Credit still available to Mega Group retailers
By Michael J. Knell -- Furniture Today, June 22, 2009
San Francisco — Mega Group members continue to have access to credit through the buying group, which better equips them to face the retail turbulence than their competitors that rely on banks and other financial institutions, a Mega official said at the group's recent annual meeting here.
"We don't have the same need to satisfy shareholder short-term needs," said Kevin Leier, Mega's executive vice president and chief financial officer. "We see the current economic slowdown as temporary, and we are focused on being ready to help independent retail thrive once we come out on the other end of this."
Leier assured the 84 member stores in attendance that their lines of credit are open and that suppliers don't have to worry about whether they'll get paid on time.
"Unlike other lenders, who are generally taking this opportunity to tighten things up and renegotiate credit capacity, security and profitability, we are not reducing open-to-buy unless we're in a distress situation," he said.
This doesn't mean that Mega's credit department isn't constantly monitoring the financial health of its members.
"But we're not cutting back credit where it is not warranted," Leier said. "We will continue to work with our members to navigate the waters and keep inventories at manageable levels."
While the financing picture is clear, the retail marketplace is still slowed by a sagging economy. While there were some hopeful signs in the spring — including mild upticks in consumer spending and improving employment numbers — Leier said retailers should remain cautious.
"No one is suggesting that we are out of the woods yet," he said. "The critical factor is finding the bottom of the U.S. real estate market and we haven't seen this yet."
Canada's housing market also is still looking for prices to bottom out, and the inventory of homes on the market remains high in relation to demand, he added.
"There needs to be a correction before sustained construction activity will occur," said Leier.
He also noted that while interest rates remain low, lenders are seeing more risk in the economy — whether justified or not — and are building a greater premium into their pricing.
"Prime plus 1% is the new prime for many who are renegotiating credit facilities," Leier said, adding, "The period of free-flowing, no-covenant capital is gone. Covenants and enhanced reporting are the norm."
While consumer demand in Canada will continue to be sporadic through the second quarter, Leier said upward trends should become evident in the second half of this year, provided the stimulus packages announced by the federal governments in Canada and United States begin having the desired impact on consumer confidence and spending.
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