Independent fashion boutiques flourished in recent years as young women snapped up the latest designer apparel, no matter the price. But now, in the current crunch, they are among the retail industry's hardest hit.The credit crisis and the sharp downturn in consumer spending have left many boutique owners as cash-strapped as their customers. Factoring firms that normally keep goods flowing to stores by buying designers' accounts receivable have stopped approving shipments to some boutiques. That has forced the owners of these stores to pay cash on delivery -- or to use their own personal credit cards -- so they can stock their stores with womens clothes for the all-important holiday season.
Paying by credit card "is a game that will take you down" because of the high interest rates, says David Katzav, co-owner of New York-based Big Drop, a four-store chain that sells high-end denim and contemporary women's clothing in Manhattan and Miami. But Mr. Katzav says he has no choice. About 20% of his vendors won't ship to his 18-year-old chain unless he pays up front or provides a credit-card number, he says.
Factoring firms typically buy accounts receivable from designers and other apparel makers to help them finance production and make payroll rather than have to wait the typical 30 to 60 days it takes for retailers to pay their bills. Since summer, however, Hilldun, a factoring firm that extends credit to such designers as Peter Som and Derek Lam, has stopped approving shipments to about 40% of the 5,000 retailers it deals with, up from 25% to 30% previously, according to Gary Wassner, president and chief executive,
He says the increase is mostly a result of boutiques being cut off. Young boutique consumers are no longer "behaving like Sarah Jessica Parker" in "Sex and the City," he adds.
The boutiques' problems are being exacerbated by competition from Neiman Marcus, Saks Fifth Avenue and other high-end chains, which have been slashing prices to attract shoppers.
"Boutiques don't have the same breadth of assortment" as those chains and can't use apparel as a loss leader to attract consumers who might also buy higher-margin items like cosmetics, says Melanie Cox, chief executive of Scoop NYC, a New York-based chain of 14 upscale boutiques.
Scoop has had "no significant changes in our factoring situation," Ms. Cox says. But she adds that she been proactive, calling meetings with lenders and factoring firms to present worst-case-scenario cash-flow projections and to manage expectations.
Information about boutiques' finances is hard to come by because they're mostly small and privately held. So far this year, sales at privately held women's clothing stores -- which include boutiques -- have fallen below last year's levels, according to market researcher Sageworks Inc. From 2002 to 2007, by contrast, sales at these stores strongly outpaced those of department stores, Sageworks says.
Designer Tracy Reese, who makes dresses priced between $400 and $1,000, notes that factors have long been wary of independent boutiques but that "the numbers are even greater this season." As a result, she says, she has been asking small retailers to provide credit-card numbers in advance of shipments.
The situation is affecting her production plans, she adds, requiring her to delay production as long as possible to ensure that she doesn't get stuck with merchandise that retailers can't pay for.
Rather than cut prices to compete with high-end department stores, some boutiques are persuading designers to swap unsold merchandise for new designs, according to one owner who claims success with this strategy but declines to be named. Their hope is to freshen up their sales floors for the holidays as well as to preserve their profit margins.
Designers don't want the boutiques to cut prices. Many of them share the burden by reimbursing retailers for some of their markdowns at the end of the season, and they worry that markdowns will tarnish the image of their brands.Linda Dresner, who owns designer-apparel boutiques in New York and Michigan, says she got an email from a vendor last week "begging me to please hold prices until after Thanksgiving." Ms. Dresner, who has prepared for a difficult season by cutting winter orders 25% compared with last year, says, "I am going to hold off for as long as we feel comfortable."
