Irene Rosen Marks and Lynne Whitmore of Wells Fargo.

It’s a complicated retail world. 

Consumers are spending differently, investors are skittish and the pressure to transform — technologically and otherwise — is intense. And the coronavirus has only stirred up more uncertainty, threatening supply chains and cutting sales in China. 

As a key retail lender, Wells Fargo has been there every step of the way, giving the high-level banking duo of Irene Rosen Marks and Lynn Whitmore an especially close read on how the industry is changing. 

“We continue to see the dichotomy between the haves and the have nots,” said Marks, who is a managing director and head of corporate banking in the firm’s consumer and retail group. 

“Some companies just really get it,” she said. “They have product people want to buy, they are delivering it in whatever way people want to buy it — any combination of buying online, on their phone, in store, picking up wherever. And others are just really struggling to keep up and manage.” 

There’s not one thing that has thrust companies into one group or the other, although Marks said some companies are simply carrying too much debt and don’t have the financial flexibility to adjust. 

Whitmore works closely with Marks, but has a more-focused role as managing director, retail finance at Wells Fargo, working on asset-backed loans, which have become a vital source of funding for merchants as they figure out the future.

 And some still have plenty of figuring to do. 

“There’s a lot of retailers that find themselves inexplicably wondering how they became a have not,” Whitmore said. “They are saying the right things and throwing money at what they think are the right areas to invest, like supply chain or automation of the nuts and bolts of their business, but they don’t know how to invest. They’re just saying, ‘We’re investing in supply chain, we’re going to become more nimble,’ but there are a bunch of companies that are never going to turn a traditional department store into fast fashion.”

It’s a state of affairs that has retail betwixt and between. 

While companies have retrenched and are now slowly growing back, others are searching for the way forward. 

The stock market has soured on retail, so for many it’s debt that’s keeping operations going. 

 Whitmore focuses primarily on asset-based loans, backed by real estate, inventory or intellectual property.

“Our money’s as green as anybody else’s, but we can offer them flexible paths,” she said. 

One new financing avenue is an asset-supported loan that is somewhere between unsecured debt and a fully conforming asset loan, which would come with a lot of financial monitoring by the bank. 

This third-way lets companies borrow money without a lot of close monitoring, although they could convert into a more traditional asset-backed loan if certain financial thresholds like asset value are crossed.

Whitmore described it as “a structure that says you’re a pretty healthy retailer, but maybe not investment grade anymore. You’re likely not borrowing on your unsecured line. You’re looking to do things, you really don’t like financial covenants because that could restrict you and your flexibility. You really don’t need a ton of debt, you just want an insurance policy.”

Having a little something extra stashed away can be important — just look at the disruption from the coronavirus, which is still unfolding. While the first business hit has come from the loss of sales in China, Marks and Whitmore — like the rest of fashion — are now trying to gauge just how much the flow of goods from China will be impacted. 

And companies need all the financing options they can get, particularly since it’s become increasingly hard to find a backer to help a retailer jump out of the public markets and retool. (One exception is Victoria’s Secret, which has been carved out of L Brands Inc. in a deal with Stefan Kaluzny’s Sycamore Partners.)

Marks noted that most financial sponsors are not looking at many leveraged buyouts in retail. 

“We’re not going to see a lot of activity,” Marks said of the buyout scene. “So many deals haven’t worked out and particularly for private equity. Most private equity firms have decided, ‘Retail is not in our wheelhouse, we’re just not going to do it.’ They keep saying, ‘We’re never doing another retail deal.’ There’s another buyer who’s gone.”

That leaves retailers on their own, huddled with their bankers and trying to figure out a way to balance their books until the future becomes more clear.

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