The Gap Inc., in response to the coronavirus, has suspended rent payments on its North American stores and on “a significant” number of overseas units, resulting in $115 million in savings a month.
Gap said the rents were suspended for April and that the company is currently negotiating deferrals and abatements with landlords, as well as modifications and terminations of leases in certain locations.
But the company is fearful that suspending rents could lead to legal action by landlords.
Gap Inc. had already taken steps to try to mitigate the impact of COVID-19, including temporarily closing all of its North American stores and many overseas. Also in March, the company drew down on its entire $500 million revolving credit loan; suspended dividends and stock purchases; reduced planned capital expenditures by about $300 million for the year; furloughed the majority of its retail employees in the U.S. and Canada, pausing pay but continuing benefits; cut headcount at corporate functions around the world, and temporarily reduced pay for its leadership team and board members.
Further actions are expected due to liquidity issues. “We expect that the additional actions to preserve and improve our cash position during the pandemic will include some combination of new debt financing or other short-term credit facility and further deferring capital expenditures, further reducing headcount, further reducing operating expenses, further reducing receipts and orders for merchandise, and extending the terms for payment of goods and services,” the company said.
While Gap Inc. is dramatically cutting costs, Target Corp., which is among the few retailers that continues to operate its stores amid the health crisis because it sells food and beverage, household products and other essentials, indicated Thursday that its improved wages and benefits would be extended through May 30. The retailer is paying workers an extra $2 an hour and is providing backup care for employees and.
30-day paid leave for employees who are 65 or older, pregnant or who have underlying medical conditions. This is all in addition to the $300 million Target has already put into wages, bonuses, paid leave and benefits for its frontline team members.
“While this crisis will certainly put near-term pressure on our profitability, that pressure is far outweighed by doing right by our team and our guests,” Brian Cornell, Target’s chief executive officer, said Thursday. “We’re confident the actions we’re taking today will drive growth and great guest affinity over the long-term.”
Target reported that so far in the first quarter, comparable sales were tracking 7 percent ahead, with a slight decline in stores and a better than 100 percent lift online. Essentials including food and beverages comped up more than 20 percent, but apparel and accessories dropped more than 20 percent.
With those retailers selling “nonessentials” and forced to temporarily close stores, relationships with landlords are becoming strained. As Gap indicated in its Securities and Exchange Commission filing, “If we are unable to renegotiate the leases and continue to suspend rent payments, the landlords under a majority of the leases for our stores in the United States could allege that we are in default under the leases and attempt to terminate our lease and accelerate our future rents due thereunder.
“Although we believe that strong legal grounds exist to support our claim that we are not obligated to pay rent for the stores that have been closed because of the governmental and public health authority orders, mandates, guidelines and recommendations, there can be no assurance that such arguments will succeed and any dispute under these leases may result in litigation with the respective landlord, and any such dispute could be costly and have an uncertain outcome,” the retailer added.
After temporarily closing all of its North American stores — Gap, Banana Republic, Old Navy, Athleta, GapKids, Intermix — the retailer said it expects “material impacts from the evolving COVID-19 pandemic, including further spread in other regions, meaningful deterioration from current trends, and potential disruption from any supply chain impacts.”
The company also said it is continuing to restructure its Gap brand, which for years has been losing market share and customer loyalty.