Mortar Crumbles, Bricks Fall in Retail Shock Scenario

The continual shift to online alternatives from traditional brick-and-mortar stores could have significant credit implications for retailers, REITs and CMBS transactions. According to a recent “shock scenario” report from Fitch Ratings, a rapid rise in Amazon’s U.S. apparel market could result in sharp declines in earnings and accelerate store closings, as well as erode cash flow and weaken credit profiles for apparel-focused retailers, mall REITs and retail-heavy CMBS deals.

In the hypothetical three-year shift to Amazon, in which the online retailer gains 25% of apparel market share by 2020, retailer margins could be cut by 300 basis points, pushing several retailers toward financial distress and low- to mid-tier retailers toward intense competitive pressure. The ratings agency estimates that upwards of 400 of 1,200 U.S. malls could close or be repurposed due to retailer liquidations and square-footage reductions. Cash flow pressure would fall on REITs that own regional malls with troubled anchor stores. Mall owners would have reduced access to capital from negative lender and investor sentiment.

Impact on credit quality for Fitch-rated CMBS transactions would be significant. Underperforming malls with high vacancy rates take a great degree of time and capital to re-tenant or repurpose. Fitch estimates that significant negative ratings migration would take place for nearly two-thirds of Fitch-rated CMBS classes in 19 deals. Rather than taking normal efforts to stabilize, special servicers would sell lower-tier malls at distressed values.

Such shock scenarios are hardly unbelievable given the number of retailers that have filed for bankruptcy due to the shift to online purchasing. This week, Toys ‘R’ Us filed for Chapter 11 protection. Assets of $6.9 billion make this the second-largest retail bankruptcy behind Kmart, Reuters reported. More than 300 retailers have filed for bankruptcy this year, including the Limited, Gymboree and RadioShack, while Macy’s, Sears and Bebe have closed hundreds of stores, according to The Washington Post. Apparel stores rue21 and BCBG Max Azria have also filed, along with discount shoe chain Payless.

Toys ‘R’ Us is the second-largest toy seller in the United States, Reuters said. The largest seller of toys is Amazon.

Credit Congress Call for Proposals

Call for Proposals—Deadline Approaching

The National Association of Credit Management will hold its 122nd Credit Congress & Exposition in Phoenix, Arizona, from June 10 to 13, 2018. Please click here to fill out the form to submit abstracts, proposed sessions and communications pertaining to participation in the program. Submissions must be made using this form.

Please submit ideas by Sept. 29, 2017. Any proposals that are incomplete or are received after this date will not be considered.

Don’t Procrastinate with Liens and Notices

Who has waited to file a business memo until the next day because you just didn’t feel like doing it? Or, in your personal life, delayed a visit to the doctor or a date with the treadmill? We heard from our parents and our teachers a version of the oft-quoted “don’t put off until tomorrow what you can do today.” This train of thought should be taken from our homes and classrooms and put in practice in our professions, especially with construction credit.

“There are no provisions for an extension for weather or disasters,” said Emory Potter, Esq., of Hays Potter & Martin LLP outside of Atlanta when referring to deadlines for liens and notices in Georgia. There are two types of states: ones where lien laws are strictly construed, such as Georgia, and those where they are more broadly construed, said Potter, who lost power for about two days after Hurricane Irma.

“Get it done early in Georgia—don’t wait,” said Potter. “You will get bit.” In Georgia, you have 90 days from the last day of furnishing of materials to file your lien. Registered or certified mail or statutory overnight delivery are acceptable for filing liens, which also need to be sent to the prime contractor and owner of the property. The notice to contractor should be sent in a similar fashion, but “within 30 days of first furnishing or 30 days from receipt of the Notice of Commencement, whichever is later,” according to NACM’s Lien Navigator.

In Florida, subcontractors and material suppliers must serve a notice to owner on the owner. The notice to owner should also be served to an entity or individual above you in the chain that you do not have a contract with. If serving a notice to owner cannot be done by mail or by delivery service, “a claimant may post a preliminary notice to contractor on the site of the improvement … it is recommended that after posting the preliminary notice to contractor, the claimant photograph it, date the back of the picture and execute an affidavit of ‘Hand Posting,’” according to the Overview of Florida’s Construction Lien Law by Barry Kalmanson, Esq.

Subs and suppliers also have 90 days to record a lien in Florida in the public records of the county in which the project is located, but Kalmanson suggests recording the lien early. If the deadline is missed, claimants still have the ability to file suit against the entity with whom they contracted for breach of contract, such as with nonpayment. However, that may be illusory if you attain a judgment and cannot collect, thus it is imperative to strictly comply with the time limits and perfect your lien.

