Blog/News

TJ Maxx Stays Strong

Sadie Keljikian, Top Billion Finance

TJ Maxx seems to be resilient to the current blight on retail in the US.

Many brick and mortar retailers have been bleeding money for some time now, many of them unable to keep up with the demanded variety and advancing technology within the in-store format. Some fast-fashion retailers are managing to scrape by, but most mid-level and luxury brands are facing closures and even bankruptcy.

TJ Maxx, however, appears to be an exception to this trend. Experts attribute the chain’s success to its somewhat unique model, which is reminiscent of a different era in retail shopping. TJ Maxx has a rich network of buyers, all of whom seek out relatively small quantities of discounted items, which constantly change in each of its (approximately) 3,800 retail locations. The result is, as Wall Street Journal describes, “a constant treasure hunt.”

TJ Maxx continues to succeed, exceeding Nordstrom and J.C. Penney combined in sales and maintaining a market value almost seven times that of Macy’s.


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Sears Fights On

Sadie Keljikian, Top Billion Finance

Sears has struggled for quite some time, but it seems that the retailer still has a few tricks up its sleeve.

Like many brick and mortar retailers, Sears has struggled against the drop in brick and mortar retail for more than a decade, most notably since the company merged with Kmart in 2005. After several attempts at staving off bankruptcy, including a $300 million financing contribution from Founder/CEO Eddie Lampert’s hedge fund, Sears has made an aggressive move to trim the fat from the national corporation. Although holiday retail sales were neither encouraging nor terribly underwhelming across the board, Sears saw their difficulties mount with a 10.3% drop in comparable-store sales in Q4 of 2016.

Sears may have been prompted to take more drastic action by the notably underwhelming winter holiday season, even by the recently fallen standards of Sears/Kmart sales. The company has announced that it plans to “streamline operations” in 2017 and reduce costs by at least $1 billion annually.

Sears has announced plans to cut costs by gathering some of its stores into a real estate investment trust, imposing sale prices on certain items, and additional raised debt from Lampert’s ESL Investments. So far, Sears has sold five full-line stores and two Sears Auto Centers for $72.5 million since the new year and engaged Eastdil Secured LLC to raise at least $1 billion in real estate sales. The initial effect of the retailer’s efforts certainly show, with stocks up 30% in early trading Friday morning, but some sources doubt that Sears can cut costs and boost sales enough to last long-term.

Jim Cramer of CNBC’s “Squawk on the Street” commented on Friday morning: “There’s always rabbits out of the hat with Sears. It’s always Eddie Lampert coming out and saying. ‘Listen, you bet against us, you’re making a mistake.’ It always lasts for as long as it takes to be able to see the next same-store sales numbers.”

Cramer’s point is that Sears has shown a remarkable ability to tread water through financially trying times, but usually doesn’t come up with a plan that will sustain the business long-term. He went on to say that the survival tactics won’t have any lasting effect if people still aren’t shopping at Sears.

Many of Sears Holdings Corp’s plans to keep stores open are a bit vague at present, so it is difficult to say whether the business will continue to focus on surviving, rather than implementing plans to thrive. Although Sears and Kmart have failed to turn a profit in more than a year, their actions in the last month may indicate a new willingness to succeed by whatever means necessary.

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First Year Of Business Survival Guide

The U.S. Bureau of Labor Statistics reports that only 50 percent of business startups make it through the fifth year. If your startup is real estate, your chances are a little better (58 percent); if you are in retail (47 percent) or information (37 percent), the odds are a bit worse.

The first year of business sets the tone, and companies that start off on the right foot improve their chances of not only surviving, but also thriving. The infographic below, “First Year of Business Survival Guide,” gives entrepreneurs foundational survival advice in all key areas of the enterprise — at a glance.

The infographic format was selected for this topic because entrepreneurs with new ventures are busy enough setting up shop without the added burden of dissecting a 10,000-word textbook about business organization. To make your job as easy as possible, we created an infographic that distills the business knowledge and experience of our organization down to the must-do actions that make or break a new enterprise. Without doubt, there are many, many other bases that need to be covered — but without these 11 items, entrepreneurs will have a difficult time staying in the game no matter how well they run those other bases.

