Daly draws upon more than 30 years of experience in credit administration and secured lending. His areas of expertise include designing customized factoring and financing solutions for apparel, textile and consumer electronics companies and using factoring to assist middle market companies enhance their cash flow.

John, thank you for being here.

We’ve experienced milder weather this fall. How will that impact apparel retailers this holiday season?

JOHN DALY: The biggest issue for them is to come out with clean inventories so that they can move the next season’s goods in on time. In the last few years, I think they have extended the seasons a little bit longer so they have run fall later into the year. If you look at last year’s weather pattern, you had a very warm December and January, and then February and March got very cold. And the retailers had been smart enough to hold onto the inventory longer, not closing it out. Therefore they were able to deliver good gross profits and make some money and still wind up with relatively clean inventories at the end of the season. This year, I think they are a lot more concerned because you are seeing substantial numbers and amounts of pre-season sales.

INTERVIEWER: What about manufacturers—are they vulnerable to a downturn as a result of the warm weather?

JOHN DALY: Well, I think it is the same thing. The people that are involved in fall goods predominantly are much more vulnerable. If you take somebody who is a coat manufacturer, sweater manufacturer only, I think they are much more vulnerable. You take somebody that makes spring lines, fall lines, summer lines, holiday lines, less of their business is committed to any one season, they’re not as vulnerable.

INTERVIEWER: Many apparel items and consumer goods are imported from abroad. Where is the declining value of the U.S. dollar being felt most strongly?

JOHN DALY: I think you have to look at it from different perspectives. If you look at apparel, most of the apparel in this country is purchased in dollar terms. The apparel prices have dropped minimally 1 to 2 percent a year over the last five years running, probably. Now, that is probably not true for luxury goods because they are probably making substantially better-quality, more couture products going through the Saks and Bloomingdales of the world. However, in general when you deal with the chain stores, the distribution businesses, Wal-Mart, Target and Costco, they’re very price sensitive. The Chinese and the Asian manufacturers, which are providing a lion’s share of the goods, eventually will have to deal with rising raw materials cost. Polyester fabric is made from oil-based products, so the cost of that is going to have to go up over time. Right now I think the Asian suppliers are absorbing a lot of the costs, and we are effectively exporting a lot of our inflation to them. I don’t know how long it’s going to last.

INTERVIEWER: So, is the weak dollar making goods more expensive to the average consumer? JOHN DALY: I don’t think so. I think where the change has been, if you took a standard item of two years ago and you looked at it today, I think that it is probably selling at the same price or less. I think where the price goes up is if the same white T-shirt has a different name on it. If it’s Marc Ecko, that is great; you can probably get a higher price for it this year than you got last year. If it’s somebody else, maybe not.

INTERVIEWER: Taking into account the mild weather, the weak dollar and the overall economy, how do you rate 2007, and what kind of performance are you expecting for retail in 2008?

JOHN DALY: Generally I think you’ve had a slightly softer fall I think you’re looking at probably a flat year for ’07, and I think ’08 is going to be very vulnerable to general trends in the economy. Employment—there is a head-of-household statistic that comes out, and a lot of things follow that. You have unemployment, and then you have head-of-household unemployment, which is a little bit different. And when that starts to go down, you are generally looking at contractions at retail. Withdrawal of funds from the housing market probably hurts consumption, but is it all in the apparel sectors and clothing sectors? I don’t know; I think a lot of that money went into home improvements and different things. So I’m looking for ’08 to be kind of a muddle-through year. I’m very cautious as to what is going to happen.

INTERVIEWER: What retail sectors do you feel will perform the best during this longer shopping season?

JOHN DALY: If you look at what seems to be coming into the marketplace, I think you are going to see flat-screen TVs will be an enormous item. You’ve got a change in the standard to support hi-definition television. People are either going to have to get a converter box for their TV, and there has been a real surge in the production of flat-screen TVs. I think that probably in the couture area you will probably see jewelry and very expensive products do well. Another area that I’m optimistic on is the PC. I think you will see a fair amount of that going through the retail sales also.

INTERVIEWER: In these uncertain times, what role can factoring play in ensuring that manufacturers have proper financing for their business?

JOHN DALY: Factoring offers one-stop shopping for manufacturers and importers, especially the small to medium-sized companies. It provides all the bookkeeping, collection services, deduction recoveries, underwriting of their credit risk and all the financial needs in one simple product. And for a company that is in the manufacturing business, it is an outstanding way to insure themselves that they have adequate financing in dealing with somebody who has an intimate knowledge of manufacturing companies, the retail channels of distribution, how to work with retailers on a regular basis—and also how to schedule financing programs to meet people’s needs based on seasonal businesses.

INTERVIEWER: Well, thank you so much for speaking with us today, John. Thank you all for listening. Please visit podcasts.cit.com to learn more about the CIT Executive Insights podcast series and to subscribe to future podcasts.