Unfortunately, some subs and suppliers do not want to risk affecting their relationship with the general contractor or owner and will wait until the 11th hour to be paid, thus causing the issue of a natural disaster affecting timelines when they do not have to. In Florida, if a sub or supplier is being discouraged from filing notices to owner, the Construction Industry Licensing Board can take disciplinary action against the contractor.

In Georgia and Florida, a deadline can be extended if it falls on a weekend or legal holiday, but if you are watching the weather and see a storm coming that could impact you sending notices or filing liens, make a trip to the post office as soon as possible.

NACM Regional Conferences

Connect, Network, Learn and Share

The Western Region Credit-Con in San Diego is a wonderful opportunity for members to learn and grow by attending educational sessions and network with fellow credit professionals.

Western Region Credit-Con
October 11-13, 2017
San Diego, CA
Hosted by: San Diego Credit Association

Data Visualization Techniques for Finance Professionals

It’s one of the main tools in your toolkit when giving any kind of presentation, but finance professionals may often overlook some basic principles behind it that can make a big difference when conveying information. Charts, graphs and other forms of data visualization contain design elements that can be tweaked from a psychological perspective to more effectively communicate your message, whether to your CFO or an auditorium full of people.

Data visualization is the graphic representation of quantitative information, as defined in the webinar “Data Visualization: Important Techniques for Finance Professionals,” recently offered by the Association for Financial Professionals and presented by John Sanchez, managing director of the FPA Group. But why use data visualization in the first place? Humans process visuals about 60,000 times faster than text, Sanchez pointed out. The human retina can transmit data at about the same rate as an Ethernet connection, and people retain visual information at more than triple the rate of text alone.

Sanchez identified six gestalt principles of data visualization to draw meaningful perception out of chaos. The first is proximity. When items are close to each other, we tend to assume they belong to the same group, regardless of whether the items are dots or stick figures. In action, the principle of proximity creates groupings in an income statement by simply adding space between columns of figures.

When items look the same or similar, we perceive them as of the same type. A scattered mix of green dots and white dots still makes us think the green dots all belong together. In a presentation of financial information, the same color can be used in one row of data to convey a relationship between all those elements.

Another principle is closure, in which a broken outline of a shape such as a circle is still perceived as a whole shape. In practice, putting a box or other shape around a series of data creates a group.

With the principle of continuity, if we perceive movement, we assume an element as continuing the movement. Imagine a plus sign. We are likely to see it as two lines crossing each other (continuity) rather than four lines intersecting. If a line chart is broken at some point, we assume the data is still there—that the line is continuous—rather than representing missing data.

The principle of figure/ground is useful in thinking about background colors for charts. The idea behind figure/ground is illustrated in the optical illusion in which you see either two faces or a vase.

Symmetry is another principle important in data visualization. You should not give your audience the unnecessary impression that something is out of balance or missing, Sanchez said. The elements of your data representation should contain symmetry and order.

Sanchez went on to explain how to choose the right chart type for a presentation. Bar charts are best for comparisons, while line charts are best for representing trends and a lot of data. Pie charts can be effective, but have to be used carefully. Missteps include too many slices trying to show too much data. Another mistake is including slices that are too similar in size. Our brains are bad at perceiving relative area, so if the slices are too similar, the relationship gets lost, Sanchez said. A column chart would be a better option.

Data visualization can greatly improve the quality of your communication, Sanchez said, and employing some basic principles should make charts and graphs that much easier to use in your next presentation.

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Commercial Construction Confidence Drops; Still Positive

The commercial construction sector has a positive outlook, yet it is not as hopeful as it was earlier this year. The Commercial Construction Index (CCI) from the USG Corporation, the U.S. Chamber of Commerce and Dodge Data & Analytics showed a reading of 73 for the third quarter, down three points from the previous quarter.

The index was created earlier this year to help find the impact of commercial construction on the economy, as well as its challenges and opportunities. Commercial construction contributes more than $700 billion toward construction spending. “As this quarter’s report indicates, the industry is strong and healthy, but not without its challenges,” said the report.

All three main drivers of contractor confidence declined in the third quarter. Backlog and new business are still fairly positive with readings at 77 and 75, respectively. Many contractors also believe they will see revenue growth in the next year with a level of 67. Hiring, financing, skill level, and tools and equipment were also hot topic trends in the report.

