Dealers Tightening Inventory, Using Less Credit, Finance Firms Report

By Alan Wolf On Jul 5 2011 - 4:01am




NEW YORK — With the credit crunch largely behind them, dealers must now weather what is shaping up to be a slow summer by tightly managing their inventories and waiting for consumer confidence and traffic to return.

That’s the view from the industry’s three leading floor-planning firms, GE’s Capital Solutions, TCF Inventory Finance and Wells Fargo Capital Finance, which have an insider’s vantage of retailer and vendor finances and operations.

As Capital Solutions’ president/CEO Jeff Malehorn observed, “Financing for electronics and appliances started out positive in the beginning of 2011. We have seen a bit of a slowdown in the second quarter though, due to more pessimistic economic news and the expiring of the government appliance stimulus in 2010. Independent dealers are hanging tough, adjusting inventory levels and products to meet demand. They are managing inventory very closely these days.”

Steve Metivier, managing director of the retail finance division of Wells Fargo Capital Finance, concurred. “When the economy soured, the smart retailers buckled down, reduced inventory levels by 15 to 20 percent, cut expenses, and slowed new store growth. These measures have allowed electronics and appliance retailers to preserve liquidity and better position themselves for the expected slow recovery.”

For TCF Inventory Finance, the weak recovery has meant slow or no growth during the first half of the year. “[Our] electronics and appliance business is flat to slightly ahead of last year,” acknowledged H. James Hentz, the company’s executive VP and corporate development officer. “The dealers are essentially tracking steady with a year ago and there is a sense that there will be further improvement as the year progresses … While there are still some individual dealer challenges, there continues to be overall improvement with dealer credit.”

Capital Solutions’ Malehorn reported “a good first few months of the year following a slow 2010 holiday season,” and now anticipates “continued steady performance” now that dealers have cleared out older models and are at appropriate inventory levels.

The improving credit markets have also created new opportunities, said Metivier, by bringing “a lot of new business” to Wells Fargo and allowing current clients to refinance old deals and finance new strategic ventures.

Looking ahead, the executives agreed that the business outlook remains somewhat murky. “It is hard to get a good read on this year’s holiday season, particularly with electronics, given the challenges caused by the disaster in Japan,” Hentz said.

Malehorn, who now provides services to both the Nationwide and Brand Source buying groups, expects that the industry will have a better feel for the fourth quarter after next month’s round of trade shows and buy fairs. He also sees a longer-term issue in dealer attrition, as independents without succession plans or buyers simply close shop upon retirement.

Meanwhile, Metivier remains “cautiously optimistic” about the holiday season. “We are certainly seeing the ‘barbell’ effect with retailers at the high and low ends doing the best,” he said. “Consumers are spending again, although cautiously, and we expect consumers will remain cautious throughout the remainder of the year. Consumers continue to be focused on value at all price points, and the retailers who are perceived as offering the best product for the best value will be the winners.”

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