Blog/News

Toys R Us Will Close 175 Stores

Sadie Keljikian, Express Trade Capital

Toys R Us continues to struggle, despite its attempts to restructure and rebuild since filing for Chapter 11 in September.

The once-dominant retailer is planning on closing 175 of its locations in the US, nearly 20% of its 881 operational locations as of October.

Soon after Toys R Us filed for Chapter 11, toy manufacturers restricted or cut holiday shipments and reined in payment terms, compounding the retailer’s financial problems and complicating attempts to recover over the crucial holiday season.

In December, the retailer held a conference call and reported that prior to the bankruptcy, sales had already decreased by 7%. Later in the month, Bloomberg reported that sales had since dropped by 15% year-over-year.

As of now, the toy chain’s future looks bleak, but only time will tell.


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Toys R Us Continues to Struggle

Sadie Keljikian, Express Trade Capital

Toys ‘R’ Us may close at least 100 and as many as 200 locations in the wake of a 15% decrease from last year’s holiday sales to those recorded this year.

The former industry leader has had a difficult few years. After struggling under mounting debt, Toys R Us filed for Chapter 11 in September, claiming the retailer intended to restructure its debts and rebuild, but thus far, its troubles have only multiplied.

Mattel’s recent decline in the stock market has compounded the problem. Stocks of the Barbie and Fisher-Price manufacturer have seen a significant price decline in the last month and estimates negative earnings revisions for the current quarter as well as 2017 collectively. Toys R Us also suffered a technological error recently when a collection of promotional codes glitched, allowing customers to stack three separate codes and get a 60% discount on their order total.

Despite indications that Toys R Us may not last long, the business insists that all proceedings are in service of restructuring and rebuilding. Its bankruptcy status will simplify the process of closing the worst-performing Toys R Us locations. Only time will tell if the retailer will recover.

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5 Things You Should Know About the Millennial Consumer

Beixi Li, Guest Correspondent

Retailers and brands have changed the very fundamentals of how they do business to cater to the Millennial generation. But who is this Millennial consumer? What makes their shopping behaviors so different from previous generations?

Let’s first take a look at the numbers to understand the true scale and impact of Millennials:

The Numbers

Age: In 2017, people between 17 – 37 years old (Born 1980 – 2000)

Total Population: 92 MM in the US – the biggest generation in US history

Spending Power: $600 Billion each year – estimated to grow to $1.4 Trillion or 30% of total US retail sales by 2020

The biggest generation in US history will soon reach prime spending years. Let’s take a look at the five behaviors that characterize Millennial buying habits:

The Behaviors

  1. More than Ever, it’s about Price

Millennials are more concerned about price and less concerned about quality than previous generations, impacting business expectations and decisions throughout the supply chain. Retailers target more price-effective products. Manufacturers focus on minimizing costs. Suppliers, in turn, feel the pressure to manage material costs.

  1. Technology as a Way of Life

Looking around at our communities today, it’s no surprise technology has become the new norm. Having grown up in this world of technology, Millennials are more likely to try new technologies than other generations and to adopt those tools as parts of their routines. With this generation of extremely tech-savvy consumers, two trends govern technology as a way of life for the Millennial:

Mobile as the primary way to connect to the Internet.

89% of Millennials use mobile, whereas 75% use laptops and 45% use tablets.

67% prefer to shop digitally versus in-store.

41% browse at-shelf only to shop online for the lowest price.

As mobile becomes the primary means of engaging with online content, Millennials are able to access content virtually anywhere, at any time. Pre-purchase, at-shelf, at-check-out, post-purchase – the Millennial is constantly comparing products they see in front of them to products they could be buying on the internet. This tendency to instantly compare and contrast brings retailers in closer competition to all businesses that sell, be it online or brick-and-mortar. And as previously mentioned, purchase decision often hinges on price.

Social media as a critical source of information and factor in decision-making.

Millennials, above all previous generations, use social media to influence purchase decisions. They tap their social networks to read reviews, find new products and discounts, and share opinions on products purchased. A retailer is subject to not just the message it delivers to consumers, but also to the message its consumers deliver. As a result, many retailers and brands have taken to engaging consumers on their own turf by entering social media. To win the game, you have to play the game.

  1. Authentic, Personalized Experiences

Now that Millennials are subject to hundreds of thousands of messages from different retailers at all times, they want more than mass messaging. They want personalized messages customized to specific consumer concerns and they want those messages to be honest and authentic. Brands like Pepsi, for example, have experienced the social media backlash that can occur when consumers pick up on inauthentic messaging. Pepsi took down its controversial commercial with Kendall Jenner days after launch following immediate and overwhelming criticism from social media.

For retailers, the Millennial quest for customized material goes beyond direct messages. They are looking for tailored, customer-centric experiences. Shopping needs to become a multi-media entertainment experience. Shopping malls are a prime example of where this has already started taking place.

