CIT Bankruptcy No Threat to Retailers

NEW YORK (TheStreet) -- CIT's(CIT Quote) bankruptcy filing might not have as big of an impact on retailers as investors would fear.

Granted, CIT works with 2,000 vendors that supply merchandise to more than 300,000 stores, which means about 60% of the apparel industry relies on CIT for financing. But the company's bankruptcy scare in July gave retailers ample time to look for new sources of funding, and most found it rather easily.

"The factoring business is very profitable," Needham analyst Christine Chen says. "Why wouldn't someone like Wells Fargo(WFC Quote)want to pick up business where it lends money for a very short period of time with a high rate of return?"

Chen said she has spoken with the retailers in her coverage universe -- which include teen retailers and luxury goods -- and that most have said that they have spoken to other banks who are willing to factor if CIT falls through.

There are also, Chen notes, several dozen substitutes for CIT, such as Rosenthal & Rosenthal and FTC Commercial.

Thus, investors have little to fear about quality companies with good credit getting merchandise on their shelves, especially for the holiday season, which for the most part has already been shipped.

And retailers that are vertically integrated, like American Eagle Outfitters(AEO Quote), face even less of a threat, as they use their own balance sheet to fund goods and do not depend on a lender, Stifel Nicolaus Richard Jaffe says.

CIT has also announced that its lending operations will continue to operate as it goes through bankruptcy, which give those who haven't found a lender to pick up the pace.