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Credit Worthy

By Home Furnishings Business in on May 2012

Most of us learned at a relatively young age the importance of building and maintaining a strong, personal credit history. For most of my generation, that knowledge hit in college sometime around the first semester when all the credit card companies were doling out applications at the campus book store.

It really seemed very simple. Fill in the application, mail it in, and lo and behold, about four weeks later, the plain envelope arrived containing that magic piece of plastic.

My friends and I viewed that tiny plastic sliver as freedom. Freedom to buy clothes, shoes, food, and all the extra joys of college without having to hit up Mom and Dad for extra funds. Just one more taste of freedom to be found in that first year away from home.

As a college freshman, it was a glorious thing, and for me, that first card arrived during the days of easy credit. Basically all it took was a street address, a social security number and a predicted year of college graduation. Easy cheesy.

Simple €œmoney€; simple times. And, a very eye-opening, educational experience in the way credit works for a naive freshman. Thankfully, I had understanding parents who took the hard line with me when it came to digging out of the indebted hole in which I€™d put myself in pretty short order.

Nope, there were no handouts from the money gods; instead, I hit the pavement in search of a part-time job that meshed with my class schedule. With that job€”in retail, by the way€”I slowly dug myself out of that hole and learned a valuable lesson in managing personal credit, money and budgets.

I did watch those same friends (who€™d accompanied me on many shopping trips and dining-out adventures) get those parental handouts for their personal bailouts. Over the years, I€™ve seen those same friends struggle to maintain budgets, personal credit issues and other financial matters. Who€™s to say if my parents had jumped in and paid off my debt whether I€™d be in the same proverbial boat as my college pals?

Fast-forward to today and the business sector and the credit crunch. By no means is the furniture segment being bounced around like a hot potato by banks and financing companies like we saw a few years back starting in 2008. It€™s still no cakewalk for credit, but by all accounts, lending for furniture retailers and the consumer seems to be loosening some.
Banks and lenders are still cautious, mind you, but at least now, companies with the word €œfurniture€ in their title or business description aren€™t treated as if they€™re tattooed with a scarlet letter. For the last few years, the furniture segment has been ostracized by banks leery of the housing market, leery of the state of the furniture industry, and just plain leery of lending dollars or extending credit. That was painful!
In addition to being a bit more furniture-friendly, lenders seem to be loosening the belt on consumer credit, too.
Thank goodness!
As we all know, home furnishings purchases are right up there behind homes and automobiles as the most expensive purchases consumers make. Without reliable consumer credit, those purchases are not likely to be made. A big cash outlay for most consumers isn€™t likely in these still-rough economic times, but the ability to spread out payments over a year or so makes the purchase easier.
During the last few years, consumers have also gotten a bit wiser in the use of credit cards, making it easier for banks to offer credit.
In this issue, we€™ve talked with lenders and retailers€”all willing to share their stories and opinions on the state of the credit market for furniture retail.
Enjoy the read, and here€™s to learning where we as an industry are heading in the lending area.

A Little Looser

By Home Furnishings Business in on May 2012

It might not feel that way for a lot of furniture retailers, but their ability to get and maintain the credit they need to run or expand their business appears to be improving€”some.

Many lenders are still holding their cards close when it comes to home furnishings retail, especially if a store hasn€™t been profitable, or doesn€™t have a plan to make money and grow sales.

Joe Milevsky, CEO of home furnishings retail consultancy JRM Sales & Management, Acworth, Ga., said lenders are still pretty tight when it comes to extending credit to furniture stores.

€œIt€™s maybe a little better, but still restricted,€ he said. €œIf you need it, you have a hard time getting it.€

He did say he€™s seen situations where banks have gotten more aggressive with some of JRM€™s more established, successful retailer clients when it comes to approaching them to extend funds.

