Beth Hawks

Beth Hawks, who owns Zelda Zen, a Federal Hill boutique with jewelry and other items for "body and home," discusses the challenge of raising the capital needed to stock holiday inventory. (Baltimore Sun photo by Amy Davis / December 1, 2010)

Beth Hawks' cozy Federal Hill boutique is so chock-full of earrings, scarves, ornaments and other merchandise that customers taking it all in might never guess to what lengths she has gone to stock the shelves.

As the post-recession slump drags on, Hawks and her store, Zelda Zen on East Cross Street, are struggling as never before. Longtime suppliers have gone out of business, vendors are demanding payment up front or cash on delivery, and loans and credit are tough to come by. She has resorted to buying inventory on credit cards.

"Never would I, nor could I, have imagined that I would be struggling so badly," said Hawks, 50. "I work seven days a week. I live on soup and cereal. I do not go out. Every dollar goes right back into the business and toward bills."

After years of competition from mass merchants that can slash prices and then years of an economic downturn that crimped wallets, many small retailers are facing new financing and inventory hurdles. That can smart even more during the holidays when retailers can make from 20 percent to 40 percent of their annual sales, according to the National Retail Federation, a trade group.

It's a retailing Catch-22: Leveraging your finances to bring in more inventory can be a dicey prospect, but not getting the inventory in the door can sink you.

"It's a cash-flow nightmare today being a small-business person; it's more difficult to stay afloat," said C. Britt Beemer, chairman of America's Research Group, a consumer research and marketing firm. "These are small-business people, and sometimes they'll maybe not pay somebody else so fast and use the money to get the product into their stores."

Patrick Donoho, president of the Maryland Retailers Association, said that while some independent small retailers have found niches and are surviving, a number of former members "just flat went out of business, some after 40 or 50 years."

Bank lending has slowed, and so has trade credit, or an arrangement between businesses to buy goods or services on account. That trade credit crunch can be especially brutal during the holidays, said William Dennis, a senior research fellow at the National Federation of Independent Business in Washington.

"That puts particular pressure on them all at one time," Dennis said. "Trade credit is one thing a lot of people don't talk about, but it's really become a big issue. A lot of smaller businesses depend upon it. People are on the other side selling the stuff, and they've had their own financial problems. They're kind of caught, too."

Some small retailers may be forced to turn to more expensive options for financing, order less inventory or cut the breadth of their offerings, Dennis said. And that could backfire for suppliers, who Beemer said may be short-sighted when it comes to dealing with longtime retail clients by "punishing them with cash-on-demand or other arrangements."

"A lot of companies, particularly the suppliers, don't look at the relationship between themselves and the customers. They look at how quick are they going to get their money," Beemer said. "They are putting more constraints on the little guys who in many ways have been their most profitable clients."

In Lutherville's Green Spring Station, the owner of the Wee Chic children's apparel shop said her merchandising background helped when she opened the store in the depths of the recession. Her business background also helped her establish credit. But it hasn't been easy, she says.

"Like a person with no credit, for a business with no credit it's hard to get credit and establish a history, and even paying your bills on time won't fix that," said Bridget Quinn Stickline, who opened the store a year and a half ago.

She says she's devised a strategy to meet her business goals.

"You take less risks than you might," Stickline said. "Cash flow is a constant issue. We use some credit cards, and smaller companies like us on the vendor side will carry our paper. I've sought out small designers that did not have a lot of ground here in Baltimore, and I go right to the top and make connections with the people who make decisions. Those relationships have helped me."

Larger banks have not been much help to independent retailers in many Baltimore neighborhoods, says Jane Seebold, who works with small businesses in Federal Hill as executive director of Federal Hill Main Street, a nonprofit corporation that helps revitalize the neighborhood's business district.

"It's been really difficult," Seebold said. "Banks are not participating in small-business loans."

The trade credit crunch just makes matters worse.

"People selling inventory to the shops stopped extending credit," Seebold said. "Shops have had to come up with money up front. A lot are using credit cards to purchase inventory, and that does not offer good cash flow or interest rates."

One type of Small Business Administration bridge loan aimed at profitable businesses that need help paying off debt could also help small retailers purchase inventory, Seebold said. But none of the banks in Federal Hill have offered the low-interest loans of up to $35,000 to the retailers she worked with, she said.

Hawks, the owner of Zelda Zen, applied for one of the loans, which she hopes to use to consolidate debt, order merchandise and make building repairs. But within 24 hours, she said, the bank denied her application. The reason? "My business isn't in a blighted neighborhood," she said bank representatives told her.

During her more than eight years of running the shop, Hawks has traveled often to New York to buy jewelry and other goods from some 70 vendors. In the past she paid for her orders 30 days after they shipped. But now, she says, such an arrangement is "next to impossible."

In October and November, Hawks says, she was forced to charge much of her inventory to credit cards. And she canceled several orders. "I have never gone into Christmas with so much credit-card debt," she said.

She has also adjusted her merchandise, stocking portions of the store with greeting cards instead of some of the more expensive product lines she would ordinarily carry this time of year. She's selling $20 candles rather than the $60 variety, and she has no backup stock for merchandise on the selling floor.

As a last resort, she said, she could rent her house and move back into an apartment over the boutique, where she used to live.

But while Hawks worries about financing, she still has faith in her customers, many of whom live and work in Federal Hill. They may not spend as much as they once did, but they still spend, she said.

On a recent Wednesday morning during Hanukkah, a woman stopped in and bought several pieces of jewelry and a serving tray as gifts. She also asked Hawks to adjust a pair of earrings. Soon after, a man came in to buy a silver-and-black bracelet for his wife. Hawks asked the customer, who said he lived nearby, whether he intended to give a gift every day of the eight-day holiday.

"Probably not," he replied. "You know, the economy."

lorraine.mirabella@baltsun.com

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