HSBC Worldviews – Eric Fisch

“Most retail products are manufactured overseas, and every element of a garment has a different impact on the environment.” - Eric Fisch, Head of Retail and Apparel, US Commercial Banking

Following record inflation and subsequent actions by the Federal Reserve to get it under control, the cost of money has gone up, a headwind to the US consumer, whose spending makes up a significant portion of the economy. In his role at HSBC, Commercial Banking Head of US Retail and Apparel Eric Fisch oversees business development and commercial banking services for apparel companies nationally. He joined the bank in 2003 and has established relationships with the most important global companies in the industry. In this edition of HSBC Worldviews, Eric discusses sector trends through an international lens.

How important is ESG to international retail companies and consumers?

We are making a concerted effort to work with our US clients and help them make ESG-friendly upgrades to their overseas factories. Most retail products are manufactured overseas, and every element of a garment has a different impact on the environment. For example, denim used to take gallons of water to produce, but newer water conservation tactics have made the production cycle more efficient. It’s great to see a warehouse with solar panels, but we want to take it a step further and help our clients modernize their supply chain processes to include more ESG-friendly practices.

ESG is also relevant to consumers who are actively voting with their wallets, and retailers are responding, especially those companies who want to appeal to a younger marketplace whose spending power is increasing. And they need to show they’re authentic about this process. Some retailers are saying, “We need to be better about this.” So they’re going to their wholesalers and asking about supply chain sustainability. I think this trend will only continue as the millennial customer becomes the dominant shopper in the next five to ten years.

How has consumer spending changed in this current environment?

There was a significant decline in consumer demand around the weeks where Silicon Valley Bank and Signature Bank were at the forefront of the news. Consumer confidence can be impacted by the headlines. It's still a little early to figure out, but it’s a trend we’re watching. However, what concerns me is that there's a general tightening of credit from the regional banks, which can impact consumers, employment, bonuses, pay increases, etc. Let’s not forget the impact of higher interest rates for credit cards and personal loans. At the same time, inventory is still high, and retailers are sliding product through the system, incorporating it for a new season. Fall product is now spring product. But if the economy starts to sputter, it’s going to be a problem for consumers and retailers.

What trends are you seeing from company founders?

With fewer acquisitions and less private equity activity happening in the space, we're seeing a lot of companies coming to us for “non-business” loans. Essentially, they’re taking money out of their business for personal reasons. We offer this product to existing clients as a way for owners to take money off the table, whereas most of their wealth is tied up in their business. Because they consistently invested excess cash flow back into their business, company founders may not otherwise have a large net worth (outside of the equity in their company). Supporting our clients includes supporting founders as they try to diversify risk within their personal portfolio.

How is intellectual property ownership playing a role in the retail and apparel space?

There are companies that are buying the intellectual property (IP) of retailers with the sole purpose of licensing the brand to suppliers and operators – all in exchange for a cut of the profits. While one company owns the IP, others manage the design and operation of the clothes. Instead of managing the design process or marketing, the owner of the IP will help with the strategic vision and direction of the company. I think most people don't understand that a lot of popular brands are operated under this model, and it’s a trend to watch in the coming years.