Marc Heller is president of CIT Commercial Services. Heller joined CIT in January 2004 when the company acquired the factoring business of HSBC. He had been with HSBC and its predecessor Republic Business Credit Corp. since 1991. In the financial services industry since 1970, his primary focus at CIT is factoring and credit protection for businesses in the fashion industry, as well as lending against trademarks and brands. WWD caught up with him last week to get his read on the financial landscape and retail backdrop, and what it might mean for fashion firms.WWD:Why have there been so many retail bankruptcies this year?Marc Heller: My philosophy is that it’s the seven-year itch. Retailers every seven years have some sort of major type of retail or retailer explosion. If you look at the ones that have already filed, these were leveraged companies. The markets from the apparel side — whether men’s, women’s or children’s — have [the problem of] consumers who generally are not rushing anywhere to buy apparel or accessories. Boomers have enough stuff. Millennials are spending their money on entertainment and experiences, as well as food and travel. That’s causing a slowdown and for leveraged companies, some have significant interest payments. They probably opened a lot of stores in the good old days when retail prices were higher. Now we have more empty stores and [some] companies are liquidating. I wouldn’t put the blame all towards e-commerce. It’s a little bit towards e-commerce, but e-commerce in apparel is [essentially] replacing the catalogue business. The growth is greater, but the significance is the same. In e-commerce, you item shop. It’s not like a real shop when you go into Macy’s. The world has changed. Leveraged companies are having significant trouble.WWD:Many of these companies, retailers and brands, were private equity acquisitions. Does this mean private equity isn’t good for retail?M.H.: Private equity has a lot of smart money and people behind the investments, but the issue is when you put debt on the books. When the market softens, it hurts. When leveraged companies are in the environment we are now in, [that leverage will] cause a lot of financial problems.WWD:How does the financial environment we are now in impact factoring decisions?M.H.: In our business we have to give guidance to all of our clients because they have to buy goods in advance. Normally there’s 30 to 60 days when the receivable is outstanding, but clients are making goods that are in production six months prior. We really look at the cash flow of the company, what’s available under various financing facilities, and sign a lot of nondisclosure agreements to try to get enough information. Most firms are pretty cooperative. We track it on a monthly basis and watch it daily, weekly or monthly depending on the situation, and we move with the times. The good news is that most of the factoring business from the unsecured credit world is that we are exposed for the short term, 30-, 60- or 90-day credit positions, and we have the information to justify what we’re doing.WWD:What are you telling clients now, given that we have a new president, about what to expect six months out?M.H.: I’ve been asking clients more than clients have been asking me….They really know what’s going on with market conditions. Putting Washington aside, they speak to their customer five days a week, sometimes six days a week and to multiple customers. They are aware of what’s going on, what is selling through and what are the margins. They talk to the buyer, the ceo. I get more comfortable if I’m talking to them [when] I ask what’s going on….I talk to as many clients as I possibly can. That’s the best source of information.As for what’s going on with the [federal] government, we’re watching for any tariffs or taxes to see what’s going on. In the [retail and apparel] world that we live in, it could present a significant problem [for our clients].WWD:Are you expecting a change in cross-border taxation?M.H.: If you asked me a month ago, my answer would have been yes. If you asked me today, based on [President Trump’s] meeting with the president of China, I would say no. The government has a lot of items on their agenda. One of the ways they talk about funding a tax break is through this taxation on tariffs. It seems that after a conversation with the president of China, things quieted down, but it’s early in the game.WWD:Looking at factoring when you first started working and looking at where we are today, what’s the biggest change?M.H.: When I started, all or 98 percent of apparel was made in America. They bought fabric, cut the goods. Then I was reading that we are overstored. I could fill out the entire walls of my office with all the names of those retailers that are not in business anymore. There is [now] a significantly smaller amount of retailers, yet we are still significantly overstored. There’s been a change in production and the fact that there is a smaller number of retailers have made retailers more powerful today [compared] to their vendors. Then there always seemed to be great management training programs, but not today. If a company [back then] needed a ceo, it could pick from 25 people — not now. Are there really any great merchants today?WWD:So are there any great merchants?M.H.: I’m sure some are around, but not a large cadre [to choose from]. What do they look at? Do they look at product as much as the numbers? People today say they always look at the numbers. If they look at fast fashion, they see that’s doing great. Consumers are smart. They look at quality at the right price. You can’t fool the consumer any longer.WWD:What will be the state of retail three years from now?M.H.: There’s no question e-commerce will continue to grow. Brick-and-mortar is not going away. As Millennials grow up and get older, will they change their ways? Maybe. Will they go into stores and change experiences? Go into a restaurant? Yoga bars? It will take a lot of ingenuity and a lot of money. Retailers will look at an individual store’s profitability. When the lease matures, they will look at whether they want to renew. Online will continue. Omnichannel is important if consumers can buy online and pick up at a retailer on their way home – that changes the retail model. It also avoids the infamous free shipping, and free returns. It reduces the return significantly because if you pick it up, you will see it and will know whether you will want it or not, and if not you can return it right then and there. That’s a lot of changes, and cost savings.I think a host of things will change….Feeling and touching the product is how I like to shop — I’m in the minority. There are some very smart people doing some very interesting things. Retailers today, based on what information they have, pretty much know what their customers like and buy and they are using that information to get you into the store or buy online. They know if there’s a specific brand that you always bought over the last couple of years and they keep telling you about it electronically.WWD:What about store closures? It’s easy to close underperforming stores, but we’re hearing that even some of the profitable ones could get closed, too.M.H.: There have been a lot of store closures announced publicly by a bunch of retailers. I would think more closures are coming. Profitability is the key when you look at every location. When a store is marginally profitable, you have the opportunity when a lease is coming up to make a decision. Sometimes just being marginally profitable pushes you to close the store. Sometimes it works, but sometimes you can lose some brand identity. In some areas where brand identity is important, you find out how quickly consumers forget who you are. Sometimes marginal profitability is a good marketing tool.WWD:So if you’re looking at the lending landscape, what keeps you up at night?M.H.: It’s not on the client lending side. We pretty much know our clients....We’re much closer to the client than any other lending facility. We see their orders. We see who they sell to and we see how their customers pay them….The scary part is not on the lending side. It is on the customers’ side where you have unsecured credit. The market this year has changed significantly. It is getting scarier. The cycle will change and there will be a shakeout. The successful will become more successful. The weak will go home. They will go out of business or just close up.WWD:What have we not touched upon that maybe we should?M.H.: Everyone is blaming the softness in retail on e-commerce, and how Millennials are interested in experience and other things. I wonder how much of it is because fashion has changed….When premium denim jeans were an important part of a wardrobe, the women would buy and the men as well. They would buy multiple pairs a year. And they buy tops, handbags, jackets….When fashion is leggings, you buy Adidas, a New Balance [footwear] and you’re a happy camper. Leggings and ath-leisure wear did great for a segment of the market, but it didn’t expand the market into other products at retail. I think in general, if there’s a big resurgence in something in fashion, we’ll see an uptick. If you’ve got a must-have item, the key is does it attract you to buy ancillary items to support that? I think it does. I think there’s a lot of confidence in the world of fashion. Over the long time…they will come up with something and the consumer will come back. And if there’s a tax break, there will be more disposable income so that will help.WWD:One final question — what are your thoughts about see-now, buy-now?M.H.: It was something that was interesting when it came out, but I’m not so sure it’s booming. There are a couple of well-known designers who are not doing it. It’s expensive, and takes a lot of work. The apparel producers and retailers have weathered so many different storms, and they will continue to weather them. It is a lucrative business when things are good, but a tough one when things slow down.
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