(Reuters) - Clothing retailers are not borrowing much this holiday season, say bankers who think companies that are discounting heavily may not be stuck with massive inventories like they were last year.
Credit utilization for inventory ahead of this year’s Thanksgiving was trending near its lowest level since the 2008 financial crisis, according to Wells Fargo Capital Finance, the biggest U.S. asset-backed lender to retailers.
Many retailers entered the previous holiday season with bloated inventories only to run into a severe winter that kept shoppers away, and it took them most of this year to get rid of the huge pile-up that dented their margins.
“We are just not seeing huge borrowings by anyone,” said Irene Marks, managing director of retail finance at Wells Fargo Capital Finance, which committed $11 billion in loans to retailers this year.
Retailers, on average, are estimated to have used 35 percent or less of their total credit facility this season, according to Wells Fargo, compared with about 50 percent in pre-recession years.
While total credit utilization is up from last year’s 31 percent, retailers are spending more on building their online stores, analysts said.
“They are looking to do more capital spending right now rather than buying just inventory,” Nasdaq’s lead retail analyst Calvin Silva said.
GE Capital’s senior managing director of retail finance Tim Tobin estimated that the percentage of credit used by retailers they had loaned to was on par or below the 48 percent used last year. He said this was expected as they were not carrying as much inventory compared to the year ago period.
“We don’t know until we are through it, but we won’t see inventory problems like we saw a year ago ... retailers weren’t overstocking their stores this year,” GE Capital’s Tobin said.
Inventories at teen apparel retailers Abercrombie & Fitch Co and Aeropostale Inc are down 20 percent from last year exiting the third quarter, and 10 percent lower at American Eagle Outfitters Inc.
Victoria’s Secret owner L Brands Inc’s inventory for the fourth quarter is down 12 percent. Gap Inc said its inventory was down 2 percent per store in the third quarter and would fall further in the holiday quarter.
Retailers started discounting early this holiday season, with apparel retailers in particular deepening and extending deals in the week after Thanksgiving.
Writing by Siddharth Cavale; Editing by Saumyadeb Chakrabarty