ABF Journal - January/February 2012

Furniture

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.

Electronics

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.

Appliances

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.

Call Centers

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.

Transportation

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.

Logistics

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 and factors.

Publishing/Printing

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
and diligence.

Food Service

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.

Office Supplies

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.

Pet Supplies

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.

Toys

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 favorite sector.

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.