NEW YORK — More efficient supply chains and “cross-border” trading between companies in the apparel and accessories markets are creating a fundamental change in the way business is done from a financial perspective.
Citigroup’s Simon Constantinides, director of trade sales, North America, said as a result of these changes, companies are looking to mitigate risks while reducing the complexity of their financial transactions. Constantinides discussed these and other trends in a recent interview with WWD.
WWD: What is your company doing to better serve the apparel industry from a trade services perspective?
Simon Constantinides: Worldwide, we’re seeing more companies participating in cross-border trade and, correspondingly, an increasing need for risk mitigation, efficient transaction processing and financing. Citigroup’s comprehensive portfolio of trade services and financial products is designed to help our clients effectively manage risk and optimize cash flows. The sheer size and consolidation within the American apparel and retail sectors have strengthened the global negotiating hand of industry buyers. To address financial and processing needs of global supply chains, Citigroup offers traditional and hybrid letter of credit programs (known as LCs), as well as our Enhanced Open Account Trade Solution.
WWD: How is the trade sector organized in your company and how well is the business doing?
S.C.: Trade Services and Finance is housed within Global Transaction Services, a division of Citigroup Corporate and Investment Banking. GTS revenues and net income on a stand-alone basis would make it eligible to be a Fortune 500 company. First-quarter 2006 results indicate an overall growth rate of more than 20 percent, making it Citigroup’s fastest-growing business.
WWD: What other similar services does Citigroup offer?
S.C.: We offer customized innovative trade services spanning risk mitigation, financing and settlement to suppliers and buyers. With our combination of global reach and local expertise, we support the apparel and retail industries, by providing vendor/supplier financing, which provides suppliers with cost-effective liquidity and improved visibility across the global supply chain.
WWD: What business trends have you noticed in the apparel industry?
S.C.: As global sourcing for products grows, we’re seeing the physical supply chain growing independently of the financial supply chain. High technology and sophisticated data delivery now drive the physical supply chain at every step: ordering, manufacturing, shipping, logistics and distribution. By contrast, traditional financing practices are becoming outmoded. The LC is becoming antiquated and still experiences more than 80 percent discrepancy rates industrywide. As these disciplines continue to be focused on their business, we see a noticeable transition from LC to open account trade, which is influencing the buyer-supplier relationship.
WWD: What is your company doing to adapt to these trends and differentiate itself from others in its market?
S.C.: Our Enhanced Open Account Trade Solution facilitates the outsourced processing benefits of more traditional financial terms of trade — it relieves the administrative burden for companies making the transition from letters of credit to open account trade. As they migrate from LCs to open accounts, companies realize the importance of ensuring that suppliers have access to adequate liquidity. With the visibility gained from processing open account transactions, our ability to actively infuse liquidity into the supply chain is facilitated.
WWD: In the constantly changing fashion industry, what would you say has affected your business the most?
S.C.: The global trade marketplace and the apparel industry are increasingly characterized by a significantly growing market for vendor finance — i.e., pre- and post-shipment financing — especially in Asia and Latin America. Clients are looking to ensure that their end-to-end supply chains are supported by end-to-end financing and financial processing solutions.
WWD: Where do you see Citigroup in the next five years? How is your role going to affect the funding side of the apparel industry?
S.C.: Citigroup will continue to be a preeminent player in global trade. Our optimism about the growth of global trade and our leadership role in its continued expansion is based on a number of differentiating factors. Liquidity will become more important across the global supply chain to finance trade flows. Because of the widening availability of financing sources and advances in technology, developing markets will rapidly “emerge” as active participants in global trade, offering Citigroup an opportunity to support clients better as their trade volumes grow because of our long-established, on-the-ground presence in local markets around the world.
WWD: Does Citigroup have any future goals to improve its general services to the apparel industry?
S.C.: Global trade is a dynamic marketplace, highly competitive, and constantly influenced by political, economic and cultural forces. With the dramatic increase in cross-border trade and the growing number of enterprises involved in trade, the marketplace is looking for an authoritative source of market knowledge. As one response, we have launched Citigroup Trade University, a monthly series of Web seminars showcasing a comprehensive curriculum of global trade topics to inform and educate clients, prospects and business partners.