Large- and mid-size companies reported more confidence in the next 12 months compared to small companies (under $10 million in revenue). Despite this, nearly all contractors expect revenues to remain the same or increase in the next year. More than 90% of contractors also predicted their profit margin to stay constant or grow.

CCI respondents said safety skills, technical proficiency and communication skills were the top priorities at the job site. More than nine out of 10 respondents also reported a moderate or difficult time trying to find skilled workers. This is similar to what was seen in the first and second quarters, yet more than half of contractors expect to hire more workers during the next six months, down from two-thirds of contractors in the second quarter.

Concrete remained the top trade with a labor shortage in the third quarter, ahead of electrical and masonry. The cost of skilled labor is also a problem, with 90% of respondents citing at least a moderate level of concern.

Three-fourths of contractors expect their access to working capital financing will stay the same during the next six months, which is roughly the same as the second quarter. Two-thirds of respondents “believe owner access to project financing will remain stable, and the percentage who report being unsure has decreased by 7 percentage points, reinforcing this confidence,” said the report.

More than half of the contractors surveyed expect to pay more for tools and equipment, down slightly from quarter two. Meanwhile, the concern of material shortages has increased steadily since the start of 2017, moving upward from 51% to 75%. “If this shift continues, material shortages may begin to impact contractor confidence, which would eventually influence the overall CCI number,” explained the report.

The third-quarter survey included data from more than 2,700 general contractors, construction managers and trade contractors among other construction decision makers. The survey defined commercial construction buildings to include office, retail, education, health care and transportation, such as airport terminals.

mechanics lien, bond services, mechanics's liens

Credit Professionals Can Rely on NACM's Lien Navigator

NACM’s Lien Navigator is a trusted guide for credit professionals that determines when and how action needs to be taken to protect lien rights across the 50 states, Washington, DC and Canada. The real-time Navigator ensures that you’ll always have current information. Specific questions are also answered for subscribers through the Navigator Answer Line. The Navigator is a web-based service, accessed through our website and available from any computer.

The STS management team comes from construction credit so we know how important every job and customer is to your company!


Now thru Sept. 30, 2017. Regularly $400.

*For New Lien Navigator Customers only.

For more information, call Chris Ring at 410-302-0767 or visit

Gauging the Impact of Administrative Tasks on Small- and Mid-Size Businesses

Small- and mid-size enterprises (SMEs) across the globe that were recently surveyed say that on average they spend about 120 days or approximately 5% of working time and $50,000 per company each year handling administrative tasks, including chasing late payments and generating and processing invoices.

The report Sweating the Small Stuff: The Impact of the Bureaucracy Burden, by cloud accounting firm Sage, used research from Plum Consulting that surveyed over 3,000 companies in 11 countries. It found, for instance, that the U.S. is a global outlier in the number of days its SMEs spend on complying with administrative and regulatory requirements; it has the largest burden recorded in the survey, at more than 225 days. Small companies, particularly in the U.S. and Australia, suffer from a disproportionate burden of the cost of administrative tasks.

“By shining a light on this issue and laying bare the facts, we hope that governments will be encouraged to not only simplify their own regulations but also help small and medium businesses in their digital transition and eliminate the admin problem for good,” said Stephen Kelly, Sage’s CEO, in the survey’s forward.

By category, the greatest administrative burden for SMEs (more than 20%) is accounting, while processing invoices accounts for more than 10% of the administrative burden, Sage said. In the U.S., 23% of SMEs surveyed said the cost concerns over implementing digital solutions made them hesitate from doing so, while a quarter said it was too time-consuming and 17% said it was too complicated, Sage said.

Overall, approximately half of administrative tasks are not performed by the surveyed companies using any type of software, Sage said. Companies in Australia, Ireland and Singapore were the least likely to use digital aids to respond to their administrative burden. “Given the general lack of digitization, there is a clear opportunity here for SMEs to improve their processes for dealing with administration,” Sage said.

Introducing software to carry out some of these administrative tasks can free up employees to conduct other tasks that can help the bottom line, the report’s authors concluded. “The extent to which software solutions can lead to lower costs is less evident, yet … companies cite cost savings as the most important factor that would encourage them to implement digital processes.”

Depending on the context, digitization and automation of administrative tasks can reduce some of their associated costs, the report’s authors suggest. Accountancy-related tasks are the most likely to be digitized within the companies surveyed, with more than half saying they either partially or fully used digital aids to generate invoices and process invoices, while less than half said they used such aids for chasing late payments.


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