BANKERS BET ON BRANDS
Byline: Jennifer L. Brady
NEW YORK — Encouraged by the growth of the large well-known branded resources, bankers specializing in the apparel and textile industry are upbeat about the outlook for the apparel business.
Beyond the dominating brands and chic designers that continue to generate consumer demand, there is opportunity for growth among some smaller vendors, the bankers said.
And while banking executives were reluctant to discuss specific rates, they noted that bank money is indeed available and quality lenders may find it at a lower cost than they did a year ago.
Within the lending community, they said, there has been a heightened push for business, largely reflecting the consolidation of banks and strong factors vying for a larger portion of apparel market funding.
As for apparel market prospects, bankers said that moderate growth in the economy, with modest inflation, could keep overall volume moving ahead.
Yet, they agreed that margin pressure remains an issue for the manufacturer, with much difficulty in passing on price increases.
“The strength in the market is in the branded apparel. These branded apparel firms are definitely eating up the real estate in the stores,” said Lissa Baum, senior vice president at Israel Discount Bank.
“They are able to go into the stores and negotiate the space that other companies may not be able to get.” Calvin Klein and Ralph Lauren are among some of the brands that are gobbling up most of the space in department stores, Baum noted.
The bankers noted that after a dismal retail climate in 1995, many manufacturers were able to lighten inventory loads last year and improve their financial performance.
“In 1996, a lot of our customers did reasonably well and were able to turn themselves around,” Baum said. “The companies that have hot names, if they can deliver a product, will continue to do very well.”
Ellen Marshall, senior vice president apparel and textile manufacturers at Fleet Bank, said, “We are optimistic that 1997 will be a reasonably good year.” Marshall agreed that leading the way among apparel firms are the “well-known brand names and some up-and-coming names, particularly in women’s apparel but also in men’s.”
She pointed to Tommy Hilfiger and Nautica Enterprises as names that are pushing ahead on a fast track.
“The major brands in both women’s and men’s wear will continue to gain share,” said Anthony F. Scarpa, senior vice president at Chase Manhattan Bank.
Scarpa further noted most companies have focused on lower costs and “the smart ones” have looked beyond the personnel structure into systems, logistics, inventory levels and asset mergers.
In general, Scarpa expects modest growth in the industry, but sees continued margin pressures on manufacturers. “It is a difficult environment to pass off price increases.”
Also expressing concern over the tough pricing environment was James Lawrence, president and chief executive officer at The Merchants Bank of New York, who said he is “cautiously optimistic” about 1997.
Lawrence said the fact that retail prices have gone down for the last several years “says a lot.”
At the same time, Israel Discount Bank’s Baum added that the costs of running a business are going up and retailers continue to demand chargeback money.
However, Lawrence noted, “The well-capitalized manufacturer and importer who controls inventories will continue to do well.”
He added that the reliable apparel makers that have kept up with style, price and delivery will stay on top.
Although the big brands have taken market share at the expense of the moderate vendors, Baum said, “Some companies in the moderate area are now poised to do well. They are starting to fight back, trying to bring new fashion and new labels to their business.”
Sweaters are also coming back, helping women’s business, she noted.
Baum noted that manufacturers are looking for niches in the market, and she noted some smaller firms are finding success in urban wear.
However, she said the companies that do not have a special niche to capitalize on may not be able to stay afloat.
“It will continue to be tough for them as competition among retailers persists,” Baum said.
Marshall was in accord: “Unless you have a niche, brand name or you are a low-cost provider, it’s a difficult prediction. There will be a few winners, but others will struggle to hold their own.”
Turning to the business of lending, the bankers said that there is increased competition among financial institutions.
Chase’s Scarpa said that there “appears to be a lot of liquidity” in the banking business. “There are a lot of dollars chasing fewer quality deals.”
Baum said, “We see banks from out of the market coming into New York, and there are factors competing with banks for business.” She noted that in general, the firms with better credit, recognized names and ones who have tapped public markets are getting “very good” rates.
“I would say it is a fairly competitive bank market,” Marshall concurred.
Lawrence at Merchants Bank said, “In general, rates have gone down,” adding that competition has increased due to bank mergers and movement of banks into new markets.
“Rate is the competition, primarily for the bigger banks, as the smaller banks can’t compete,” he added.
Scarpa said, “I think it benefits borrowers to focus on all aspects of a financing facility, including price, structure, experience, commitment to the industry and experience level.”
“Good bankers bring additional value to the equation,” he added.
Scarpa cited involvement in possible acquisitions, licensing opportunities, partnering and a global reach.