€œIf someone€™s struggling, though, I don€™t see it getting any better€”I see it getting worse,€ he said. €œWhat we do is so tied to the housing market, and until the housing industry improves I believe credit will stay very tight (for furniture retailers). We have so many clients who are having record years€”some even through the recession€”but the banks are still afraid because it€™s so tied to the housing market.€

One problem is that many furniture stores don€™t have very good numbers of late to bring to their credit negotiations with lenders.

€œSay you€™re a store and you want to expand, refurbish or buy a store down the street,€ said Jerry Epperson, managing partner with Mann, Armistead & Epperson in Richmond, Va. €œThe bank€™s going to look at your numbers the last three or four years, how you€™ve done. Even if you€™re a survivor, even if you€™re gaining market share €¦ you might have to put a few more rocks in the box before banks are pleased as punch to provide what you need.€

Fortunately, he added, banks seem to be relenting on some of the more draconian methods they€™ve used to secure debt owed by home furnishings retailers.

€œOne of the most dastardly things I saw around late 2009 was good retailers, people who€™d always made money, the banks wanted the family to put its personal assets up to keep the line of credit,€ Epperson said. €œA lot of people decided to leave the business rather than do that.€

With improved retail performance, he said €œthere€™s not as much pledging of personal assets for businesses that have been successful over the years.€

A LESS JAUNDICED EYE
€œI think banks feel better about the retail environment, especially since spending has held up pretty well despite limited income growth,€ said Mark Vitner of Charlotte, N.C.-based senior economist Wells Fargo Securities. €œConsumer spending is up for big tickets, mostly autos, but some of that€™s furniture. A lot of people had put off major purchases during the recession, and now that layoffs have slowed, spending has picked up.€
Accordingly, Vitner said the credit crunch for some retailers has eased considerably as the economy improves, but it€™s still not easy to get a loan or expand a line of credit for many stores.
€œDeliquencies continue to fall, and credit quality continues to improve, but (banks) aren€™t loosening their credit standards that much because of inconsistency in the economy, improvement is so tentative,€ he said. €œWhen you look at the fundamentals behind consumer spending, there€™s been no real income growth the last two years. The gains we€™ve seen in spending aren€™t sustainable without stronger income growth.
€œThere€™s money to lend, but few banks are willing to loosen up a lot,€ Vitner said. €œThey€™re lending money, but not loosening the underwriting standards. For that to happen, the economy has to ramp up a notch, or more banks will eventually clean up their own balance sheets. Parts of the banking system have recovered from the recession, but the entire system has not.€

MONEY STARTING TO FLOW
Loans from Bank of America to small businesses€”which fits the profile of a lot of furniture retailers€”were up 20 percent last year over 2010, to $6.4 billion.
Don Vecchiarello, who handles media relations for small-business-related topics at Bank of America, said small business €œis a great opportunity for us, and it€™s a market that€™s starting to pick up some momentum as the recovery continues.€
With small businesses€™ financial condition and performance improving€”albeit slowly€”with the leveling off of the economy, more of those companies are eligible for and requesting credit at BOM.
€œIn addition, we have more people meeting with small business owners every day,€ Vecchiarello said. €œSince late 2010, we added more than 800 small business bankers who are consulting with small business owners at their place of business, assessing their companies€™ deposit, cash management and credit needs.
€œIn total we have more than 1,500 bankers, client managers and contact center associates who are 100 percent dedicated to serving the needs of our small business clients.€
Bank of America is keeping up the pace it set last year through March.
€œIn the first three months of 2012, we extended more than $1.7 billion in new credit to small businesses€”an increase of 21 percent over the same period last year,€ Vecchiarello said. €œImportantly, we have also seen an increase in small business owners€™ usage of their lines of credit for the first time in three years€”a key indicator that deleveraging is slowing and demand for lending is up.
€œIn addition, our combined new and renewal small business lending totaled more than $3.6 billion€”an increase of 14 percent over the same period last year.€
Bank of America€™s basic underwriting standards have remained consistent, he added. Borrowers need to show that they have the cash flow needed to repay a loan, as well as a secondary source of repayment and a solid track record running their business.
Those secondary sources can be hard to find, or have less value. Say you€™re using inventory to help secure a loan.
€œThe most you could ever get on inventory is about 80 percent,€ Epperson noted. €œIn 2009, 2010 everybody had all this stuff to get rid of. We don€™t have that problem so much now€”inventories are getting back in line. It€™s better than the 50 percent you might have gotten (on inventory) in the middle of the mess.€
Bruce Selik, CEO, Hillside Furniture in Bloomfield Hills, Mich., is understanding of banks€™ worries about securing lines of credit or loans. He believes the nature of home furnishings retail as a business can make it a hard sell to lenders.
€œWhat I hear from credit institutions is they don€™t like lines of credit based on inventory because that can be here today, gone tomorrow,€ he said. €œAnd look at our buildings. Furniture stores, in Michigan anyway, have a smaller amount of parking spaces per square foot (of floor space) because of the nature of our business€”we have large products. If you€™re a drug store and have 10 customers inside, that€™s not going to support a lot of business. If we have 10 customers in the store at once that€™s pretty good.
€œIf banks loan a business money A, on inventory; and B, on a building, that building needs to be able to be used for anything, and a lot of furniture store locations are appropriate for furniture retailing only.€

