Cover Feature

California Style: Financing the West Coast’s Apparel Industry

Photo Credit: White Oak Commercial Finance

Los Angeles is responsible for a major portion of garment production in the United States, with apparel representing the city’s largest manufacturing sector. As a gateway to the Pacific Rim and Latin America, it is also a major import, export and distribution hub, with two of the largest ports in North America (Los Angeles and Long Beach). The California Fashion Association estimates that the city’s fashion industry ships out an estimated $15 billion worth of product each year and employs more people than New York.

In a town known for celebrities, influencers and a casual, laid back style, fashion is big business, fueling the economy at every level — from small local start-ups to mega international retail brands and everything in between.

White Oak Commercial Finance (White Oak) has been serving the Southern California apparel industry from our Los Angeles office for more than three decades. I personally have been with the company for 18 years, beginning with our predecessor, Capital Business Credit, and now serve as managing director of the region. Our on-the-ground presence and deep roots in this market allow us to serve clients more efficiently and to provide innovative financing solutions that fit most business models or industry niches.

Over the years, we have worked with a diverse range of small- to medium-sized enterprises throughout the region, from first-generation immigrant-owned manufacturers to recycled/sustainable fashion innovators to the knitwear designs prevalent among surf, skate and other apparel brands synonymous with West Coast style. With core values of respect, teamwork and empathy, we work in close collaboration with clients to deliver stability in an uncertain world.

Here and around the country, troubling news headlines have apparel companies wondering about their bottom lines. In addition to concerns over inflation, rising interest rates and continued supply chain disruptions, we are also now seeing a shift in consumer demand for some types of apparel, leading to reports of retailers stuck with too much of the wrong inventory.

There are a variety of factors contributing to this trend — which we began seeing in Q1 — but the biggest one is that shopper priorities have changed. People have tightened their purse strings and reduced discretionary spending on items like clothing and leisure as they spend more on essentials such as groceries, housing and gas. We believe this shift in spending is temporary and that consumers will once again gravitate back to purchasing apparel — whether out of need, just for fun or simply to keep up with the latest styles.

Looking back, 2021 was a solid year for many apparel companies, but a faster than expected drop in consumer demand caught some retailers off guard. Excess retail inventory has resulted in increased markdowns and allowances in certain categories, as well as a pullback on new orders, as retailers work to rebalance their inventory levels. We expect this pattern to continue for the next six to nine months, although we are beginning to hear of buying activity picking back up again.

These fluctuations are nothing new for a sector heavily dependent on ever-changing style trends and discretionary spending habits — which is why a strong financing strategy is key for businesses. Maintaining a well-capitalized company and ensuring ready access to lines of credit will help smooth out the inevitable rise and fall in consumer demand, so companies are able to avoid liquidity problems and take advantage of growth opportunities

The apparel industry has long turned to factoring and asset-based debt solutions for fast, flexible financing, whether it is for maintaining ongoing operations, meeting short-term debt payments, purchasing supplies, restocking inventory or investing in future growth. At White Oak, our creative financing structures help support companies in a variety of stages, from start-up to fast growth or in turnaround.

Our full-service Los Angeles office includes staff devoted to underwriting, origination and account management and support, with local decision-makers that can move quickly and efficiently to serve our West Coast clients. With decades of experience in the apparel and textile industry, our team is able to help clients leverage collateral, such as inventory or accounts receivable to unlock working capital to guide them through uncertain economic conditions.

Our team has a deep understanding of different industry business models, including direct-to-consumer, and can deliver creative financing to accommodate these structures. We understand the importance of supply chain management and have the knowledge and insights needed to help our clients navigate various challenges. We also have the resources and expertise needed to help support companies with challenges such as cross-border manufacturing and trade. Our Southern California presence and diverse team are well positioned to serve clients conducting business in Mexico and Central America as well as throughout the Pacific Rim.

As we look ahead to the remainder of 2022 and beyond, we have a few recommendations for apparel clients to help weather the current market conditions. Work with your lender to make sure you have access to capital and lines of credit to accommodate the extended conversion cycles that are now typical. Stay on top of your accounts receivable to make sure you get paid as promptly as possible. Monitor inventory levels and develop strategies that balance selling goods for the highest possible price while minimizing carrying costs. Finally, keep an eye on each deduction to ensure that it is consistent with the agreed upon markdown figures. Following these steps can help ensure more stable cash flows and keep you on solid footing in the months ahead.

Gino Clark is executive vice president and managing director of the Los Angeles region for White Oak Commercial Finance, an affiliate of White Oak Global Advisors.