In the first column in this series on CIT's bankruptcy and the retail supply chain, Kurt Cavano, Chairman and CEO of TradeCard, provided background perspective on CIT's historic role and fit within the industry. In this post, we'll continue the analysis, sharing some additional thoughts from Kurt as well as those of another expert who has always been my go-to-source in the retail supply chain area. But before we get to another opinion, let's begin by breathing a sigh of retail trade relief. And that's because had CIT originally filed for bankruptcy earlier this year -- around the time the US government bailed them out -- it could have had a disastrous effect on the retail supply chain for the holiday season. But fortunately, the original delay -- which we can thank the Feds for -- allowed "both buyers and suppliers in the retail sector to get their shipments in and get paid," Kurt notes, in time for the holiday season.
Paula Rosenblum, who serves as Managing Partner, Retail Systems Research, and is always my go-to expert in the retail area, echoed many of Kurt's sentiments. "Because there was time, a lot of retailers had a chance to hedge their bets," Paula notes. "The holiday product is already on the water. FOB shipments / risk and transfers have already happened." For those who are not familiar with the term, FOB stands for "Free on Board," which is an incoterm. In this case, FOB means that the risk (and payment) pass when the cargo is delivered onto the container ship. In the US, if a supplier ships FOB to the warehouse of the customer, the supplier maintains the risk until delivery.
In Paula's view, CIT’s bankruptcy happened in the best possible way and is "all goodness". She believes that "how much was planned and how much is luck is tough to determine" There are two factors -- no pun intended -- at work that Paula points out: "A, had the filing not been pre-packaged with creditor approval and, B, had it happened 2 months ago, the industry would have been in trouble," Paula argues. "If the confluence of these two things did come together, CIT's bankruptcy [could] have been devastating to the holiday season and the entire apparel industry would have found itself in a disastrous situation."
Fortunately, Paula believes that this filing "feels orderly" and "is coming at a time when the supply chain is a bit less dependent on CIT". Thanks to the delayed filing, "now both retailers and suppliers have a time to sort things out in time for the spring buying season ... Impact wise it was done in a way that was best for the industry. This was the cleanest way for it too happen."
On a broader level, Paula hints that the CIT bankruptcy highlights the risk of an all Asia sourcing strategy. After all, with a near 100% global supply chain stretched to its working capital limits, there's always a greater opportunity for disaster than when companies retain onshore options. Moreover, what many people did not realize is that CIT financed both sides of the trade. They served as a high-interest lender or "factor" for suppliers, providing credit and lending facilities, but also as a financier for small and mid-size retailers as well.