Financing in the Age of e-Commerce


Mike Earnhart


Martin Efron

The apparel industry was an early adopter of e-commerce. Even before COVID-19 struck, online retail accounted for 27 percent of U.S. apparel sales in 2018 and 30 percent in 2019. In 2020, that number leaped to 46 percent as consumers largely avoided stores due to health and safety concerns, according to the research firm Digital Commerce 360. It is not an exaggeration to say e-commerce kept the fashion industry afloat last year and this year. But e-commerce is a very different business model from bricks-and-mortar. Instead of selling to big retailers like Walmart or Macy’s, many apparel firms sell either through platforms like Amazon and Shopify or directly to the public through their own websites. The direct approach is appealing because it cuts out the intermediary and offers the promise of bigger margins. However, it also requires a significant commitment from and involves increased risks to apparel businesses, who may feel it is the equivalent of operating without a net. Apparel makers who once received orders and, with them, a measurable degree of certainty from the retailers, now must gauge and make their own real-time decisions about demand. Will they make enough product? Will they get stuck with unsold inventory? Both the risks and rewards are higher.

The same holds true on the finance side. Because there are no receivables, lenders like White Oak have had to shift to a model in which they do more asset-based lending against inventory and other forms of collateral. That requires a deep understanding of a client’s business and management team and getting comfortable with the risks that are being shouldered. White Oak is also able to provide advice on the digital transformation based on its know-how and commitment to this area.

Additionally, White Oak has had to get creative about the types of collateral it evaluates in making lending decisions. Successful websites can have value as collateral, as well as brand names—even the brand names of companies that have gone out of business. You can’t run your hands over these assets the way you could with a sweater—they are in the realm of intellectual property, but in the digital era, intellectual property is a critical piece of the value equation. Lending against so-called intangible assets is a relatively recent phenomenon, but as these assets become a bigger part of a company’s valuations, this type of financing may become more important. In all cases, and with all types of collateral, White Oak’s goal is the same: to optimize the amount of available working capital that clients can use to run their operations.

Online retailing has had one more important impact: It has made everything go faster. Gone are the days when the fashion world had predictable seasons. Today, if a pop star or influencer on Instagram is photographed wearing a distinctive fashion item, it can become an overnight sensation, forcing the apparel manufacturer to crank up production. Similarly, the new work-from-home fashion trends to accommodate the remote-yet-professional crowd have required quick pivots. The shorter the fashion cycle, the greater the risk that an apparel maker will get stuck with unsold inventory. The end result: Both manufacturers and their lenders need to be very flexible.

It is worth pointing out that even as e-commerce expands, traditional in-store retailing remains an enormous business. In August, apparel sales climbed 43 percent from a year earlier, driven by big increases in both online and in-store sales, according to Retail Dive. For in-store sales, factoring remains a common form of finance for the same reasons it has historically benefitted the apparel industry: It provides a quick source of cash, it can be easily scaled for businesses of all sizes, it helps companies deal with seasonal swings and it outsources the jobs of credit checking and debt collection to those with the expertise to handle it. Our customers still ship product to stores, and we still do a considerable amount of factoring to finance those transactions. Factoring and receivable financing remains a reliable form of working capital that can help businesses across many distribution models, and it continues to keep pace with a fast-evolving marketplace.

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