Historically, malls have relied on department stores to attract consumers. The decline in traditional shopping has directly impacted department stores, such as Macy’s, who reported a 40% decline in retail sales this year so far. As Millennials turn to experiences, malls are responding. Many have begun partnering with recreation and entertainment tenants in spaces previously owned by large department stores. These tenants offer activities different from movie theaters and restaurants and can include indoor climbing, bowling, playgrounds, and comedy shows. Providing this kind of experience, one that can’t be easily simulated online, is bringing more consumers back, and often for longer periods of time. Pyramid Management Group, owner of 15 malls nationwide and of Destiny USA, reports consumers spending more than 6 hours in the mall after it remodeled to provide a host of entertainment options.

  1. Faster, More Convenient Interactions

Millennials want things faster, with more flexibility, and without compromising on quality. As a result, there has been a proliferation of high-end fast food chains, online delivery, and fast fashion. Driving this expectation for faster service are Millennials’ quickly changing wants and needs. As Millennials come into peak purchasing power years, their changing consumption habits will require retailers to pivot quickly in order to meet changing demands. As a result, efficiency in production and operations will be essential throughout the retail industry as companies attempt to meet the quickly changing demands of Millennials.

  1. Lower Incomes Encourage Shared Services

Millennials have lower employment levels and smaller incomes compared to previous generations, causing them to postpone major purchases such as houses and cars and pushing them into shared services like Uber and real estate renting. But it’s more than just the large purchases that see this trend, smaller items such as music, movies, and clothes are also increasingly consumed through shared services such as Spotify, Netflix, and Rent the Runway. This trend among Millennials has moved businesses toward models that encourage access to assets without committing to ownership.


As Millennials grow into their peak purchasing period in the next few years, their behaviors will continue to disrupt and change the landscape of retail and shopping. Agile companies who respond quickly to changing demands from price to messaging may be able to ride this new wave of consumption and grow with Millennials. New businesses who take advantage of the opportunities in technology, experiential activities, and shared services may find even greater potential as the Millennial generation sets the tone for future generations. The biggest generation in US history will continue to dictate retail trends, and only those who continue to monitor those trends will earn these Millennials as consumers.

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The Amazon-Walmart Showdown

Viviane Simond, Express Trade Capital

Amazon and Walmart are vying to provide virtually every consumer good imaginable, and Amazon appears to be winning. Amazon is currently in the process of buying Whole foods for $13.4 billion. Since the news broke, Amazon’s market shares have remained stable while other large-scale retailers struggle to stay afloat. Walmart is no exception, their market capitalization dropped 5% immediately after Amazon announced their plans.

Walmart has been scrambling to diversify and keep up with the growing popularity of e-commerce. They recently purchased Bonobos, a high-end brand that sells dress shirts and other professional wardrobe staples, for $310 million. Despite having an initial disadvantage, Walmart’s persistence is paying off. Their online sales have grown 63% since last year, likely thanks to the retailer’s moves to harness third party appeal by buying brands like ModCloth and Shoebuy.com.

Meanwhile, Amazon is continuing to build a full-service industry with consistent new services like Prime Wardrobe, a fashion box from which customers may choose items to keep and return the rest, much like StitchFix. Amazon even has its own grocery service, known as “AmazonFresh,” but it’s yet to see much activity due to the logistical and financial issues surrounding perishable deliveries. Surprisingly, Walmart has the upper hand in this area…for now. The super-store currently has locations within ten miles of 90% of American shoppers and provides a delivery service allowing customers to place orders online and pick up in-store without waiting in line. Walmart’s niche dominance may shift, however, with Amazon’s upcoming acquisition of Whole Foods and the announcement of a series of brick and mortar locations.

Last year, Walmart attempted to catch up to Amazon when they purchased Jet.com for $3 billion. The investment is proving fruitful, but still brings in only a fraction of Amazon’s e-commerce revenues. Following Amazon’s announcement, Whole Food’s stock went up $9.62 per share and Amazon’s jumped $23.54 per share (2.4%). Unfortunately, other retailers saw the opposite effect. Walmart’s shares dropped by 4.7%, Target by 5%, Costco 7%, and Kroger 9%. Competing retailers are also concerned by Amazon’s plans to reduce Whole Foods’ prices and change inventory. Amazon hopes that this will help attract a wider customer base, but it may spell trouble for smaller businesses that can’t afford to compete.

Experts say that at this point, Walmart is one of the only retailers that directly competes with Amazon in terms of size, scale, and market value. Walmart has certainly made aggressive attempts at competition, consciously avoiding annual membership programs like Amazon Prime and insisting that their tech vendors not run applications through Amazon’s Web Service (AWS). Walmart has also been consistently acquiring new internet-based brands, focusing on product varieties Amazon lacks. Regardless of the future of Whole Foods, Walmart plans to continue expanding their product base to compete more effectively. Amazon has publicly condemned Walmart’s prohibition of AWS within their network, claiming that the restriction will hurt customers and tech companies alike.

Whatever happens next, it’s becoming clear that all retailers may fear Amazon’s influence before long. The e-commerce giant continues to grow and diversify its offerings and aggressively drive down prices, increasing competitors’ difficulty in keeping up.


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TJ Maxx Stays Strong

Sadie Keljikian, Express Trade Capital

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, Express Trade Capital

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, Express Trade Capital

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, Express Trade Capital

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, Express Trade Capital

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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