Retailers Update Procedures
for Expanded Interpretation of Accessibility Law
By David Ellis, President
America's retail community - beginning with major department stores - is revamping their sales floors to accommodate their new, broadened interpretation of the Americans with Disabilities Act.
Department stores are working to make their selling areas more accessible to people with disabilities. Many are now selectively removing fixtures and reconfiguring departments to allow convenient access for those in wheelchairs. But to achieve this, they are reducing the amount of stock carried by an average of 15%.
This creates some operational hurdles for retailers to overcome, as not all departments in each store are impacted evenly. Some categories, such as footwear and housewares, typically have set fixtures and wider aisles and will not need reconfiguration. But others, such as apparel, typically have tighter walkways between fixtures and will require significant reconfiguration and removal of some fixtures. Accordingly, we understand that inventories in apparel departments will be reduced by 15% to 25%.
Going forward, retailers must handle the turnover of their inventory in a more efficient way. They must also redefine the way that they order from vendors to maintain sales volume and margin dollars. This translates to smaller and more frequent inventory orders. In turn, department stores' secured lenders must adapt to this change and determine how this new focus will change the inherent value of their collateral base.
At the same time, lenders serving the manufacturers and wholesalers who sell to department stores need to be aware of how their clients navigate through this changing environment. Specifically, the vendor must determine how its business flow will accommodate the department store carrying reduced levels of inventory, and the subsequent demand for higher turns to maintain sales volume.
There are three options for vendors to consider:
• Produce additional units of inventory on speculation, rather than gauge production primarily on confirmed orders. Retailers would pull from the vendor's warehouse, as needed, to maintain sales volume. Lenders must
recognize that goods produced on speculation have a lower inherent collateral value than those manufac
David Ellis
tured to fulfill specific orders.
• Alter production to more
frequent, but shorter runs. This strategy can be enhanced if the vendor considers manufacturing domestically or in neighboring countries— thus shortening the overall delivery of goods, but inherently increasing the manufactured costs of the items.
• Mesh both of the above tactics. Lenders need to review the ramifications of these industry changes to their collateral base. Historical liquidation appraisals of retailers must be revamped because the amount of inventory relative to the store's expense structure has significantly changed, as has the mix of the inventory. Because of this, the recoveries of the past can no longer be relied upon. Appraisals must be updated, with the current inventory percentages and mix taken into consideration. This is also true for manufacturer and wholesaler appraisals. Valuations must be updated to reflect the amount of inventory built on speculation, the expenses incurred in producing shorter and more frequent runs, the relative cost per unit of inventory, and the effects these will have on potential recoveries.
Inventory
(continued)
"We've spent a tremendous amount of time throughout all of our divisions working in the manufacturing and wholesale distribution sectors on both consumer product inventories and, with the assistance of Buxbaum/Century, into more industrial types of inventory," says V.P. Jim Siebersma, who directs the appraisal unit. "Obviously, the activity in wholesale and manufacturing from the equity side of our business has given us a unique perspective and insight into these sectors.
"While our core strength and reputation over the years has been as 'retail experts,' we're pleased that our client base realizes that the breadth and depth of our expertise extends well beyond just retailing and into the manufacturing and wholesale distribution arenas," he adds.
In an effort to further distinguish the depth and precision of its services in this area, in late 2003, Buxbaum Group
