| FROM:apparelnews | | | | market, and the fact that prices are collapsing means |
| Could Wall Street be the Grinch that stole Christmas? | | | | the value of our holdings is declining,” he said. |
| With dire financial news a daily occurrence, retailers | | | | “It is the negative wealth effect. If you feel you |
| and apparel manufacturers are wondering what the | | | | aren’t as wealthy as before, you spend |
| holiday season has in store for them.reebok"> | | | | less.” |
| capThe current economic downturn grew worse on | | | | However, Ike Zekaria, co-owner of Windsor, the |
| Sept. 15, when investment bank Lehman Bros. | | | | Southern California–based juniors clothing chain |
| Holdings Inc. became the biggest company to file for | | | | with 43 stores in 13 states, is a little more optimistic. |
| Chapter 11 bankruptcy protection. Barclays, the | | | | He said his customers are more oblivious to the |
| third-largest British bank, bought Lehman’s U.S. | | | | economic downturn because they are only 18 to 25 |
| operations. | | | | years old. “They are not tied in to what is |
| Soon, Bank of America Corp. announced it was | | | | happening with interest rates, loans and the ability to |
| acquiring troubled brokerage firm Merrill Lynch & Co., | | | | get a loan,” he observed. “But no one seems |
| in hot water for losing large sums from | | | | to have an answer for the future. Everyone is being |
| mortgage-related debt. And the U.S. government | | | | urged to stay the course, stay calm and do the |
| gave the world’s largest insurer, American | | | | same thing you were doing.” |
| International Group Inc., an $85 billion bailout. | | | | Apparel manufacturers have several things to worry |
| Now everyone is taking stock of their investment | | | | about. A slump in consumer demand obviously means |
| portfolio, jobs and mortgages to figure out where | | | | fewer orders. But credit is likely to get tighter, too. |
| they stand. Even if consumers are on fairly solid | | | | “For those companies that are in a stronger |
| ground, bad financial news breeds concern among | | | | financial position, credit is still available,” said |
| shoppers starting to make up their holiday lists. | | | | Steven Reiner, managing director of the West Coast |
| “Consumer psychology plays a very important | | | | office for investment banking firm Financo Inc. |
| part this time of year. If consumers are scared about | | | | “But for the broader group of companies, credit |
| the economy, it will clearly limit their spending,” | | | | may come from a nontraditional source, such as a |
| said Scott Krugman, a spokesperson for the National | | | | hedge fund, and might be more expensive.” |
| Retail Federation, a retail trade group headquartered | | | | Jeffrey Van Sinderen, a retail analyst in the Los |
| in Washington, D.C. | | | | Angeles office of B. Riley & Co., said everyone will be |
| He noted that shoppers were shy to spend during | | | | affected by the credit crunch. “I think it affects |
| this year’s Back-to-School season, when retail | | | | everybody, from the wholesalers to the retailers |
| sales increased only 1.1 percent in August compared | | | | right down to the average consumer, because today |
| with the same month last year. So the holiday | | | | it is harder to get a loan than a week ago,” he |
| season isn’t looking particularly bright. “The | | | | said. “The terms are probably going to be less |
| [tax] stimulus checks helped a little bit, giving | | | | attractive. You may have to have more assets if |
| consumers more financial flexibility,” Krugman said. | | | | you are a company or cash flow to be able to qualify |
| “But it was clear that consumers were holding | | | | for certain kinds of loans.” |
| back.” | | | | Also, factors that give loans based on accounts |
| In addition, luxury goods are no longer a safe harbor. | | | | receivable are being more cautious, scrutinizing |
| John Arguelles, president of Lloyd Klein, said the | | | | retailers to make sure they are credit-worthy. |
| couture collection created by designer Lloyd Klein and | | | | “They are keeping a very close eye on |
| sold at the company’s store in Los Angeles | | | | everyone,” Zekaria said. |
| experienced a sluggish season after the Sept. 11 | | | | Mergers and acquisitions is another area with a few |
| terrorist attacks and the ensuing recession in 2001. | | | | speed bumps. With less credit to acquire companies, |
| He expects the same thing now. | | | | deals may be slow to mature or could fall to the |
| “A lot of our clients have an assessed wealth | | | | wayside until later. |
| based on the value of their holdings. If their holdings | | | | “For a good 18 months, mergers and acquisitions |
| value drops, they feel poor, and if people feel poor, | | | | have gotten much more difficult,” Van Sinderen |
| they spend less,” he said. | | | | said. “The LBOs [leveraged buyouts using debt to |
| He said this may not affect the woman who buys a | | | | acquire a company] are not happening. It is going to |
| $200 dress, but the customer who shops for couture | | | | be harder and harder to do deals.” |
| wear selling for $2,000 to $10,000 pulls in her purse | | | | However, for anyone with a ton of cash, now might |
| strings. | | | | be the time to pick up a bargain. “Where there is |
| “People are scared to death,” said Sunnie | | | | turmoil, there is tremendous opportunity,” said |
| Kim, president and chief executive of Hana Financial | | | | Ken Wengrod, president of FTC Commercial Corp. in |
| Inc., which serves the apparel and textile industries in | | | | Los Angeles, which works with fashion companies. |
| Southern California. “Therefore, consumers will | | | | One business-investment advisor, who wished to |
| continue to do without nonessentials, which in turn | | | | remain anonymous, said he was working on several |
| will continue to stall the economy in general.” | | | | deals for Chinese investors to buy apparel companies |
| Esmael Adibi, director of the Anderson Center for | | | | or retailers. But the company owners were balking at |
| Economic Research at Chapman University in Orange | | | | the low offers. “I had three people call me in the |
| Calif., said he believes consumer spending will be much | | | | last two days, all saying they’d now take the |
| lower for the next two to three quarters, meaning it | | | | offer. But it’s too late for that. The buyers have |
| won’t pick up before next spring. “All of us, | | | | dropped their price by 25 percent. |
| in one way or another, are exposed to the equity | | | | |