FACTORS OPTIMISTIC ON YUKE PROSPECTS
Byline: Sidney Rutberg
NEW YORK — Factoring executives, a generally hard-nosed, show-me-the numbers bunch, are fairly optimistic about Christmas business.
Forecasts range from “very strong” to “better than last year” to “just OK.”
One indication has been strong shipments to retailers in October and November. A number of factors cited heavy shipping, good reorder business and some buying for at-once delivery. Also, they note, retailers have been taking in merchandise without the holdbacks and delays so prevalent early in the year.
On the downside, there is still margin pressure right across the board, both at the manufacturing and retail levels. It will definitely be a promotional Christmas. There is also the perennial problem of overstoring. Even if holiday shopping is robust, retailers with the best execution will get more than their share, while the less adept will get less. Factors don’t expect business to be so strong that everybody will make money.
If they are right about a lively season, the factors expect that bankruptcies in 1997 will moderate from the active pace of this year and 1995.
Said Joseph A. Grimaldi, president of BNY Financial Corp., “I don’t expect many big bankruptcies in 1997. There aren’t many left who haven’t already gone. I don’t see anything big on the horizon, but there are a couple we’re watching.”
Neither Grimaldi nor any of the other factoring executives would name the companies they are watching, but when asked about Kmart Corp., which had factors nervous early in the year, Grimaldi said that management has done a good job stabilizing the business and has built up a lot of confidence among suppliers and financial institutions.
Among the factors most optimistic factors for the Christmas season is John Kiefer, president of Capital Factors Inc., Fort Lauderdale, Fla., who said that based on sales to retailers by his clients, “Christmas should be extremely strong.”
“Retailers are taking in a lot of goods, and it’s obvious they plan to sell a lot,” he added. “I haven’t seen any requests for shipment delays or any of that sort of thing. Of course, the bottom line will depend on the consumer coming out to buy. But all I’m hearing is optimism about the holiday season, and it should be good.”
As to the bankruptcy outlook for 1997, Kiefer said, “Most major problem retailers have already sorted themselves out, either through Chapter 11 or liquidation. There are still a couple of big name retailers out there that we’re watching carefully, but if the Christmas season is good, I think they’ll be OK. Since the start of the second half of the year, our bad debt losses have been dropping dramatically, and I think that’s a good indication that the worst is over.”
“I’m looking forward to a good Christmas with the consumer out there spending and the stores doing well,” agreed Jerry Sandak, executive vice president of Rosenthal & Rosenthal. “It will be a promotional Christmas, since the consumers have been spoiled silly to buy only when merchandise is marked down. The demand will be strong, but it will not spread evenly over the entire retail sector. There are more stores out there than there are people to buy in them all.”
Sandak said his clients were very busy shipping to the retailers.
“Our business in October was great and November is also very good. There are some retailers looking for spot goods for at-once delivery to fill in holes in their inventories.”
Austin Broadwell, manager of the factoring division of Sun Trust Bank in Atlanta, said shipments have been good and there have been lots of reorders.
“But there have been tremendous margin pressures all the way down the line — manufacturers and retailers,” he said. “Strong sales may not be fully reflected on the bottom line. Overall, we’re optimistic.”
Broadwell said bad debts have been running at fairly low levels, and he was looking forward to another good year. He pointed out, however, that because of the consolidation of manufacturers and retailers, the credit exposures are huge. This applies to factors and suppliers.
“Our customer base is deeper and narrower, so if one of the big companies gets into trouble, we could be hurt badly. We don’t kid ourselves that our risk is lower than it was in the past,” he said.
Not so effusive as some of the other factoring executives is Michael J. Roche, president of the factoring group at Heller Financial in Chicago.
Roche said he expects the holiday season to be “just OK,” with sales of his clients flat for the season.
However, he is optimistic about spring, noting “a very strong pickup in shipments” for that season.
BNY’s Grimaldi is also restrained about holiday but expects it to be better than last year, which was poor.
“I think the Fed helped some by not raising interest rates. This should give the consumer more confidence,” he said. “Our clients have had very strong orders in October, and November started very strong. The problem is whether the merchandise is moving out of the stores or is it just filling the inventory pipeline? Another question is are they going to get their margins? So far, margins have been squeezed.
“All in all, I’m not as negative as I was last year, and I think it will be an OK Christmas.”