CIT collapse could send ripples through retail industry.

Byline: Daily Star Staff

Summary: The possible collapse of a key lender is sending panic through the US retail inA[degrees]dusA[degrees]try, threatening to hang up deliveries of back-to-school cloA[degrees]thing and other goods and throw holiday ordering into disarray. A bankruptcy filing by CIT Group would hurl more trouble at an industry already hammered by the worst spending slump in decades.

Anne D'Innocenzio

Associated Press 

NEW YORK: The possible collapse of a key lender is sending panic through the US retail in-dus-try, threatening to hang up deliveries of back-to-school clo-thing and other goods and throw holiday ordering into disarray. A bankruptcy filing by CIT Group would hurl more trouble at an industry already hammered by the worst spending slump in decades.

The ripple effect could be as simple as a zipper maker that cannot rely on CIT to advance payment for orders. That would then hurt trucking companies that would ship the zippers and overseas factories that need the zippers to make dresses.

The result could be mounds of zipperless dresses at factories, piles of goods sitting on docks u and products not making it to store shelves. "CIT is like an octopus with its tentacles that reach out to so many industries and sub-industries," said Jeffrey Knopman, a principal at Profit Solutions Group, which helps suppliers recover chargeback money from merchants. A primary business of CIT is short-term financing, mostly to small- to medium-sized businesses that cannot afford to wait the 60 to 90 days it takes to get paid for shipments to retailers.

This business, known as "factoring," also guarantees that suppliers get paid by the merchants. Without that guarantee, suppliers would have to ship goods at their own risk.

As the prospect of a CIT bankruptcy filing loomed, industry trade groups increased their pitch to lawmakers to prevent the collapse of CIT, which they say would imperil their small-business members and derail the already-fragile economy. "This is a potential crisis for Main Street," said Kevin Burke, president and chief executive of the American Apparel and Footwear Association. "The industry is already battling less inventory and battling a recession. If you can't get the product, how do you get consumers into the store?"

Analysts say 60 percent of the apparel industry depends on CIT for financing, so other lenders taking up all the slack would pose a big financial strain.

Any disruption in financing couldn't happen at a worse time for retailers. Stores have slashed inventory to respond to lower de-mand, and this holiday, analysts expect inventories to be down as much as 20 to 30 percent.

Shearman said that if suppliers can't finance their orders, consumers will see even fewer choices in the stores. Furthermore, he noted that if vendors can't get their financing, some retailers may have to pre-pay for orders, which could put more financial pressure on them.

Federal officials negotiating with CIT knew a collapse would affect the economy, a Treasury spokeswoman said Thursday. But because the company had scaled back lending in previous months, she said, the economic hit would not be as bad as some earlier predictions suggested.

Retail industry insiders argue that with other lenders already under financial strain, many CIT clients may lose their financing options. That could lead to another flurry of bankruptcies.

Harold Reichwald, an attorney in Los Angeles with the firm Manatt, Phelps & Phillips, said CIT has been refusing requests from manufacturers to withdraw credit balances u the equivalent of bank deposits, except that they are not federally insured.

Already many of CIT's clients were scrambling to find other financing. But Andrew Jassin, co-founder of apparel consultant Jassin-O'Rourke Group LLC, noted that doing that takes time even for the financially healthy.

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