FACTORS: MAKERS ARE STRUGGLING

Byline: Sidney Rutberg

NEW YORK--Factors are painting a glum picture when talking about the current business of their apparel vendor clients.
Business in the first quarter, according to a representative group of factoring executives, has been better for the factoring firms than it has been for the manufacturers.
While some factors reported that their own business has been relatively flat, others have had strong gains. But they all agree that apparel suppliers are struggling with a back-up of inventory at the retail level and are having a hard time maintaining margins. Retailers have been deferring shipments and carrying very sharp pricing pencils. While bad-debt losses in the first quarter have been modest, factors fear that bankruptcies will increase going forward both at the retail and supplier level. John Heffer, president of Republic Factors (1994 volume, $5.4 billion), noted that while bad debts are below last year's pace, "I sense some increase in late payments. Also, we're looking at more troubled companies than at this time last year."
Added Jerome M. Kenyon, president of Congress-Talcott Corp. (1994 volume, $4.3 billion), "With all the problems, there are a number of retailers we're concerned about. They're not in the same league as the Federated and Macy bankruptcies, but there are some fairly good-sized retailers in trouble." He declined to mention names.
Spring business has not been particularly robust, and factoring executives are hoping that there will be a pickup in the fall.
Frank Bongiovanni, executive vice-president in charge of Heller Financial's factoring operation in the East, says fall business looks promising as the order flow has been strong. "If there are no deferrals or cancellations, there should be a pick-up in the fall."
In Chicago, Michael Roche, president of Heller's factoring business nationally ($6.5 billion volume in 1994), said that overall factoring volume has been flat, but "loans to our clients are up significantly, an indication that because of the holdbacks on shipments by retailers, suppliers have an increasing need for financing." He added that he would like to be optimistic about the fall, but "its just too early to tell."
Lawrence A. Marsiello, president and chief executive officer of CIT Group/Commercial Services, the nation's largest factoring firm with volume last year of $13.6 billion, noted that inventory is still being worked off from last year's holiday season.
"Spring shipments are moving at lower gross profit margins in reaction to the retailers' reluctance to take an early position. The retailers are playing it closer to the vest and as a result, sales have been sluggish."
Illustrating the apparent irony of good factoring business in a period of major problems for apparel firms is the comment of Jerry Sandak, executive vice president of Rosenthal & Rosenthal Inc., one of the few remaining independent factors (1994 volume, $1.4 billion).
Said Sandak, "We had the best first quarter ever, principally driven by new business. Unfortunately, our clients aren't doing as well. We've been making a lot of advances against inventory, indicating that merchandise is not moving out as fast as hoped. Andrew H. Tananbaum, president of Century Business Credit Corp., another independent (1994 volume, $2 billion), also reported strong volume.
"Our business in the first quarter was up substantially, largely as the result of new clients signed on. However, many of our existing clients, principally apparel importers, have been beating plan. But it's hard for them to make money. The concentration of retailers has made the remaining firms stronger, and they are pushing the risks back on their suppliers."
While business at Rosenthal & Rosenthal and Century was setting records, Walter Kaye, president, Merchant Factors Corp., the largest of the so-called niche factors ($195 million volume in 1994), reported a relatively flat quarter.
"There are a lot of problems out there. Apparel manufacturers are coming off a disastrous fall season in 1994 because of the warm weather and are finding little strength in spring. They're hoping that there will be a pickup in fall. If not, there will be a rash of insolvencies.
"Meanwhile, manufacturers are faced with ever-increasing pressures from their retail customers. First they kill them on price, then they demand extended terms, then they push back shipments and then they hit them with shipping requirements that result in charge-backs if there is any deviation. On top of that, some of the major retailers are prepared to anticipate payments to cash-short suppliers, but the cost is steep--anywhere from 18 to 24 percent a year."
Congress-Talcott's Kenyon said first-quarter volume was up principally on new business. He agrees that apparel suppliers' margins are being pressured by rising raw materials costs and tight-fisted retailers, but he also sees the retailers' side.
"It's tough to be a retailer. They have to squeeze the manufacturers to get merchandise that can be sold at cut prices, but all the merchandise looks alike.
"About the only good sign I see on the horizon is that automobile sales are not going up, so this should give the consumer more money to spend on apparel."
--Fairchild News Service

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