Finance middlemen crack down on giving credit to retailers feeling financial pinch.

Finance middlemen crack down on giving credit to retailers feeling financial pinch

Garment manufacturers are discovering that they can't always bank on orders from financially troubled retailers, including I. Magnin, Bullock's and Carter Hawley Hale.

"Because of the financial condition of some retailers, such as Macy's, factors are now at times conservative on advance rates for orders," said Bruce Corbin, regional vice president at Union Bank's downtown office.

Factors, banks that finance garment makers' sales to retailers, buy accounts receivables from manufacturers and collect the debts from retailers.

Stung by several bankruptcies of major retailers, such as Macy's, factors have recently been less willing to extend credit.

But Corbin explained that it depends on the client. "It's not a blanket statement. For some clients, a factor may just cut back and pay the manufacturer only 40 percent of the order, instead of 80 percent," he said.

But to some, factors are not part of a boon to the industry. "The factors are the problems. They have no entrepreneurship and go by the book. I can't say enough bad about small factors," said Pat Stimac, chief executive of Los Angeles-based Staples Inc., a high-end women's clothes manufacturer.

Stimac said she has noticed some factors will now refuse to extend credit on an order until the last possible moment that her company can start producing garments and she finds herself devoting a great deal of time to "hustling the factors to make sure they extend credit."

Staples Inc. will often start producing products without a 100 percent commitment from the factor, explained Stimac, because she will operate on the assumption that if a factor does not say no it will give the credit.

Stimac said the factors are also demanding a large amount of collateral and refusing to extend even on the smallest amount of credit until retailers pay back 100 percent of an outstanding order, although they do have the right to do this, she said.

Local clothes manufacturer Dennis Goldsmith has also noticed that factors, "are passing the credit on a month-to-month basis. For example, if you ask for credit on a order that will be shipped in March, the factor will tell you to resubmit your request in March."

Goldsmith, owner of Goldsmith International Ltd., said that he is fortunate that he "does not do business with Macy's." Most of his clients are smaller specialty retailers.

"We are holding our own, but we are taking more of a credit risk than before," said Kristin Hoffman, owner of Kristin J, a specialty women's manufacturer.

But not all factor executives think that there is a credit crunch. "I don't see that it is a trend [limiting credit of orders from shaky retailers]," said David Rubin, chairman of Republic Factors Corp. "This is simply market gossip."

However a garment industry consultant said factors limiting credit is not a new practice. "This is not news. This has been happening for the past year," said Joe Scheines, spokesperson for Kurt Salmon & Associates Inc., an Atlanta-based management consulting company specializing in the garment industry.

Scheines said that "department stores are a tougher gamble than speciality stores, but some department stores such as Wal Mart and Woolworth's are still doing well."

A Kurt Salmon survey warned that the longer the recession lasts "the more pressure will be brought upon weaker retail players. Crowded by too many stores offering the same merchandise at the same prices, the retail environment is in a shakeup.

"Defaults by major players [retailers] would shake the soft goods system to its roots. A careful pruning would be preferable, but who is willing to go first?" the survey noted.

PHOTO : Retailing: Getting credit gets harder