CREDIT AND CASH FLOW PROBLEMS RESULT IN PALTRY PRE-SEASON ORDERS
Results of the 2009/10 Orders survey indicate significant declines in pre-season orders for snowboard and alpine ski equipment. Alpine ski equipment orders are down more than 20% and snowboard equipment orders declined more than 30% in dollars compared to last season’s orders. Retailers discounted prices and sold less last season resulting in thinner margins and less cash flow to pay for 2009/10 season’s orders. Additionally, retailers face a market in which credit is much more difficult to get and interest rates are poised to rise rapidly.
The credit issue was exacerbated last month when the near bankruptcy of CIT, a major creditor to small businesses (including the sports industry), rocked markets worldwide. According to CIT, more than 1,000,000 business customers “depend on CIT to provide the financing they need to run their businesses. And for more than 100 years, CIT has remained committed to the lending needs of the small and middle market – providing needed capital to markets that other larger and smaller financial institutions often don’t.” CIT’s near bankruptcy and the subsequent bailout by bondholders may result in exorbitantly high interest rates and difficulty getting terms other than “net 30” into the foreseeable future. With limited cash and credit, retailers are curtailing their orders for the 2009/10 season.
SIA conducted a short survey with members in July about the potential impacts of CIT’s funding crisis. Most respondents worried that a collapsing CIT would hurt retailers who are already struggling from poor cash flow due to last season’s anemic margins and a very tight credit market. The domino effect created by retailers unable to pay for orders is clearly evident in the Orders Survey results and losing the most prolific creditor to small business would only exacerbate the problem with ever tighter credit and increasing interest rates.
One member surveyed summarized the situation:
“The credit market is extremely tight right now and has been for nearly one year. Access to working capital is already constrained and the collapse of the largest factor/asset based lender would make the problem even worse and drive the cost of capital even higher than it’s been trending, as there would be too much demand for capital relative to the availability in the current market.”