Another advantage of boiling down the survival guide to a manageable number of 11 items: One of the biggest missteps a new business can make is trying to do too much and overcomplicating the effort.

For instance, from an executive leadership perspective, it is far more effective to emphasize a handful of goals than a wheelbarrow full. Too many goals makes focus difficult, and more often than not confuses the team (if not the business owners themselves) — the upshot of which is not merely falling short of every goal, but often working at cross purposes. A small set of goals — provided they are the right ones — give new businesses the best chance of success, by far.

Another widely applicable example of simplicity trumping complexity is in the IT function. Many startups get wrapped up in their own wiring, trying to hit the ground running with complex, state-of-the-art information technologies and operating platforms. The real survival issues are much simpler: keeping the computer system up and running and phone lines open. As many a former entrepreneur can tell you, upsetting prospects with website pages that don’t load, being unable to process orders and dropping the call when they want to phone in an order are sure ways to go out of business — quickly.

Succeed with simplicity. This more than anything is the key to success in the first year of operation — and we hope this infographic makes yours a smashing success.

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Retail Game Change

Sadie Keljikian, Top Billion Finance

2017 may be a pivotal year for retail in the US.

The landscape of retail shopping has changed dramatically in the last few years. Stores, particularly those that are most commonly seen in malls, are scrambling to maintain revenues in the face of fierce competition from online retailers. Many are struggling to keep their doors open: Macy’s, Sears, Kmart, Abercrombie & Fitch, American Eagle, Aeropostale, Chico’s and The Children’s Place have all announced that they will shutter locations in the upcoming year. The Limited has already closed all 250 of its locations and laid off 4,000 employees.

This holiday season was a welcome relief for retailers. December sales were mannequins-1653602_1280higher than they’d been in five years, although the bulk of them were generated online. Customers also made their way to malls and department stores, but not without significant motivation. Prior to the holiday season, retailers dramatically marked down products sold in brick and mortar locations. This means that although sales were up 3.8% in stores, prices were so low that actual profit generated was minimal.

There is some debate as to the cause of the recent slump in retail shopping in the US. Many blame the entire phenomenon on the rise of e-commerce, but online sales only account for 8.4% of retail sales. According to Business Insider, the US has 23.5 square feet of retail space per capita, by far the largest amount in the world. Canada and Australia are next on the list, with 16.4 and 11.1 square feet per capita respectively. Such a massive quantity of retail space suggests that the US may be experiencing the slow petering of what was a golden age for brick and mortar stores. Perhaps retail hit its peak and the revenue generated in previous years represented a glut of demand. The cause for the decline could simply be that Americans do not shop as often or as much as they used to.

George John, a professor in Minnesota told Fox “It’s tough to keep track of why people come to my store. Why do they buy my stuff? They come to my store and look at my stuff, and then go online and buy it for 10 cents cheaper. There’s a lot of stuff rocking and rolling. Throw in the bad economy and you’ve got a perfect storm.” He went on to say that the only retailers who are safely navigating the current climate are those which fill a niche. He cited Warby Parker’s unique approach to selling eyewear online and H&M’s heavily discounted fashion. To John’s point regarding H&M, retailers that routinely mark down all of their products seem to be faring better than most. TJ Maxx, Marshall’s, Ross, and others have continued to grow and thrive.

Whatever the reasons, the retail world is changing rapidly and dramatically and online purchasing is certainly part of it. Brick and mortar stores are experiencing the worst of it, but every indicator points to a general decline in consumerism. It is difficult to say exactly what the effects of these shifts will be, but retailers are buckling up for a turbulent year further complicated by uncertainty in domestic and global politics. Most are downsizing to decrease their overhead while putting more energy into e-commerce sales.

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Gracious Home Enters Chapter 11… Again.

Sadie Keljikian, Top Billion Finance

New York-based Gracious Home has entered Chapter 11 “reorganization” bankruptcy protection for the second time in six years.

Gracious Home started as a small hardware store on the Upper East Side in 1963. Since then, it has grown into an upscale furniture and housewares retailer with four locations in uptown and midtown Manhattan.

