The chasm is deepening between the so-called essential retailers, which stand to win a ton of market share during the coronavirus crisis, and those in increasing peril.
CVS Health and Dollar General, two ubiquitous chains that dot the country (with 10,000 and 16,300 locations, respectively) and sell household staples like toilet paper, bottled water and toothpaste, each said on Monday morning they were hiring 50,000 temporary workers in the coming week to help them manage demand during the crisis.
Their announcement follow news last week that Walmart was taking on 150,000 temps and Amazon 100,000 or so.
All four companies said these positions offered a path to permanent employment. And like Target and Walmart, CVS is giving bonuses to workers on the job during this crisis.
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“Our colleagues have demonstrated an extraordinary commitment to providing essential goods and services at a time when they’re needed most,” said Larry Merlo, chief executive of CVS Health.
The four chains, along with Walgreens, Rite Aid, and others such as Kroger and Costco, have all gotten a boost as worried consumers have stocked up on essential supplies and food. Many state and local governments, including those in New York, California, and Illinois, have enhanced that boost by mandating that only stores selling essentials can remain open. (Authorities have for the most part included alcohol products in that category, offering a lifeline to liquor stores.)
But the majority of retailers, many of whom have closed all their U.S. stores through at least the end of the month, are hurting badly, with some in mortal danger if the closures drag on long enough. In its most recent estimate on Monday morning, research firm GlobalRetail Data estimated that 31% of all retail square footage in the U.S. was now temporarily closed.
Over the weekend, the industry’s largest advocacy group, the National Retail Federation, again rang an alarm about what this shutdown is doing to companies. The group asked the federal government—with increased urgency compared to an appeal last week—for assistance in helping these retailers with liquidity.
“The biggest single issue facing the industry right now is liquidity,” the NRF wrote to President Trump in a letter on Saturday. The NRF now estimates retail sales will decline 20% over a three-month period, based on trends it saw in Asia over the winter when masses of stores in countries including China and Japan were closed for weeks on end.
The NRF has asked for retailers to be included in a stimulus package, saying that the retail sector employs 52 million people. But the group was careful not to frame assistance as a “bailout” but rather as a “bridge.”
It’s clear top CEOs are worried. Sonia Syngal, the newly minted new CEO of Gap Inc., told the New York Times that “people don’t understand how deeply fashion, which is often seen as nonessential, is connected to the U.S. economy.” Swedish clothing chain H&M, which operates globally, said Monday it may lay off thousands of store workers.
Scrambling for cash
Whatever assistance comes the retail sector’s way, many big players are doing what they can to have on hand cash they might need to pay vendors, landlords and employees (who typically will be covered for the first two weeks of this shutdown), even as stores sales drop to zero with only a bit of help from e-commerce.
Over the weekend, Best Buy drew down $1.25 billion from its credit line. The electronics retailer took the precautionary move despite having done very well this month as shoppers bought up home computers and network strengtheners so they can work and their children take school classes from home. Best Buy also decided to close stores to customers but allow them to pick up orders at the door, as a move to prevent the virus from infecting shoppers and its staff.
On Thursday, Kohl’s, all of whose stores are closed for the rest of the month, said it had drawn down $1 billion. Macy’s, the majority of whose stores are in malls, which are now largely closed across the country, has tapped $1.5 billion. Even thriving, well-capitalized companies like T.J. Maxx owner TJX Cos, Ross Stores and Ulta Beauty are lining up hundreds of millions of dollars just in case.
Other retailers are up to their necks in debt, a legacy of earlier failed turnaround attempts (such as J.C. Penney and Rite Aid) or leveraged buyouts (J.Crew and Neiman Marcus), and could have a tougher time lining up any extra financial cushion. As Moody’s put it last week, the gap between retail’s haves and have-nots will grow wider as the crisis goes on.
“This year, weaker balance sheets and relentless margin pressures will continue to push smaller, cash-starved retailers down the ratings scale and closer to default,” Moody’s vice president and senior credit officer Mickey Chadha wrote in a research note. “This will be exacerbated with the extreme dislocations caused by the coronavirus pandemic.”
This comes after a hard period for retailers that has seen the likes of Barneys New York, Dress Barn, Modell’s and Pier 1 Imports file for bankruptcy protection in the last few months, and in the case of the first three, later liquidate altogether.
For those retailers able to stay open, most of them competing with each other much more than those that have had to close, this crisis is a golden opportunity to build market share. And doing so smoothly and efficiently means more people on staff at places like CVS and Dollar General.
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