With the coronavirus forcing stores to close for weeks, possibly months, retailers are on a mission to save cash — much of it at the expense of vendors.
Reports of retailers canceling orders, postponing payments and marking down goods all escalated this week, hitting vendors selling “nonessential” fashion and accessories the hardest. Costs of goods and payroll represent retailers’ largest expenses.
“We’ve taken actions to give Macy’s Inc. financial flexibility to sustain the business through the prolonged closure. Some of those actions — canceling orders, extending payment terms — directly impact our partners. We don’t make these decisions lightly,” Jeff Gennette, chairman and chief executive officer of Macy’s Inc., said Thursday. On those orders not getting canceled, Macy’s Inc. has extended the terms for payment of all goods and services to 120 days from 60.
“Our stores are the heart of our business and their closure and the lost sales has put our business under huge pressure. That has a ripple effect on our partners,” Gennette said. “My team and I are in daily contact with our major partners. We share a customer. We share a future. We all know it’s in our best interest for Macy’s Inc. and our brands to emerge intact on the other side of this crisis. That is all what we are fighting for. This is an incredibly difficult time and we are all operating in an environment of uncertainty.”
At the Davenport, Iowa-based Von Maur department store chain, “We are canceling what we can, but we are taking the merchandise on route and at the dock door. We will take that in,” said Jim von Maur, president.
“For transition, back-to-school and fall, we will try to get as normal as possible, though we are lowering our sales plan a little bit,” von Maur said. “We haven’t placed any new orders yet. We were getting ready for fall market. There is talk about shipping samples, working over the Internet, but there won’t be any traveling.”
At Neiman Marcus, “We’re having active conversations with each of our brand partners to make sure we are making the right decisions together,” said Lana Todorovich, president and chief merchant, when asked about order cancellations. Asked if the company is returning merchandise, Todorovich replied, “While this is a standard business practice in our business, we are working closely with our brand partners as we navigate through this unprecedented time.”
Retailers are also seeking discounts on merchandise purchases. Asked about that, Todorovich again said, “We’re working closely with our brand partners as we navigate through this unprecedented time.”
Darcy Penick, president of Bergdorf Goodman, said, “We’re in between markets right now. We just completed runway market, and in some cases coordinated market appointments remotely. We’re having conversations with our brand partners based on how to make upcoming markets work given the global shutdowns, and we are continuing to fulfill backorders in the interim.”
Neiman’s and Bergdorf’s are divisions of the Neiman Marcus Group, which is examining strategic alternatives, including a possible bankruptcy, to keep its business alive.
Ross Stores, which temporarily closed its entire chain, sent a letter to its vendors saying it made the decision to immediately cancel all merchandise purchase orders scheduled to ship through June 18. The retailer also said it was extending payment terms on all existing merchandise payables by 90 days. Once the virus subsides, off-pricers will be in a strong position to rebound because of all the merchandise that full-price retailers couldn’t sell due to store closings or stopped delivery on.
“Off-pricers put everything on hold. They’re already saturated with merchandise. They will be the winners coming out of this,” said one apparel vendor, who requested anonymity. “They will have the stock and will be able to name their price. Wholesalers are the ones who get squeezed.”
Said one senior executive from a denim and sportswear brand, “In some ways, the messages we are getting from retailers are consistent, in other ways, not. Consistently, the message we get is, ‘We don’t need any receipts in Q2. But the direction for Q3 is somewhat varied.…As far as when will they start to reopen stores, some say hopefully by the middle of April, some say the end of May.”
Last fall, retailers placed their spring 2020 orders. Much has been received and on the selling floors and web sites, though many spring orders scheduled for April, May and June deliveries have been canceled by retailers. Their fall orders are largely on hold, and retailers are, or will soon be, grappling over what approach to take to the holiday season. The fourth quarter is when retailers generate the biggest revenues and profits. “Our teams are already thinking about and planning for the fourth quarter,” a Macy’s spokeswoman said.
“Penney’s was getting ready to order for holiday but put it on hold,” said one source that supplies J.C. Penney Co. Inc. and other mass chains and department stores.
“Retailers have to very soon make some strategic decisions about buying for holiday,” said one former retail ceo. “They know spring is a washout and that they have a lot of inventory to get rid of. With holiday, they have to make a guess on what kind of recovery there is going to be and what state of mind the consumer will be in. The dilemma is deciding how much to buy for holiday. If you don’t buy much, you can miss out in a recovery. But if you buy a lot, you’re using up your cash. That’s the challenge.”
“Mass chains are not distributing any footwear, apparel and electronics to their stores, only consumables like food, paper goods, medicine. They are not sending any clothing to the floors,” said one vendor selling mass merchants and department stores. “In the stores, associates usually working in clothing departments have been shifting to the food aisles for support.”
“Holiday is very much unknown at this point,” said one upscale fashion vendor. “Retailers will have to come up with guidance [to vendors] in the next month. We will certainly know more in a month, but this is a very fluid situation. Things change daily.”
The last women’s market was mid-February, for fall 2020 deliveries in August, September and October. The next fashion market is men’s wear in mid-May for holiday goods on the selling floors in November and December. Women’s holiday fashion week is in early June, though there is a market for holiday and resort denim in May for November and December selling.
“What everyone is worried about now is liquidating all the goods in the stores,” said one senior executive from an upscale fashion brand. “We are having ongoing conversations with stores on how to handle things. Last week, we were 25 percent [off] on everyone’s web site. Now it’s 40 percent. Apparel is low on the totem poll” on consumer shopping lists, with some exceptions being baby clothes, which have to frequently be replaced; sweats; underwear, and other comfortable, casual clothes best for sheltering in.
This week, Nordstrom said it will extend its temporary store closures for at least one week, through April 5. All Nordstrom Inc. stores are closed. Since March 17, Nordstrom has provided pay and benefits to all store employees impacted by the temporary closures. The company plans to offer store employees an additional week of pay through April 5 and benefits through April. The company will be furloughing a portion of corporate employees starting April 5 for six weeks. Impacted corporate employees will continue to receive benefits. Nordstrom’s executive leadership group will forgo a part of their salary, and Erik Nordstrom, ceo, and Pete Nordstrom, president and chief brand officer, have decided to forego salary from April through September. Similarly, Nordstrom’s board members will forego cash compensation for a six-month period.
Macy’s Gennette has decided to take no compensation for the duration of the pandemic. In a letter to vendors Wednesday he wrote: “While our digital business and call centers remain open, we have lost the majority of our sales. Most of our corporate and support teams are under work-from-home or shelter-in-place orders.”
To save money, Macy’s has suspended its dividend, frozen hiring, deferred capital spending and has been drawing down on its line of credit, as well as reducing receipts. It is also possible that Macy’s decides to begin furloughs.
J.C. Penney is also expected to keep its stores closed past April 2 when it hopes to reopen across the nation. Penney’s is in a very precarious situation since its business has long been weak and it has a $105 million debt maturity in June, though it’s possible the company gets an extension due to the coronavirus.
Von Maur has all 36 department stores temporarily closed, but von Maur said, “We are shooting for April 8th openings for our two Nebraska stores and five in Iowa. That could change, depending on what the governors say we can or cannot do. It’s a very fluid situation and frustrating.”
While all stores are closed, Von Maur, like other retailers, is open for business online and through phone orders. “We are not going too crazy with marking down real seasonal Easter merchandise,” Von Maur said. “We are at our usual markdown cadence. But I’ve heard about the competition taking 40 percent off. Vendors are getting pretty upset but we are not doing anything like that.”