing is that the family had insight to bring in other non-family professionals, to enable them to grow the company. Imre had this very entrepreneurial spirit. It exists to this day. It's part of our DNA," Stanley said, referring to Imre Rosenthal, the company's founder.He recalled when Telebrands Corp., a large infomercial company, was selling the 50 state coin map about a decade ago. "It had massive appeal and the product died suddenly. Just literally, it dropped dead the next morning." That left Telebrands with massive inventories and debt. "We had to do a restructuring of the company. A.J. was so upset,that I said, 'A.J., bankruptcy is not a four-letter word,'" Stanley recalled, referring to A.J. Khubani, the founder of Telebrands. "We went through a restructuring in bankruptcy and he came out and all the suppliers got paid. Today, Telebrands is a stronger and much bigger company. It's a half-billion-dollar company."Rosenthal has been financing Rebecca Minkoff since the company started. "We gave them the support that they needed to affect the expansion of the brand — all different types of financing, term loans, receivables. Rebecca was extremely engaging. She believed in her product. We could see how that product performed at retail. They didn't need markdown money. They needed more product. It was a very robust process. She relates to her customer."Once a family-run watch and accessory company, called M.Z. Berger, got into some difficulty when the firm's accountants misstated the financials. Rosenthal was the agent leading the financing with various lending partners. "Even though we were the agent funding it, the banks didn't want us to continue funding the company at the level we were funding it at. We had this memorable meeting with all these nasty 'workout' guys and one woman, yelling and carrying on. It was difficult. I said, 'Bernie, we got to get rid of them, they are going to put you out of business,'" Stanley recalled, referring to Bernie Mermelstein, the son of the founder. "I said, 'Bernie, you are going to have to put more money in. We are going to have to put more money in, and we are going to get rid of everyone of them, and we did, and he is still in business. It was a risk that we took."
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