The retailer has had a difficult and complicated few years. Gracious Home’s last brush with financial disaster started after the retailer opened a new location in Chelsea. Several experts and periodicals considered the new shop an overzealous expansion move. Shortly thereafter in August of 2010, the company filed for Chapter 11, blaming fallout from the 2008 financial crisis. Fortunately, an investor group consisting of principals from Fortunoff and Sciame Development, Inc. purchased a majority stake in December of 2010, saving the business.

downtown-690827_1280This time, Signature Bank declared Gracious Home in default of a loan in May of 2016 and eventually accelerated repayment of the loan. This left the retailer unable to pay rent and other bills on time. The Chelsea location closed last month and experts took the closure as a sign that the buy-out was ultimately not enough to keep the business going. Representatives told the New York Post “there is a viable business remaining, albeit on a smaller scale.”

Several publications have attempted to contact the retailer without success, inspiring further suspicion about the future of the company. The Gracious Home website is currently unavailable with a banner proclaiming: “We’re currently improving our online shopping experience.” Last week, the shop conducted a close-out sale with signs in the windows proclaiming “Everything must go!” Unresponsive email contacts and phone numbers associated with Gracious Home are also contributing to rumors that the company is not long for this world.

According to current Chief of Operations Robert Morrison, the business was dramatically affected by a lack of foot traffic due to the recent uptick in online shopping. He insists, however, that the business is worth saving and says that they hope to use the relief offered by Chapter 11 to reorganize operations with “as little disruption and loss of productivity as possible.”

Someone close to the litigation commented on the retailer’s future, saying that the company plans to close select locations and “skinny down” to one or two stores. Whatever the case, the retailer’s public stance is that they are making every effort to survive the myriad of difficulties it has faced in the last few years. Despite public gestures, questions linger whether Gracious homes is indeed capable of reorganizing and successfully rejuvenating itself from the ashes of bankruptcy in a new competitive environment.

As briefly mentioned above, this development also highlights a broader shift in the consumer goods market. Retailers are struggling to adapt to a changing economic landscape where consumers are turning to increasingly convenient e-commerce channels that sidestep the pitfalls of costly brick and mortar operations. Although the notoriously high property costs in New York City may have put more pressure on retailers locally, the overall trend extends throughout the US economy, which is evidenced by the slew of bankruptcies filed by prominent retailers in 2016: Vestis Retail Group (operator of retailers like Eastern Mountain Sports, Bob’s Stores, and Sports Chalet); Pacific Sunwear of California, Sports Authority, Wet Seal, Quicksilver American Apparel, and Radioshack, among others.  While this is unlikely to be the end of brick and mortar retail, it is clear that retailers need to adapt to the e-commerce revolution.

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Receivables Defined: Preview of our Upcoming White Paper

David Estrakh, Top Billion Finance

Receivables are amounts owed to a business for goods provided or services rendered. Any time a seller delivers goods or services to a purchaser, and both parties agree to exchange payment at a later date, a receivable is created. It is common for the seller to send the purchaser an invoice (or bill) which represents the receivable and summarizes the details of the transaction. The invoice usually includes a description of the goods or services provided, the amount to be paid, and the payment terms or payment due date.

The owner of a receivable (i.e. the party to whom money is owed) does not have a valid receivable until they have first performed all of their obligations– the goods must be shipped to the customer and/or the services rendered. Invoicing customers prior to fulfilling their orders is termed pre-billing; using pre-billed receivables as collateral can cause problems with customers and lenders and may be considered fraud. Therefore, the seller can bill their customer and claim the billed amount as a receivable only after performing in full. Lenders can then advance cash against the receivables.

One of the factor’s main functions is to advance funds before the receivable matures and the corresponding payments are due. Essentially, factors speed up cash flow by making future payments available in the present. In addition to lending, many factors also secure receivables by providing credit protection, collections, bookkeeping, and other services related to the management of receivables. Such services help to control and protect the underlying collateral while offloading the client-borrower’s risk and outsourcing their A/R management duties. Once a customer pays an invoice, any balances still owed to the client are paid at that time and the receivable is closed thereby ending the transaction.

Factoring Example.  Let’s say your company manufactures watches and just shipped a $50,000 order to a big-name retailer. You send an invoice to the retailer and then have to wait to get paid, usually 30-90 days. Instead, you can assign your invoice to a factor who will advance you up to 80% of the value of the open invoices and reserve 20% in the event of charge-backs or disputes. In this case, the factor could advance up to $40,000 and the remaining $10,00 will be paid to you once your customer pays the factor (minus the factoring fees and any charge-backs).