WORD FROM RETAILERS
Home Furnishings Business asked a number of retailers to rate their ability to obtain operating lines of credit compared with a year ago.
Selik said Hillside has been fortunate over the past couple of years in that it had few if any problems with the status of its line of credit. CEO Bruce Selik credits that to giving his bank no reasons to worry.
€œThere€™ve been no problems, because I€™ve had a line of credit with the same bank for almost 20 years,€ he said, though he does understand that longstanding relationships didn€™t keep other retailers from losing their line of credit.
€œWe deal with a Michigan bank, not a Bank of America or something like that, and I think that helped,€ Selik added. €œThat, and the fact I made money every year. When sales went down, I adjusted the business to stay profitable each year. I never gave them any need to worry.€
El Dorado Furniture, Miami Gardens, Fla., also has been fortunate not to have to go outside to finance its inventory or growth.
€œHowever, I do hear other retailers having somewhat of a hard time getting credit or paying a bit higher rates because of the risk factor in paying it back,€ said Pedro Capo, CFO.
Belfort Furniture in Dulles, Va., changed banks last year. Rick Petry, senior director of finance and administration, found looser covenants and a lower interest rate compared with before, calling the negotiation experience a €œgood experience overall.
€œMy line of credit is set for two years, so I haven€™t renegotiated this year, but I don€™t think we€™d have a problem if I did,€ Petry said. €œI found the process fairly competitive. We had four banks bidding for our business. That works if you€™re showing growth, showing progress in your business plan.€
Stephen H. Kidder, past chairman of Home Furnishings Independents Association€™s (HFIA) board, reported that credit is easier to come by at his Superstore Furniture Sales of Williston, Vt., although he said his company hasn€™t needed to borrow money.
The store maintains a good relationship with its bank, however, for when or if it needs to borrow funds.
In areas facing higher-than-average unemployment and where business conditions have been slower to recover, credit is still very tight for a lot of furniture stores.
That€™s been the case for Verona Mair of The Emporium in Ponca City, Okla., where some potential customers are leaving in search of better employment prospects.
€œCredit is harder because banks aren€™t €˜open€™ with their money even though they are making money,€ she said. €œAnd, there are fewer places to get funds. If you have money, you can get money.€
Hilmar Starcke at Starcke Furniture, Seguin, Texas, said his access to credit is about the same as it was a year ago€”and that€™s not good.
€œUntil there are directives from (Washington) saying to make credit more available, we will see no change,€ he said. €œWe aren€™t a good bet on paper. Banks don€™t like to do collateral-based lending like they once did. They only want positive cash flow and profitable business. I wish I knew a counter argument, but I don€™t.€

