With a long-term expansion strategy in mind, Mr. Segal set about hiring new staff, freshening the product line and re-establishing connections with top retailers, including Walmart, Wayfair, Amazon and Target, to ensure its customers could have the omnichannel option of an ecommerce or bricks and mortar experience.
“The baby furniture industry is a highly regulated industry, it’s a very competitive space with tight margins and little room for error,” stressed Mr. Segal.
But when the COVID-19 pandemic hit in 2020, Storkcraft, like many in the manufacturing sector, faced supply chain challenges. Added to that were skyrocketing freight costs, suppliers who wanted to be paid before shipment, and the small margins on baby furniture, all of which significantly squeezed the company’s cash flow and working capital.
The challenges Storkcraft was facing required a complex, out-of-the-box solution, so the manufacturer turned to HSBC, its financial institution, to create and execute a plan that would allow the company to pay its trusted partners and suppliers and ensure its customers could get the products they needed.
The answer came in the form of a fully structured trade funding solution offered by HSBC, with increased working capital support – through pre-shipment and post-shipment buyer loans and a receivables finance facility totalling US$20-million – so factories and other suppliers could be paid upfront.
In exchange, Storkcraft provided the necessary documentation to support the proposed structure on an ongoing basis.
It may sound straight-forward, but this kind of unique program requires a trusted partner as both parties need to achieve a level of comfort with the funding structure and mitigate any potential risks in execution, explained Lynn Pratt, Credit Risk Manager at HSBC.
“They had working capital pressures, with inventory purchases having to be fully paid upon shipment. So the team worked together to structure a solution to support a long standing relationship,” recalled Ms. Pratt.
It was a cyclical dilemma: Storkcraft needed to get its inventory to be able to sell its product to then make the money to pay for more inventory. With the upfront capital to pay for inventory, the process ran smoothly, with inventory being purchased, shipped to big retailers and sold, and that money then getting cycled back into inventory.
“It took time to get the program up and running, but the trade funding structure has been a success for both sides,” explained Andy McCaughren, Senior Business Development Manager with HSBC.
“From the client’s perspective, we’ve given them what they need to run the business, so we’ve given them the overall working capital structure that they need, but from a credit perspective this is a much tighter and more controlled solution,” he said.
With the working capital in place to ensure the business runs smoothly, expansion is still very much part of the conversation at Storkcraft.
“The robust trade platform offers flexible payment terms that are reflective of our needs compared to the previous margin and facility platform,” explained Randy Graham, Vice-President of Finance at Storkcraft. “And this further assists us in streamlining the funding process and driving operational efficiencies.”
The result of the trade finance platform is that Storkcraft’s borrowing capability more than doubled, greatly assisting Storkcraft by supporting their future growth initiatives. Storkcraft achieved explosive growth, attributed to diversification of sourcing and manufacturing into new countries, and expansion of product development into new categories.
“Through the entire process and journey, HSBC’s support team was exceptional. It did take over a full year to fully implement all aspects of the program, which was consistent with the projected timeline communicated to us from the beginning,” said Mr. Graham.
“Big ships turn slowly, but once we started to get some momentum on our side things really just took off,” said Mr. Segal. “I’m thankful that the ownership and the bank was very patient with me and had a belief in what we were doing which allowed me to stick with the plan and see it through.”
To learn more about HSBC Trade Solutions, click here