Keep an eye on the capital markets. In times of financial distress, access to funding will determine who lives to fight another day.
With more lockdowns in Chinese cities further impacting disrupted supply chains, and a geopolitical crisis since Russia began its war with Ukraine, it’s no wonder the world is awash in speculation regarding a global downturn. And with that talk comes whispers over the possibility of more bankruptcies ahead in fashion and retail.
In fact, Covid’s legacy in 2020 saw a breathtaking pace of fashion and retail bankruptcies. At least 48 retail and fashion firms filed for bankruptcy protection in the U.S. and abroad, including three mall owners. With nonessential retailers temporarily closed due to local government mandates to curb the spread of the pandemic, it’s no surprise that many of the filings were retailers. Bankruptcies fueled 11,060 fashion store closures, not including the smaller operations that didn’t make headlines.
With most struggling retailers already gone, a new wave of distress could hit wholesalers and other players.
Last September, trucking sector factoring firm Instapay filed for bankruptcy. And with trucking firms expanding their businesses to meet supply chain capacity last year, many are overextended. Sources said that with the decline in demand for truckers over the last few weeks, these companies could be among the first to crumble. Even those with goods to ship are getting squeezed by lower rates and higher costs with diesel fuel prices rising.
As for wholesalers, the vendor community is on careful watch. While there is competition to obtain retail orders, many companies are friendly competitors. No one wants to see anyone go under and trigger a ripple effect in the entire fashion industry. So far this year, British men’s wear maker TM Lewin went into administration and was sold to a lender. Also falling into administration was British footwear firm Steptronic Footwear Ltd.
Executives in the vendor community have been concerned since the start of Covid, but they’ve been able to work with retailers and their lenders to manage through the past two years, getting a lift from a flurry of orders from pent-up demand starting in January last year. Now the concern is centered on the ability to get inputs.
“The vendors have the overhead. They don’t have the product [the raw materials] coming in,” one Seventh Ave. apparel CEO said, adding that in some cases, supply chain disruption has left some vendors unable to “ship to the retailer and they still have the product, so it’s a concern.”
Fashion vendors need to have regular communication with lenders, whether that’s asset-based lines or factored accounts. For now, retail is in good shape and there’s no concern yet that a credit insurer is about to stop checking certain retail accounts. That said, vendors should continue to keep close tabs on costs, pay down debt and keep cash on hand.
“I think there will be continued stress on the manufacturing side and on the wholesale side for the companies that don’t really look at every component of cost from how they plan their product through all the implications of where they’re producing it to how they move it, get it into a warehouse and ultimately get it to the consumer. If you’re not looking at every dime, and quarter and dollar of cost, there could be companies that turn upside down,” Robert D’Loren, chairman and CEO of Xcel Brands, said.
According to D’Loren, access to capital will be the key. “If there is a shutdown, if that window closes, it will make it very challenging,” he said.