California Apparel News

The finance industry has found a friend in the technology industry when it comes to drumming up new business.

The emergence of financial online ventures has made it possible for companies to conduct factoring, letters-of-credit support and other services with the click of a mouse. This relatively new competition comes amid fallout in the financial and factoring industry, which saw several rounds of consolidation during the past couple of years.

Following CIT Group Inc.’s recent acquisitions, including the acquisition of HSBC USA earlier this year, the financial landscape grew smaller. But the consolidation also opened up new opportunities.

Several East Coast companies, including Milberg Factors Inc. and Rosenthal & Rosenthal, have opened Los Angeles area offices during the past year. The battle for apparel industry accounts has become testier.

Finance companies have had to adapt to changes within the apparel industry. Because of the continued migration to offshore sourcing, finance companies have had to deal with a new set of terms. The receivables end of the business has not changed much, but there are fewer purchases of big-ticket items, such as sewing and cutting-room equipment. That has slowed down lease financing for banks and factors and boosted the need for other financial services providing credit protection, inventory financing and letters of credit.

“It’s a longer product cycle,” said David Reza, regional manager for the Glendale, Calif., offices of Milberg, which opened last February. “You need more time to familiarize yourself with importers. They need to know what’s going on in the American marketplace. You have to work more closely with the client.”

The more globally inclined marketplace has prompted an emphasis on technology, and factors are trying to keep ahead of the curve.

“All of our clients in the apparel and textile industries are constantly looking at bettering their technology, specifically when it comes to dealing with their retail customers,” said Harold Dundish of Capital Factors Inc. “Obviously, it becomes more important the larger they become, and it’s certainly important to us in the factoring industry. We need to constantly update and keep up our technology to meet the demands of our clients and stay ahead of our competitors.”

Creating partnerships

The emphasis on technology prompted market leader CIT Commercial Services, a division of the CIT Group, to delve into partnerships with several technology companies. CIT forged an alliance with El Monte, Calif.–based Cyber Merchants Exchange Inc. (C-Me) and Taiwan-based Bank SinoPak to offer an Internet-based platform that allows retailers to buy goods from offshore suppliers without traditional letters of credit.

CIT provides the credit lines for retailers, SinoPak provides the working capital financing, and C-Me provides the platform, acting as an international factoring company. C-Me has been promoting this concept, for which it is obtaining a patent, during its biannual ASAP Global Sourcing Show in Las Vegas as well as through general trading on its Web site, www.c-me.com.

This spring, CIT launched another partnership with New York–based TradeCard Inc. to give TradeCard vendors, including Vans Inc. and TAL Apparel, the option to obtain credit protection from CIT instead of bank-issued letters of credit.

TradeCard manages receivables online and offers financial supplychain management tools that handle electronic documents, automated workflow and messaging, compliance, settlement and financing. “It can be set up to pay the seller early at a discount so they don’t have to go through a factor. The uptake rate has been something like 40 percent,” said TradeCard spokesperson Rurik Bradbury.

Each vendor has the option of engaging a factoring agreement with CIT on a transaction-by-transaction basis. Payment for the receivable will be made by the buyer or by CIT, subject to the terms and conditions of the agreement. The process reduces the risk of human error and eliminates the need for re-keying data, said TradeCard Chief Executive Officer Kurt Cavano.

TradeCard’s process is substantially less expensive than traditional letters of credit, which researchers estimate constitute as much as 5 percent of the cost of world trade.

Cavano said that having money held up in banks for a shorter period of time contributes to lower financial costs and faster order processing.

At the recent Material World Expo in Miami, TradeCard announced it is partnering with Miami Lakes, Fla.–based New Generation Computing Inc. to connect the financial supply chain with the physical supply chain through NGC’s enterprise resource planning software, which the VF Corp., the Kellwood Co. and Haggar Clothing endorse.

While TradeCard has taken a leading position in online financing, banks are following suit with their own system. Most factoring companies have some type of software in place to lessen paperwork. Rosenthal & Rosenthal’s Factronics software gives clients access to their accounts around the clock. Other companies, including Los Angeles– based Hana Financial Inc., have added similar services.

Fostering relationships

While some factors have embraced technology, networking and developing relationships is still the key to growth, especially in the apparel industry, which has a large number of start-ups.

“You have to be entrepreneurial here,” said Jim Morrison, president of Los Angeles–based First Capital Inc. “We try to see beyond the gray area and become paternal with our clients. Apparel companies have a way of shooting to the top and then going to the bottom very quickly.”

Some factors said there is a need to be sensitive with the apparel industry. The consolidation among larger factors created a void in the West Coast marketplace for smaller financial companies, said FTC Commercial principal Ken Wengrod, who noted that some larger companies have a higher level of bureaucracy to deal with than smaller companies. “There’s a congestion of credit right now, especially with the yarn and fabric importers,” he said.

Wengrod noted that the growth of premium-denim and fashionknit companies has created opportunities for financing. “We look at a company’s ability to grow and the character of people who run it,” he said.

Obtaining funding appears to have become easier for start-ups and others. Factors are not setting specific caps and are working more closely with clients during the approval process.

“We have no preconceived boxes,” said Harry Friedman of the Woodland Hills, Calif., office of Rosenthal & Rosenthal.