Fashion Turns to Trump for Trade Insurance Support

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Fashion is looking to line up some insurance from the Trump administration. 

A group of 22 trade organizations — including the American Apparel & Footwear Association, the Council of Fashion Designers of America, the National Retail Federation and the Retail Industry Leaders Association — called on the government to establish “an emergency, temporary federal commercial trade credit insurance backstop.”

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Vendors can typically buy insurance to make sure they get paid for shipments if the retailer goes under. They can also borrow against their accounts receivables if they’re insured. 

But since the coronavirus effectively shut down retail in March, much less insurance is being offered and more retailers than ever have filed for bankruptcy — including Neiman Marcus Group, J.C. Penney Co. Inc. and J. Crew Group. 

The watchlist of struggling retailers is growing longer, too, with Ann Taylor parent Ascena Retail Group, Brooks Brothers and RTW Retailwinds Inc. all coming under close scrutiny. 

This strain on the retail side of the industry — coming on top of the general nosedive in business, canceled orders and an uncertain future — is expected to clamp down hard on apparel producers, particularly the smaller players that haven’t been able to raise new money to buttress their balance sheets. 

The AAFA in particular has been banging the trade credit drum. 

Steve Lamar, president and chief executive officer, said in an interview that the administration has been receptive and that the problem is being examined more closely by more players now.

“Folks have been looking at the problem that’s in front of them,” Lamar said. “The problem that was in front of you in May was, ‘How do I avoid going out of business?’ and ‘How do I ensure I can keep my people employed?’”

But those liquidity problems have evolved and now rest in areas of the trade credit and cash flow. Lamar said one of the big sticking points is that people don’t know how to accurately assess risk in the market today and so can’t put a price on credit. It is a little like restarting an engine — once the machine starts back up and goods are flowing in earnest from vendor to retailer to consumer, the risk should become more clear and the credit market could free up. 

In the meantime, many are in trouble.

“For a lot of companies, this will determine whether there’s a path forward,” Lamar said.

The hope is that the administration has some authority under the CARES Act to step in, allowing for quick action. Otherwise, Congress would need to pass new legislation. 

“Our concern is that this isn’t something that we fix at the end of July; this is something we really need to fix now,” Lamar said.  

Earlier this month, he called on the administration for support and pointed to “a commercial credit crisis.”

By way of example, he said that a vendor in February that might have been able to insure an $800,000 credit line for a $1 million purchase order — leaving the other $200,000 exposed — now might only be able to get a $100,000 credit line and have to risk the $900,000 to ship the order.

Many more groups are taking up the call as the industry starts to look more to the back half of the year. The letter, dated Tuesday and sent to Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and Federal Reserve chair Jerome Powell, also had the support of the Accessories Council, the California Fashion Association, the Fashion Jewelry and Accessories Trade Association, the Outdoor Industry Association, Sports & Fitness Industry Association and the U.S. Fashion Industry Association. 

“Many retailers and vendors are now overextended as a result of the unprecedented shutdowns and interruption we have experienced over the past three months,” said Tuesday’s letter.

“This means that U.S. jobs, including many U.S. manufacturing jobs, supported by our supply chains are at risk,” the letter said. “The available credit insurance capacity now represents only a fraction of what was available just a few months ago, and the situation continues to deteriorate.” 

Without insurance on orders, vendors will have to either take on the risk themselves or lose the business. 

“The spring and early summer are critically important for our supply chains in anticipation of the upcoming holiday season. Ordering for the fall is already starting to begin,” the groups pointed out. “A failure to fully restore credit to the supply chain now could extend the severe economic drag from the last few weeks of shutdowns well into the next year, harming millions of Americans who depend on these supply chains for their livelihood.”

The group noted that policymakers in Germany, France, the U.K., Canada, and elsewhere have stepped in to support the trade credit insurance market.

Specifically, the groups are asking for a “federal reinsurance backstop” — effectively insurance for insurance companies — to restore the market. 

That such an arcane corner of the fashion financing world as trade credit insurance can muster the support of 22 industry groups and merit direct calls to top administration officials is a sign of the extremely strained times. Washington has already spent trillions of dollars to expand unemployment support and help companies keep workers on the payrolls. 

But even though stores are reopening — with some retailers topping internal estimates — sales are still down sharply from a year ago. 

Already, 2020 seems like it would be a year disruptive enough to make retail yearn for simpler days when a U.S.-China trade war was its biggest problem — but the unease between the U.S. and China is still bubbling. 

President Trump’s trade adviser Peter Navarro suggested the trade deal between the two sides was over, shocking the financial markets and prompting a presidential tweet, indicating, “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!”

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