Credit crunch causing pain
Ray Allegrezza, Editor in Chief -- Furniture Today, April 27, 2008
While the sub-prime fiasco and its impact on home furnishings continue to be a hot topic, it may soon take a back seat to a related hot potato: the credit crunch.
In simple terms, the escalating credit crunch has caused a number of large lenders, many of whom have taken big hits in earnings, to become far more demanding, even having the audacity to ask for the borrower's financials.
And who can blame them? In the past six months, eight well-known retailers including Levitz, Wickes and Sharper Image have succumbed to the double whammy of escalating debt and shrinking sales.
But as anyone in the business knows, retail is cyclical and is known for its rollercoaster ups and downs. It is also a business that routinely borrows money to finance operations.
Even so, lenders have not only tightened credit, but are no longer anxious to make new loans.
As one leading importer told me during the High Point Market, "Forget business as usual. Now, as far as the credit game, it is like an insane game of musical chairs. Everyone still wants to play, but nobody wants to be left standing when the music suddenly stops."
In the importer's case, tighter credit from his lenders and factors has left him with few alternatives. Either he finds other, more expensive lenders, or his company takes on greater exposure by becoming the bank for certain retail customers.
It doesn't stop there. If suppliers suddenly have less credit to float to retailers, then retailers may find themselves with less credit to offer the consumer.
That could be a problem in an industry that often attempts to make the consumer say yes-yes-yes to our no-no-no credit propositions.
What's the solution? Ditch the no-no-no sales? Wait for the government to cut interest rates again in hopes that the less interest we pay, the more we borrow?
It has been my experience that tough problems demand equally tough solutions. Maybe the first step is for each of us to get our own fiscal homes in better shape.
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