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If the ground feels a little shaky, call it the Silicon Valley Bank Effect.
Although the U.S. federal government has stepped in to avert the collapse of the broader financial system — guaranteeing depositors get all their money after a run at a startup-friendly bank — new problems abound for fashion.
The fashion business is a bit of a banking crisis that has the potential to hurt both sides, with companies racing to double-check their finances and consumers becoming more cautious.
“Of course, everybody’s worried,” said Gary Wasner, CEO of the Hilton Corporation, which funds many designers. “When things like this happen, it creates more uncertainty in an already uncertain environment. If many are worried, what can follow? Uncertainty creates doubt and anxiety.
“When it affects the banking system, it creates a threat to the foundations that most people take for granted, so the risks are fundamental,” Wassner said. “I’ve had many clients ask me what this means and what it could mean.”
Wassner described it as “another bump in the road” – but the question at the start of the week is how tough can the road ahead be?
President Joe Biden sought to ease fears Monday in a brief address before markets opened.
“The banking system is safe,” Biden said from the White House. “Your deposit will be there when you need it. Small businesses across the country who have deposit accounts at these banks can breathe easy knowing they can pay their employees and pay their bills.
He also said that the management of SVB and Firma Bank, which are under government supervision, will be sacked after the crackdown on cryptocurrencies, and investors risking the banks will lose their money.
“That’s how capitalism works,” he said.
Still, investors in retail had no luck on Wall Street.
While the Dow Jones industrial average slipped a modest 0.3 percent, or 90.50 points, to close at 31,819.14 on Monday, fashion was particularly hard hit. Among the decliners was Kohl’s Corp. It fell 8.1 percent to $22.82. Allbirds Inc., up 8 percent to $1.15; Armor Inc., up 7.5 percent to $7.26; Nordstrom Inc., up 7.5 percent to $16.87; G-III Apparel Group, up 5.2 percent to $15.02, and Abercrombie & Fitch Co., up 5 percent to $25.62.
Concerns over the weekend that startups that stored their payroll at SVB might suddenly be unable to pay their workers — a concern that the Biden administration has now covered — were another setback.
Already struggling Stitch Fix Inc., for example, has reduced its financial cushion, saying it doesn’t expect to receive SVB’s $40 million of its $100 million revolving credit facility, according to a filing with the Securities and Exchange Commission. .
Stitch Fix has no plans to draw on that line of credit and says it has enough available to cover any working capital needs.
That was enough to satisfy investors, sending Stitch Fix shares up 4.4 percent to $4.96 on Monday.
But styling services – and the rest of the retail business – are also now able to sell to customers weary of crises and weakened by high inflation.
“Consumers don’t like risk, they don’t like volatility,” said David Basuk, head of retail practice at Alix Partners. ” of [stock] Markets know how to read that and markets have been in turmoil as a result.
“What we’ve learned from the past is that when there’s a crisis of this nature, consumers push back, they’re very responsive,” Basuk said. “Cost tensions are real and meaningful, and the consumer is only controlled by their psyche.”
But Basuk, based on his research of the last six major crises dating back to the 1987 stock crash, says consumers pulled back quickly, but recovered just as quickly.
“We have to be ready for that,” he said.
Hopefully the problem will go away quickly.
Hemal Nagarshet, a consultant at Kearney Financial Services, said that SVB “does not represent other banks” and there is no sense of “transgression”, suggesting that the failure will be widespread in the financial system.
“They were very different in many ways,” Nagarshet said. “They were a top-flight bank, some people would argue that they always attracted money that wasn’t very stable to begin with.”
Still, companies say it’s a good time to take a closer look at the risk they — and their partners — are taking.
That goes double for areas like crypto, where many fashion companies are getting into it.
“It doesn’t hurt to say, ‘Let’s take a second look at how I manage risk to all the partners and suppliers that I use,'” Nagarshet said.
So while fashion accounting departments are hoovering up their books as usual, the rest of the industry can keep their fingers crossed for the time being.
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