Chief financial officers were having a harder time getting funds to run operations even before the near-complete restructuring of Wall Street and the freezing of the credit markets over the last month.
This story first appeared in the October 6, 2008 issue of WWD. Subscribe Today.
Forty-one percent of financial chiefs at U.S. retailers said they experienced a tightening of credit from their lenders, according to a study by accounting and consulting firm BDO Seidman LLP. Nearly a quarter — 24 percent — reported broader use of pink slips and said they have had or plan to have significant staff reductions this year.
Other findings of the most recent survey include:
• 36 percent of retailers already have or plan to close stores this year.
• 77 percent have not or do not plan to delay store openings.
• 91 percent of retail cfo’s said the weakening dollar has not increased their concerns that they might be acquired by an international entity.
The study was based on a telephone survey of 100 cfo’s at retailers with revenues of more than $100 million and was conducted in August and early September.
“They’ve seen even more credit tightening [over the last month],” Catherine Fox-Simpson, a partner at BDO Seidman, said, who noted some of the statistics would probably spike if the survey were done again now.
Markets for short- and long-term debt have become hard to tap and banks have become much more cautious or have even gone out of business or been acquired over the last month as investors, banking executives and lawmakers wrangle over how to clean up billions of dollars of questionable mortgage debt and other toxic credit instruments.
“Definitely the purse strings are a little bit tighter,” Fox-Simpson said. “If you’ve got a rocky earnings history or slim margins and there’s been concern for some time about your viability, I’m sure it’s hard to get credit.”
Cutting costs, such as through reductions in seasonal and non-seasonal workforces, is one of the key tools retailers have at their disposal in such illiquid times. Department store jobs fell sharply last month, according to the U.S. government, and employment in the sector trailed that of specialty stores for the first time in almost two decades.
“You want to demonstrate to your lender that you are being proactive and you are managing cash wisely,” said Fox-Simpson.
Retailers have also cut back on the goods they carry, with the survey finding 37 percent of them reducing planned inventory purchases this year.
Financial chiefs play the key role of point person with increasingly skittish lenders. They are being forced to learn new skills as they navigate their way through the financial crisis.
“This would be a completely different environment than they’ve ever functioned in before,” she said.
The market upheaval has also made for a flight from green issues to greenbacks.
Last year’s study found cfo’s were focused on environmental issues, higher energy costs and, after a spate of safety recalls on Chinese made goods, product quality.
“Companies have clearly turned their focus from more sustainability and green-type issues to staying afloat,” said Fox-Simpson. “This is a very critical time. When your bank goes under, it’s just not something you’re expecting.”