Cit Files For Bankruptcy Protection

CIT Group filed for bankruptcy protection on Sunday

, after spending the better part of 2009 trying to avoid just that. The filing was "prepackaged", in that CIT's creditors have already agreed to a restructuring plan that, in theory, will allow the company's business to go forward largely intact, and allow the company to emerge from bankruptcy relatively quickly.

Nevertheless, there were concerns about the impact on retailers in the near term. The Associated Press reported that... "Craig Sherman, vice president of government affairs at the National Retail Federation, thinks the industry "dodged a bullet on the holiday season" for the most part, because most merchandise is in stores' distribution centers. However, he said CIT's woes could throw a wrench in ordering for the important 2010 spring season."

The concern for independent retailers is not primarily on the impact that the CIT filing might have on them directly. As the AP story noted, CIT provides financing for "... 2,000 vendors that supply merchandise to more than 300,000 stores. About 60 percent of the apparel industry depends on CIT for financing."

For independent retailers, many of whom have worked through financing challenges over the past several years, the impact of the CIT filing is likely to be felt most as disruptions in supply from their vendors. Already this season, many vendors to independent retailers have significantly narrowed their lines and tightened availability, both due to the uncertain retail environment and difficulties obtaining credit. CIT's filing very well may make obtaining financing even more difficult for many vendors.

Independent retailers need to take this into account as they look to Spring 2010. Any merchandise that they seek for delivery the balance of this year are likely already in vendor's inventory or in-transit. Looking forward, however, many vendors may find that pre-sale levels have to be significantly higher before they can justify committing to manufacture, even after further narrowing of lines.

This puts added burden on independent retailers to be sure that their pre-season orders are actually going to be produced and delivered. Independent retailers may further find their vendor base narrowing in unplanned ways, creating the need to re-source key items, programs or categories. Even in a sales environment where liquidity is crucial, and pre-season commit percentages need to be managed closely, strains on the vendor base may dictate that more liquidity be reserved for immediate, in-season, on-the-floor goods.

Independent retailers need to be in close communication with their key vendors as the plan and prepare fore 2010. They need to keep their ear to the ground for any possible impact on the availability of merchandise, and be prepared to act quickly, if necessary.

Copyright (c) 2012 Ted Hurlbut

by: Ted Hurlbut

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