A person in a protective mask walks past the Wall Street subway station near the New York Stock Exchange in New York, New York, USA, 16 March 2020. Stocks opened sharply lower this morning and trading was halted for 15 minutes at the opening bell as investors continue to react to the impact of the coronavirus COVID-19 pandemic.New York Stock Exchange Coronaviurus reaction, USA - 16 Mar 2020

Retailers shuttering stores around the country are sending up flares for help, amid a coronavirus pandemic where public health officials are asking people to stay home to prevent mass hospitalizations and widespread toll. 

The Retail Industry Leaders Association and the National Retail Federation, trade groups representing retailers, submitted pleas Wednesday to the Trump administration and Congressional leaders, asking for access to financing, as well as some relief from obligations including rent and taxes. 

RILA asked that central bank regulators facilitate financing and ensure that retailers continue to have access to lines of credit, while the NRF called for occupancy relief measures including a pause on mandatory defaults and foreclosures, and guidance on rent abatement. They also asked for tax relief, supporting the administration’s delay on tax payments, and asked for companies to be able to use their net operating losses to limit their tax exposure. 

In the past week, dozens of retailers and brands have announced temporary store closures, including Gap Inc., H&M, Macy’s and Kohl’s as well as luxury names LVMH Moët Hennessy Louis Vuitton, Chanel and Kering, which owns designer brands including Gucci and Balenciaga. Simon Property Group, the nation’s largest mall operator, said Wednesday that it was closing all its malls until March 29. 

“Some of my clients have made a blanket decision to close all their stores nationwide, others have decided that they’ll leave stores open in jurisdictions where they haven’t been ordered to close them down,” said Stephanie Sheridan, a partner at Steptoe & Johnson LLP who advises retailers on regulatory issues and litigation. “But that’s changing on a day-to-day basis, so more and more of them will close.” 

Retail attorneys say anecdotally that their clients, including large national retailers, are seeing sharp drops in foot traffic, leading to steep sales drops that go far beyond the usual decline during times of poor performance under normal circumstances. 

Under these types of catastrophic circumstances, retailers are drawing down on their revolving lines of credit, which highlights the NRF’s push for the government to enable more access to credit, attorneys said. 

“Typically what you see is that retailers will have lines of credit with lenders and usually, given the financial stability of a company, lenders provide flexibility within those lines of credit,” said Erika Morabito, a partner at Foley & Lardner LLP who advises retailers on bankruptcy issues. 

“Now, when they’re drawing down, there could be a trigger of a covenant default, within their underlying loan documents,” she said, in light of retailers’ sinking revenues.   

The store closures come amid calls by public health officials for social distancing and self-isolation as the number of confirmed cases of COVID-19 has surpassed 240,000, according to the Johns Hopkins University tally. A number of counties, including in Northern California, have imposed orders for people to stay at home except for “essential activities.” 

The Trump administration has reacted so far by pushing Congress for an $850 billion aid package, while the Federal Reserve has slashed its benchmark interest rate. Some local lawmakers are also trying to address the economic fallout, with New York City Council Speaker Corey Johnson on Thursday proposing a $12 billion relief plan that would include a temporary universal basic income, and a refund of business taxes, among other things. 

Relief from rent obligations will also be crucial as sales drop or halt altogether, attorneys said. 

The general yardstick for retailers is to keep their rent in the range of 9 to 13 percent of gross sales, but as sales plummet, rent obligations and other operations expenses expand in proportion, toppling what for many retailers may be a delicate financial balance, said Martin Orlick, a partner at Jeffer Mangels Butler & Mitchell LLP who advises shopping mall operators and retailers on real estate issues, among other things. 

“It’s an impossible situation,” he said. “There has to be some moratorium for both landlords who are entitled to be paid, and tenants claiming they shouldn’t have to pay because of circumstances of force majeure, for example,” he said. “There has to be a balance.” 

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