Starting back up is proving to be almost as chaotic as closing down for the coronavirus crisis — at least for the companies that make the backend finances of fashion work.
When stores closed en masse in March, most retailers rushed to keep their businesses afloat, canceling orders, cutting costs to the bone and furloughing sales associates.
But now that the retail machine is tentatively restarting, even as COVID-19 cases spike in key states such as Florida and Texas, financing the comeback is proving to be a challenge.
Apparel manufacturers looking for a little extra peace of mind — either through insurance or the use of a factor to facilitate payment right after shipment — are coming up short and, in at least some cases, are shipping and crossing their fingers.
For smaller brands, getting paid for a shipment could literally be a matter of corporate life and death.
A group of 22 trade organizations — including the American Apparel & Footwear Association and the Council of Fashion Designers of America — this week called on the Trump administration to set up an emergency trade credit insurance backstop.
“The available credit insurance capacity now represents only a fraction of what was available just a few months ago, and the situation continues to deteriorate,” the group said.
That has sent more brands to factors, which act as a middle man, paying vendors for shipments and then collecting from retailers.
“We’re absolutely taking on new business,” said Michael Stanley, managing director and head of factoring at Rosenthal & Rosenthal. “We’re accessing the risk as we see it. We do see significant improvement as retailers open and we’re guardedly optimistic for an improved second half. We’re basically looking pragmatically at the liquidity of the retailer. That’s the acid test — do they have sufficient liquidity?”
Gary Wassner, chief executive officer of factor at Hilldun Corp., said, “We’re seeing a significant upsurge and increase in new business and we’re seeing it from European brands.”
That’s because brands in Europe tend to rely more on insurance to ensure they get paid for shipments, Wassner said.
This is all part of the rocky reopening. Retail was essentially shut down for two months, stores weren’t open, vendors weren’t shipping and everyone was scrambling.
“Now the market is starting to open again and we’re able to access projections and a lot of the financial circumstances have matured,” Wassner said. “Now there’s incredible demand because all of the stores are reopening in one form or another and they need merchandise.”
He said stores that paid their bills during the shutdown and stayed relatively current on their obligations during the crisis are finding it easier to get goods than their counterparts that went into hibernation.
Some retailers did more than go into hibernation and fell into bankruptcy, including Neiman Marcus Group, J.C. Penney Co. Inc. and J. Crew Group.
That sets up a different equation for companies looking to secure shipments, since payments are then dependent on hitting certain milestones in the Chapter 11 process.
For vendors needing the money and not able to protect their shipments, it’s white knuckle time — still.
A spokeswoman for CIT, a large factor, said, “We continue to monitor this dynamic environment and are in frequent contact with our clients to help them navigate through this period, when possible, including by participating in the [Paycheck Protection Program].