As big-name retailers like Woolworth Corp. and Barney's Inc. close stores, lenders continue to flee the retail sector, according to a new survey.
Nearly one-third of the 78 lenders surveyed by Phoenix Management Services, a Philadelphia turnaround management firm, said they had cut lending to retailers over the past six months. And another 29% said they planned to pull back over the next six months.
"This current economic boom seems to be business-to-business related, and the retail sector is moving up only about 2% annually, which is just barely in touch with inflation," said E. Talbot Briddell, president of Phoenix Management.
"Plus, you continue to see a spate of failures. Woolworth just announced they're closing, and so it's not hard to be in touch with their (bankers') emotions when you realize how many major retailers have failed or are in the process of merging as a consequence of competition," he added.
According to the lending survey, a vast majority of lenders view the overall economy optimistically, giving it the highest marks since the survey began in the third quarter of 1995.
When asked about a possible interest rate hike, a whopping 92% of respondents said they expected the Federal Reserve to increase rates over the next six months - a sign of confidence in the economy through the second half of the year, said Mr. Briddell.
Light manufacturing topped the list of attractive industries, with 78% of respondents saying they planned to market to that sector actively over the next six months.
Another popular sector is technology, according to the survey, especially software and communications technology. Twenty-nine percent said they planned to lend more in that area.
Yet even within the technology industry, retailers again found a chilly reception from lenders. Seventeen percent of lenders said they would cut exposure to computer and electronics retailers by the end of the year.
Lenders also said that loan structures, fees, and interest rate spreads had not changed during the first half of the year and were expected to remain stable through the next six months.