LOS ANGELES — As consumer spending shifts gears following inflationary pricing pressures in gas and fuel, the clients of factoring firms, companies that handle the accounts receivables of a supplier for a fee, are becoming more “cost-conscious.”
There’s also increasing competitive pressure on vendors as they deal with a retail market that is going through an intense period of consolidation.
Mitch Cohen, executive vice president, western regional manager at CIT Commercial Services, discussed these and other issues with WWD in a recent interview.
WWD: One of the major impacts in recent years on apparel companies has been foreign direct investment in the U.S. From your West Coast perspective, how has that affected the apparel industry?
Mitch Cohen: The topic of foreign direct investment on the West Coast and its impact on the apparel industry is quite broad.
We see suppliers and their financial overseas partners looking for ways to participate in the profits and growth that is being driven by West Coast relationships. Foreign direct investment is injecting the apparel industry with a new source of capital and management participation. In addition, these new foreign owners are becoming part of the supply chain and are becoming players in the entire distribution channel. This applies to the home furnishings, consumer electronics and apparel industries, as well. At the Consumer Electronics Show in January, we saw a tremendous amount of Asian influence and, in fact, probably more than one might see at the MAGIC show.
WWD: How have economic factors like employment, gas prices, interest rates, etc., affected apparel companies?
M.C.: Consumer spending habits and their disposable income has been directly affected by a number of economic factors, including employment, gas prices, the price of home heating oil and interest rates. If a consumer is spending more money to fill his gas tank or to heat his home, he has less money left over for a discretionary purchase of new jeans or a new sweater.
In terms of how this may affect factor-client relationships, we are noticing that clients are increasingly focused on managing their businesses in a cost-conscious way as they expect to face another year in a very competitive marketplace.
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WWD: As the retail industry continues to consolidate, what will be the impact on apparel companies?
M.C.: Retail consolidation continues to be a huge issue for apparel companies. Apparel companies are concerned about how this will affect the concentration of their customer base. Specifically, large retailers comprise ever-growing percentages of the average apparel maker’s sales. Apparel companies need to look at their largest customers and ask themselves what would happen if that customer went bankrupt. Could the apparel company sustain the financial loss? If the thought makes them shudder, they need to think about credit protection or factoring alternatives to protect themselves. A business owner wouldn’t buy a home and not insure it, yet some of these same business people don’t look at their businesses’ greatest asset — its accounts receivable — and take the necessary steps to protect it.
WWD: How did 2005 shape up for factors and apparel companies?
M.C.: In factoring, as in the apparel industry, companies need to evolve to remain competitive. Throughout 2005, CIT continued to add new services and expand our domestic and international capabilities to remain competitive. In addition, we established a new office in Atlanta to spearhead our international factoring efforts.
CIT continues to stretch its wings overseas. That’s where the big manufacturing surges are, so that’s where we need to concentrate our effort. As a global finance company, we want to be among the first to offer payment protection to overseas vendors.
Although CIT’s core domestic factoring business is concentrated in the U.S. textile, apparel and home furnishings industries, our international business serves a broad range of industries, mostly focused on consumer products shipping to retail or wholesale accounts in the U.S. Today, we are handling significant business in the traditional sectors because of the shift in outsourcing from the U.S. to lower-cost markets like China, India and Vietnam.
In fact, we had representatives speaking at an international trade conference in Vietnam in January. That market is in its infancy in open-account trade finance, so the launch of this important factoring initiative in Vietnam will help us build our business there in the future.
WWD: Factors want to offer their clients as many services as they can. How can or should factors be doing more for their clients?
M.C.: Every year, CIT conducts client surveys that include questions about the services clients need and what else we can provide them. We study the survey results and develop new products and programs based on the client feedback we receive.
For example, all of our clients have insurance needs. Our parent company, CIT Group, recently formed a relationship with an insurance broker to offer all CIT clients comprehensive insurance services at competitive rates. CIT also has an equipment lending and leasing division, which is of great value to our clients.