Suppliers, distributors, wholesalers and importers on the soft goods
side of the industry, everything from drapes to fabrics to bedding,
seem to have held up in 2011, and are looking for more growth in
2012. Most of these developments appear to be low- to mid-end.
Bedding is emerging as especially profitable with a lot of positive
results for the purveyors of these goods. Designer name products
that are mass market priced appear to be the way to succeed in this
segment. It’s another area of opportunity for factors and ABLs.
With respect to commercial, defense and government procurement
electronics, this sector is performing decently and may pick up even
more in 2012. One concern is the rapid innovation in the industry
and the resulting shorter product lifecycle. A commercial finance
firm does not want to get stuck with last year’s technology. We look
forward to supporting many businesses here that are ramping up for
the LED lighting conversion, which will be huge. This technology
shift should occupy a number of businesses producing and servicing
this sector for the foreseeable future. It offers decent prospects for
factors and ABLs.
People are freshening up their houses either for re-sale or because
they don’t want to upgrade to a new home — the area with the
biggest payback is the kitchen. Appliance replacement is therefore
booming. Most retailers are offering aggressive pricing, incentives,
discounts and rebates. As an ABL or factor dealing with this industry,
you need to be cognizant of the potential dilution to your receivables
and inventory valuation.
Some of this business is starting to return to the United States, so
financing opportunities may become more available. These are usually
strong receivables, especially if they’re from the phone and cable
operators and similar major companies. There is also an opportunity
on the service side implementing new software packages, servers
and systems. ABLs and factors must be aware of the progress billing
issues associated with these larger and longer-term installations.
One sector that continues to thrive is the limousine or “black car”
business as most of the receivables are paid by large corporations,
professional firms and the like. Sales were negatively impacted by
the recession but have rebounded nicely. Most companies weathered
the downturn fairly well as expenses are usually positively correlated
to sales. Similarly, the private airplane aviation industry has solid
receivables for the same reasons, even though revenues are stagnant
here and may not show much improvement in 2012.
Shipping and storage companies are thriving, especially where businesses have outlasted some of their competitors. Shipping is not up
to any great degree, but the survivors are increasing volume because
of vacated business. Depending on the client base and resulting
receivable quality, these can be extremely good clients for ABLs
Everyone is learning how to do business with new Web-based models
that should continue into 2012. The technology revolution here has
meant a huge shakeout where it is no longer attractive to have any
meaningful ABL or factoring activity on the old-school traditional
operations. This year, expect to see continuation of businesses
re-directing into digital, Internet publishing and printing with hi-tech,
computerized graphics. There are still businesses that are thriving
with traditional methods but financing them requires careful study
While there is enormous price pressure from competitors and cost
pressure from the underlying agricultural commodities, the sector
is doing fairly well. Perhaps, because of these pressures and recent
increased regulatory oversight, it seems many banks have shed the
smaller, independent family-driven business accounts or pared down
their exposure. There’s value and resulting business being created
through famous chefs putting their name on products, improved
packaging technology, television marketing, brand website selling and
more. Especially for ABLs, this sector offers good potential this year.
This sector looks to be pretty stable going forward. More than ever,
this is Internet-driven, with extraordinary price pressure and very
little brand loyalty from customers. Almost all of this product is
manufactured overseas, so opportunities here come from wholesalers, suppliers, distributors, importers and the like. These transactions usually require a heavy reliance on inventories by the lender.
This is a relatively untapped market for factoring and ABL. It
continues to look solid for 2012. There is much in the way of products here beyond cats and dogs — everything from fish and reptiles
to livestock. Patience and time is required because a lot of this space
consists of small family enterprises and entrepreneurs, many of which
are product-driven and not business executives knowledgeable about
finance. Transaction size tends to be smaller, owing to the nature of
the potential borrowers.
Sales appear to be static and this can be a tough sector for many
ABLs and factors. If you are working with a hot, popular item, it can
represent a good opportunity for lenders — for example video games,
software but not hardware. These games have been doing well the
last couple of years.
However, the lender must be aware of the risk that the next
new popular game makes the last one obsolete. In traditional toys,
retailers are becoming much more demanding on holding back money
for returns, breakage, the right to back out of commitments on inventory orders, etc. While I will always look at a deal here, it is not my
There’s a dichotomy moving into 2012 where the Consumer
Confidence Index is down — but consumer spending has stayed
steady to trending slightly up. While I believe uncertainty will continue
to define the business environment for 2012, I am optimistic that we
will continue to see interesting lending opportunities. The November
2012 elections hopefully will remove some of that uncertainty but we
will have to wait and see their effect. abfJ
JAMES J. OCCHIOGROSSO is an executive vice president and the head
of asset-based lending at Rosenthal & Rosenthal, Inc., a privately
held factoring and finance company now celebrating its 73rd year.
Recently named by Crains as one of the top ten privately held businesses in New York, Rosenthal provides factoring, asset-based and
specialty lending to clients across a wide range of industries. The
firm has its primary offices in New York, Los Angeles and Shanghai.