Sat, Oct 04, 2008 page9

• Retailers fret as crisis hits home

  New York’s small business owners are worried that credit-tightening could close down their operations

  • By Michael Barbaro, Jason Grant And Eric Konigsberg / NY TIMES NEWS SERVICE
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  For the past year, New Yorkers have largely felt apart from the economic turmoil enveloping other parts of the country. But businesses in and around the city have reason to fret now that banks are becoming more tightfisted during the deepening crisis in credit markets worldwide.

  Small businesses often live at the mercy of their creditors. When times are good, loans are easy to get. When business sours, loans can dry up. With banks handing out fewer loans and raising interest rates, even healthy businesses are becoming worried that they will not get the credit they need to keep their doors open and their bills paid.

  Joseph McKenna, the owner of a Quiznos sandwich franchise on East 50th Street near Third Avenue in Manhattan is among the worried. McKenna, who formerly worked in a lending division at Citibank, said he was concerned that his bank, JPMorgan Chase, would raise the interest rate on his US$28,000 credit line if Congress does not approve a bailout package to calm the financial markets.

  

  ILLUSTRATION: CONSTANCE CHOU

  His nightmare involves the bank freezing his credit line, which he uses to pay for food and beverage deliveries, repairing equipment and fixing his store.

  “It could happen any week, or any day — you never know,” said McKenna, who said sales fell 20 percent in August, the worst performance in the three years since he took over the shop. “If you don’t have a line of credit, it could kill you.”

  Restaurant owners up and down Third and Lexington avenues, he said, are facing the same problems.

  So are other small stores, including Jill Anderson, a women’s clothing boutique in the East Village that relies heavily on credit cards.

  Anderson has kept her boutique on East 9th Street going by using 20 credit cards, half in her name and the rest in her business’ name. But during the past two years, she said, as interest rates increased, she had limited herself to three credit cards to buy about 30 percent of her fabric and materials. She is trying to pay off the US$90,000 debt on the 17 other cards.

  If interest rates rise further, she will have more trouble paying down her debt. She is also worried that her credit might be frozen.

  “For me, if they up the rates on what I’m carrying on my debt load right now, I’d seriously have a chance of going out of business,” she said.

  The banking industry’s problems hit retail businesses twice, because their customers also rely on credit to buy big-ticket items like computers, flat-panel televisions and home furnishing.

  And then there is the automobile industry, which has already been hurt by rising fuel prices. Up and down Route 17 in New Jersey, dealers say their customers are demanding unreasonable discounts or are unable to buy the cars they want because their credit ratings have fallen.

  “We still get A’s and B’s, but we see more D’s and E’s,” said Kevin Gilbertson, the general manager of Maywood Mitsubishi, referring to consumer credit ratings. “Once they figure it out, they come back for a lesser car.”

  Gilbertson and managers at other dealerships said sales boomed the last few years partly because customers were taking out home equity loans to help pay for their cars.

  That option, he said, has dried up as home prices have slid.

  The Standard & Poor’s/Case-Shiller housing index released on Tuesday showed that home prices in the New York metropolitan area fell 7.4 percent in July compared with the same month last year.

  Gilbertson said car sales had fallen about 20 percent at his dealership this year.

  Consumers short on cash are also finding out that some auto manufacturers, like Chrysler, are no longer offering leases. When they apply instead for auto loans, they are increasingly being told that their credit scores have declined and that financing terms have become more onerous.

  “There’s confusion in the public because of the economy and because banks are teetering on the edge,” said Lawrence Vayda, a salesman at Parkfield Saab in Rochelle Park, New Jersey. “They think they can just come in and there will be a fire sale. But even GMAC’s top-tier rates are high.”

  Wall Street’s troubles are sending a shudder through many of the city’s high-end stores, too.

  Some owners said they had recently begun paring down their inventories in effort to take on less debt.

  “For Christmas merchandise, we’re being more conservative with our buying less stuff and fewer really high-end items,” said Elliesha Villanueva, the owner of the Green Onion, a children’s clothing shop in the Cobble Hill neighborhood of Brooklyn.

  Deborah Buck, who owns Buck House, an antique shop in Carnegie Hill, Manhattan, said that about a year ago, she stopped using her credit cards to acquire most of her inventory and pay for her travel.

  “I have a line of credit from the bank, but I don’t like to be more than US$20,000 out because I don’t know what’s coming in,” she said.

  Bud Konheim, chief executive of Nicole Miller, an upscale dressmaker in Manhattan, said this should be the high season for charity balls and parties, the kind of events that reliably draw women to his stores in droves. But last weekend, as the financial crisis erupted, sales dropped for the first time in decades.

  Nicole Miller’s shoppers are supposed to be insulated from economic crises — dresses range from US$400 to US$1,200 — but “financial stress is trumping what-to-wear stress,” Konheim said.

  “That is a big worry, because the second that something gets more important than what to wear to the party, we have a very hard job,” he said.

  Konheim, whose company sells clothing to chains like Saks and Bloomingdale’s, said he was worried that personal credit would soon freeze for many people as Wall Street firms tumble.

  “If that happens, I don’t even want to think about what happens at the retail level,” he said. “Who is walking around with a lot of cash to buy things? Nobody.”
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