SMALL FACTORS FIND NICHES
Byline: Valerie Seckler
NEW YORK — Even as the competition wrought by increasingly dominant large suppliers intensifies, small women’s apparel companies remain capable of securing financing from small factors.
In fact, niche apparel markets are expected to produce moderate-to-strong gains in volume this year for small factors, despite their prediction that 1995 will be tougher overall than 1994 for small women’s apparel firms.
Factors cited suppliers of sportswear, accessories and moderate dresses as the source of much of the anticipated growth. Gains are coming from new business as well as existing accounts, they noted.
These factors, generally judged as small, have an overall volume ranging from about $25 million to $200 million, with varying amounts contributed by women’s apparel firms.
Women’s resources with annual sales of $1.5 million to $20 million form the bulk of the factors’ apparel financing business, though some will factor and lend to firms generating just several hundred thousand dollars.
Most of the business in the sector is at firms with sales of $1 million to $5 million, factors said.
Start-ups also can get their receivables financed by some small factors, as long as the suppliers’ principals have previous experience and the quality of their receivables and retail accounts is solid.
Fees charged by factors often range from 1 to 3 percent of the volume of receivables they purchase. The rates depend on variables such as quality of the balance sheet, size of business, size of average sale, and quality of the supplier’s retail business.
For example, Mel Foti, chairman of Initial Funding Corp., noted that 1,000 sales with average invoices of $1,000 apiece imply a resource with more efficient distribution than one with 10,000 sales with average invoices of $100, which indicates a more labor-intensive operation. “We’re looking for a happy medium,” he explained.
Gary Wassner, president of Hilldun Corp., agreed, saying: “Many clients pay more if they supply 100 specialty stores rather than 10 major department stores.”
As for fees charged for loans against receivables — another activity of factors besides pure factoring or purchasing of receivables — factors said they’re typically the prime rate plus a percentage based on the variables used to measure factoring fees. Small factors usually add 3 to 6 percent to the prime rate, they said.
At Hilldun, which has lent against receivables for 35 years, but only began factoring three years ago, Wassner expects “substantially more women’s apparel factoring business in 1995” than its $50 million factoring volume of last year.
“Factoring volume in the first quarter is up about 50 percent from last year,” added Wassner, whose apparel factoring is concentrated in the bridge-to-designer business. “The growth’s partially driven by stores that had been holding back fourth-quarter orders, looking for later deliveries.”
“Designer sportswear is strong, factoring-wise,” he noted, listing accounts like Marc Jacobs as performing well.
“Our first quarter sell-throughs have improved compared with last year,” confirmed Marc Jacobs co-principal Robert Duffy.
“The whole designer sportswear business is better this year,” Duffy added. “Nobody talked about it much, but last year was such a bad year for designer sportswear, some buyers were literally crying in their soup.”
The accessories business has also proven fruitful for Hilldun, Wassner said, spurred by retail orders for hats, bags and jewelry, which are “coming in solidly.” Vendors like Miriam Haskell are “doing very well,” he added.
Frank Fialkoff, owner and president of Haskell Jewels, said first-quarter business is about 20 percent ahead of last year’s, helped by “an excellent January — one of our best in a long time.”
“There’s no question that pearl business is very strong and it’s a good part of our business,” he stated.
Wassner expressed uncertainty about the prospects for the apparel business in the second half of 1995, however, saying he didn’t know what impact higher interest rates would have on consumer spending.
Also looking for women’s apparel factoring growth of about 50 percent is Miles Stuchin, president of Access Capital Inc., whose business is focused in the mass market.
Access targets the mass market, in part, because it offers “more highly creditworthy doors to sell than the designer market, enabling us to diversify our risk,” Stuchin explained. “We’re also represented in the designer market, but we’re very selective and growth tends to be arithmetical rather than exponential.”
“There’s still plenty of inventory at retail,” he acknowledged, “but we micromanage to find new accounts. There’s been a flurry of activity in moderately priced dresses, and accessories are always a big area for us.”
Women’s apparel accounts for about 25 percent of the factoring volume at seven-year-old Initial Funding, where Foti forecasts his business in the category will expand 20 percent this year. This would mark an increase to volume of $15 million from $12.5 million in 1994.
“We’re projecting good solid growth from new business as well as in-portfolio growth,” he noted. “We couldn’t say that in prior years, when most of our growth was from new business.”
Sportswear suppliers are driving Initial’s apparel growth, comprising young companies based in the U.S. and foreign firms doing $30 million to $100 million worth of business abroad, whose sales here are under $3 million. The foreign accounts also include firms seeking to start businesses in the U.S.
“We have a number of multilingual people on staff who can deal with foreign clients,” said Foti. “We grew up in import-export financing so this is a way for us to differentiate ourselves from our competitors. About 20 percent of our apparel business comes from abroad.”
On the less bullish side was Thomas V. Pizzo, executive vice president at Century Business Credit Corp., a niche factor specializing in apparel importers, whose business lies mainly among firms with sales of $20 million to $25 million. Around 80 percent of Century’s business comes from importers.
“I’m expecting flat factoring volume in women’s apparel this year,” Pizzo said. “Stores’ inventories are full of moderate-to-low-priced sportswear, which is where most of our business is concentrated. Manufacturers I speak with are having a much tougher time getting orders from retailers than at this time last year.”
Century factors $2 billion worth of apparel business, about half of it in women’s. Its factoring volume grew 30 percent last year, with stronger gains in men’s wear than in women’s. Though bigger than the other factors interviewed for this story, Century’s private ownership gives it the flexibility to factor small firms that wouldn’t interest large factors owned by commercial banks.
Also contributing to his flat outlook, Pizzo said, are rising interest rates and increasing retail credit risks. “I think factors will be a little more cautious this year due to potential credit problems,” he stated, declining to offer specifics.
Of new accounts, Pizzo observed: “We’re seeing more women’s start-ups than usual, lately; lots of designer types. We usually concentrate on lower-to-moderate goods because they have greater salability.”
The heart of the apparel business for small factors is at suppliers with yearly volume of roughly $1 million to $5 million, whose business potential is too small to win the interest of bigger factors.
“The greatest opportunity for all of us lies in companies with volumes of $1 million to $3 million, because the biggest factors don’t look that low,” said Foti.
— Fairchild News Service