LOOKING AHEAD
Because of his buying group, Dale Dodd of Dodd Home Furnishings, Guin, Ala., says he has a little better access to operating lines of credit, and he sees more credit getting freed up to retailers this year due to market economics.
€œIt will continue to get better because of increased competition for business,€ Dodd said.
Retailers again had a mixed bag when they responded to questions about how they see their credit environment evolving over the course of 2012, especially when it comes to financing expansion or major store renovations.
Hillside Furniture does a lot of remodeling but it€™s more on the lines of new paint and other tweaks that don€™t demand a loan to complete.
€œI can tell you from talking to financial people, though, that banks are willing to go out on a limb a little more than a year ago,€ Selik said. €œWe see it easing up a little on that side of the fence around here. Detroit€™s tied to the car industry, and that€™s recovered.€
Capo at El Dorado doesn€™t believe the situation will get any better than it is right now over the course of 2012.
€œCompanies that were seeing growth by leaps and bounds will have to adjust their growth plans because they will not be able to get access to credit for their expansions or remodeling,€ he said.
It doesn€™t look very promising in Oklahoma either, said The Emporium€™s Mair.
€œSome business consultants are even advising entrepreneurs to not go into business for themselves, which is at odds with what has been the American way to prosperity,€ she said. €œVendors are pushing terms or are going the opposite direction by asking that orders be paid for with company credit cards so they get their money faster.€
Starcke doesn€™t see much improvement this year in his Texas market.
€œThere won€™t be any more money than today and lending guidelines will continue to be restrictive,€ he said. €œThe home furnishings industry is down something like 11 percent from 2007 so we don€™t meet criteria for a good lending situation. In fact, industries that look like ours on paper don€™t offer good lending opportunities.€
Kidder at Superstore Furniture Sales thinks lenders will loan, but keep a tight leash on borrowers.
€œCredit will continue to be available, but banks are conservative and will want as much as 40 percent equity to make loans,€ he said.
At Belfort Furniture, Petry believes credit availability isn€™t specific to furniture as a retail sector, as it is specific to individual businesses.
€œI think it will be fine for us because we always show net income at the bottom line,€ he said. €œEven if your revenue decreases, if you can show you€™re managing the business for profitability you should be fine.€

