Blog: Crunch time for crisis talks
Leonie Barrie | 20 July 2009
Kellwood Company, one of the largest apparel makers in the US, says it is "business as usual" despite being locked in talks to stave off a bankruptcy filing. Last week the firm missed a Wednesday deadline to renegotiate a $140m bond issue – and is now looking at a range of options to try to strike a deal to strengthen its balance sheet.
If the company, whose brands include Vince, Phat Farm and Sag Harbor, fails to extend or repay its maturing debt it may be forced to quickly pay back other loans or file for bankruptcy protection to try to protect its assets. In the meantime it has negotiated a forbearance agreement with its bank group to postpone, reduce, or suspend payment due on a loan for a specific period of time.
The apparel maker is keen to stress that its problems are the result of the debt maturity and not Kellwood's business performance. “Our operations and supply chain are strong and we are currently a profitable company,” said president and CEO Michael W Kramer.
Financial problems are also looming for a number of US retailers and their suppliers – thought to include Bon-Ton Stores, Burlington Coat Factory and Joe’s Jeans – as CIT, the troubled American bank, negotiates with lenders to keep the company out of bankruptcy. CIT, the largest factoring firm to the apparel sector, is trying to restructure some of its debt payments after the government dashed hopes of a bailout.
For thousands of small and medium-sized US apparel firms the demise of CIT would mean the very real prospect of their credit and cash flows drying up too. And this could leave retailers with a shortage of merchandise during the crucial back-to-school and holiday seasons, as well as another round of cost cuts, layoffs or shut downs.
In contrast, there was some good news for bankrupt outdoor clothing retailer Eddie Bauer, which has been sold to Golden Gate Capital after it beat other potential buyers with a bid of US$286m. The private equity firm was selected after it made the “highest and best offer,” promising to keep most of Eddie Bauer's stores and employees in a newly formed company.
Jeans giant Levi Strauss & Co says it will continue to invest in its brands, even though currency fluctuations and falling sales combined to push the company to a second quarter loss. The denim specialist, which has just acquired 73 outlet stores in the US, swung to a loss of $4.13m compared with a profit of $701,000 in the same period last year. Global revenues for the three months to 31 May fell 3.4% to $904.5m from $936.3m a year earlier.
US retail giant Walmart is raising the bar on sustainability by asking its suppliers to calculate the full environmental costs of making their products as part of plans to develop an environmental labelling scheme for the items sold in its stores. It hopes its 'worldwide sustainable product index' will be used by other retailers and suppliers too.
In its green vision of the future, chief merchandising officer John Fleming said products such as T-shirts would display information like "how much cotton was used, how many product miles were consumed to get that T-shirt into the store – and that will make a difference in terms of what products customers consider."
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