BrainTrust Query: How will CIT’s Bankruptcy affect retailing?
By Ted Hurlbut, principal of Hurlbut & Associates
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.
there were concerns about the impact on retailers in the near term. The Associated
Press reported, “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.”
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.
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 is likely
already in vendors’ 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
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
Independent retailers need to be in close communication with their
key vendors as they plan and prepare for 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.
Questions: How do you think CIT’s bankruptcy will affect the retail
supply chain? What precautions should large or small retailers
be exploring to brace themselves for any potential credit tightening?
How will it affect vendors?
Files for Bankruptcy Protection – Hurlbut Associates
Back CIT’s Bankruptcy – The New York Times
faces uncertainty as CIT enters bankruptcy – The Associated Press/Google
Will CIT’s Bankruptcy Mean for the Retail Supply Chain? (Part
1) – SpendMatters