EXTERNAL FACTORS
What are some larger economic or political issues that would constrain or expand the availability of credit to furniture retailers?
Selik believes the answer is simple.
€œA, God forbid, another real war with somebody, like Syria,€ he said. €œB, another attack like 9/11 here. I€™d really hoped (on) that September 12 that the stock market wouldn€™t crash, that the markets would tell these people that they couldn€™t dictate our economy, but that€™s not what happened.
€œAnd especially for us here in Detroit, we€™re tied to the car industry, and with that it€™s the old story€”when it€™s good it€™s great, and when it€™s not so good it€™s horrible.€
The government could do something to loosen credit up but Capo isn€™t holding his breath.
€œIf I was in a position where I would have to wait for government to act for my business to prosper, I would forget about the government,€ he said. €œAnd I will look at my overall business model to reflect the current market conditions that exist, and I would take it from there.€
He added that while he loves it when customers come to El Dorado and buy furniture, he acknowledges that many were in debt €œup to their eyeballs.€
€œThey just kept on buying, same goes for retailers; they were expanding like crazy with money that wasn€™t theirs (borrowed money),€ Capo said. €œI think there needs to be a new and revamped process of how business should be conducted; that includes other elements for what-if scenarios, like the one we just went through in this crisis.€
And, of course, it€™s an election year with everyone wondering about the White House€™s impact on the business environment in the wake of November.
€œWe€™ll have uncertainty there,€ said Belfort€™s Petry. €œI€™m still not convinced we€™re out of the woods with the economy€”there are still a lot of hiccups.
€œThe housing market€”that€™s so important to what we do€”and unemployment will still be a drag on the economy in 2012, but we are in a good area as far as a lot of that goes.€
Kidder echoed the importance of housing to the health of the furniture industry.
€œHome furnishings sales improve when housing improves, and one in seven houses are empty€”wow,€ he said. €œForeclosures still high. Housing weighs down banking and home furnishings industries. Consumers who borrowed against their houses or took equity out have to have that all work through the system before their situation gets better. However, consumers seem to be trading up, buying better goods, which indicates improvement.€
Also, with the state of the housing market over the past few years, any recovery is more likely to involve people buying real homes, not speculating on a property for a quick flip, and that€™s a lot more conducive to buying furniture.
Within the industry, Mair€™s concerned that furniture€™s far-flung sourcing poses a risk that could effect retailers€™ health€”and credit worthiness.
€œA disruption of product supply lines would be bad,€ she said. €œWe need to be less dependent on imports so we can expect and get dependable quality and expected availability.€
Epperson€™s a little concerned about the growth numbers the industry can show over the course of the year.
€œWe had a really good fourth quarter, a really great MAY and February, but overall sales coasted after President€™s Day,€ he noted. €œMost economists agree (that) we€™ll see economic growth between 2.5 and 2.6 percent this year€”it was 2 percent in 2011, 0.9 percent in 2010.
€œIf you had 3 percent growth in the fourth quarter and 2 percent in the first quarter, you€™re looking at a slowdown. The warm winter probably influenced a lot of housing activity and kept people out of the house shopping.€
The money€™s out there to lend, but the banks certainly haven€™t turned the tap on full bore.
€œThe truth is, if something would occur that gave corporate America a little more self-confidence, they would have a tremendous amount of money available to use,€ Epperson said.
When they€™re ready, they might find furniture stores that survived the recession are better credit risks than in pre-recession days. Ironically, Wells Fargo Securities€™ Vitner noted, it made a lot of them better businesses.
€œThe severity of the recession scared a lot of folks, and they ended up tightening their own terms, making sure they weren€™t caught sitting on a lot of inventory,€ he said. HFB

Art Van Sets Toledo Furniture Store

By Aggregated Content in Business Strategy on May 15, 2012 from http://www.toledoblade.com/Retail/2012/05/15/Michigan-s-Art-Van-plans-Toledo-area-store.html

After 53 years as Michigan's top furniture retailing chain, Art Van Furniture Inc. has decided to embark on expansion outside the Wolverine state by opening a store next year in the Toledo, Ohio, area.

Art Van, which is based in Warren and operates 34 stores throughout Michigan, recently signed a purchase agreement with National Amusements Inc. to acquire the theater chain's 14-acre Super Cinemas.

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Retail Sales Inch Up Slightly

By Aggregated Content in economic news on May 15, 2012 from http://www.santacruzsentinel.com/business/ci_20626544/us-retail-sales-rose-slight-0-1-percent

Lower gas prices in April weren't enough to embolden U.S. consumers to spend more elsewhere.

The Commerce Department said retail sales rose only 0.1 percent last month. Even after excluding gasoline station sales, consumers increased their spending on retail goods by just 0.2 percent.

That followed two stronger months in February and March. Some economists say a mild winter led consumers to make purchases earlier in the year, effectively stealing sales from April.

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Berkshire to File Update on U.S. Stocks

By Aggregated Content in Business Strategy on May 15, 2012 from http://columbustelegram.com/news/state-and-regional/berkshire-to-file-quarterly-update-on-us-stocks/article_3f86db6c-9ca8-57d4-8a5a-d0769173e0b0.html

Warren Buffett's Berkshire Hathaway Inc. will file a quarterly update on its U.S. stock holdings this afternoon.

The filing may reveal changes the Omaha-based company made to its portfolio. Berkshire's moves are watched closely because of Buffett's successful investing record.

Buffett makes most of Berkshire's investment decisions, but the filing may show what the company's two new investment managers, Todd Combs and Ted Weschler, have been buying and selling.

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