 

The above is a segment from our upcoming white paper, Factoring Basics, keep an eye out for the full piece coming soon!

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Sears/Kmart Fights Rumors Amid Financial Difficulty

Sadie Keljikian, Top Billion Finance

Sears and Kmart’s financial position continues to weaken and they may not have the resources to recover.

Traditional department stores have suffered an underwhelming year. Analysts attribute the decline to an uptick in onlinepexels-photo-210892 shopping and a decrease in foot traffic at stores. In the eleven years since Kmart merged with Sears, sales have dropped from $37 billion to $10 billion in the same period. In August, Sears announced that its cash and equivalents had fallen from $1.8 billion to $276 million since last year. They are also behind in pension contributions, having accrued a total of $2.1 billion in unfunded pension and post-retirement obligations. This, combined with the company’s total long term debt of $3.4 billion, leaves Sears/Kmart with little recourse. Analysts suggest unloading real estate and other assets to counteract the massive debt.

As financial difficulties facing the company grew, Sears and Kmart received $300 million in financing from Sears CEO Eddie Lampert’s hedge fund, ESL Investments. In addition to the massive number of store closures, Lampert has been consistently shrinking operations and unloading assets in general. CNBC claimed in September that the company’s massive amount of real estate can function as “levers to pull to avoid bankruptcy.” Moody’s analysts as well as several other sources, however, are less optimistic.

Concerns for the Sears and Kmart’s future have mounted recently, as rumors have circulated questioning the company’s bill-paying habits. Last week, The Wall Street Journal reported Jakks CEO Stephen Berman’s comments indicating that the manufacturer halted shipments to a “major U.S. customer that is experiencing challenges.”

Anonymous sources indicated to Wall Street Journal that the retailer in question was Kmart.

Sears CFO Jason Hollar has denied these claims, saying Sears/Kmart has “always paid our vendors for orders we have placed and as part of the normal negotiations between retailers and vendors.” Hollar qualified that there are “occasionally disputes over prices, allocations of product and other terms through the course of negotiations.”

Hollar’s comments haven’t swayed analysts, who fear that Kmart’s days may be numbered.

In response to growing suspicions that the chain won’t last too long, Lampert wrote “Recent reports have suggested that Kmart will cease its operations. I can tell you that there are no plans and there have never been any plans to close the Kmart format. To report or suggest otherwise is irresponsible and is likely intended to do harm to our company to the benefit of those who seek to gain advantage from posting these inaccurate reports.” Whatever the truth behind these rumors, Sears/Kmart is struggling to retain its former reputation as a staple of retail commerce.

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A Warm Start to Winter Leaves Apparel Retailers Out in the Cold

Sadie Keljikian, Top Billion Finance

This past weekend marks the highest December temperatures in 142 years, so naturally, consumers are not overly eager to buy winter coats, boots and gloves. As a result, many clothing retailers are suffering massive drops in cold weather apparel sales.  Among them is Stuart Greenberg’s Corniche Furs in Manhattan, which has seen a 30% drop in sales this month. In a recent New York Times article Greenberg said, “For the first 10 years of our business, we never even paid attention to the weather. It always just got cold.”

The warm weather is even impacting businesses like Macy’s, the Gap, and Nordstrom. All predict the need to offer winter wear at steep discounts to move surplus merchandise as the season goes on, but a company like Corniche Furs relies on the winter and, specifically, the holiday season to bolster its profits for the entire year. Many of the suffering businesses stocked particularly large quantities of boots, coats, and winter accessories at the start of the season, expecting a long and cold winter like last year, but weather analysis company Planalytics says that the volatile temperatures of the last few years cannot be expected to repeat themselves.

Companies like Zara and H&M have done reasonably well so far this season, largely due to their ”fast-fashion” approach. Fast-fashion retailers, or those which receive small shipments at a time and have a higher rate of turnover, have a much easier time adjusting when circumstances are less than favorable.

If temperatures drop dramatically in the next week, fortune may smile on retailers who rely on cold weather apparel. Otherwise, they may need to adjust their merchandise to accommodate the ever-changing weather patterns.

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