A number of major companies across restaurants and retail made announcements last week regarding their April rent payments (and beyond). Cheesecake Factory announced it would not be paying April rent, and is in negotiations with landlords regarding what will happen with rents that are “otherwise payable during the period of the COVID-19 related closure.” The restaurant chain was joined by the likes of Mattress Firm and Subway in publicly announcing their intentions, and all three are no doubt accompanied by many other independents and chains alike. In the UK, for example, retail rents are paid quarterly in advance. One large landlord reported it only received 29% of the rent owed on March 25 vs. 77% in the prior year. For brick and mortar retailers that have cancelled orders, delayed vendor payments, and furloughed or laid off staff, rent is the next largest expense that can be targeted for cost savings.
With most large retailers extending their nationwide store closures until at least mid-April and probably longer, it’s anyone’s guess when cash will start ringing through registers again. Governors have extended school closures until May, and with COVID-19 diagnoses on the rise in many areas of the country, we are likely in for months of disruptions.
While retailers that have approached landlords for rent relief know that landlords are tough negotiators, real estate owners are long term investors. Perhaps partially because of their extended view, most have acted responsibly by proactively closing malls and outdoor centers during the pandemic. Simon Property Group was one of the first landlords to announce the closure of its properties, and was followed shortly thereafter by Taubman Centers. And likely because of their big picture approach, landlords also have managed their balance sheets to be able to withstand short term cash flow decreases.
Simon, the largest retail landlord in the U.S., is continuing to invest in the space. It announced in February that it would be acquiring an 80 percent stake in the much smaller Taubman, paying cash. The two are rumored to have been discussing a deal for almost twenty years. The transaction is scheduled to close later this year, and Simon has already raised the capital it needs. While Taubman’s stock price is currently trading below the announced transaction price, several analysts indicated last week that the deal is still on.
Simon is clearly playing the long game by purchasing a rival, by proactively closing locations due to the pandemic, and by positioning itself to withstand short term cash flow disruptions. All landlords should consider the long term in similar fashion. Exercising flexibility and granting rent relief to struggling tenants would help ensure the survival of all and complete the virtuous circle.
Headlines of the Week
Facing one of the worst economic downturns in American history, one that is unsparing in its trauma, the Senate unanimously approved a $2 trillion emergency relief bill that attempts to arrest the financial havoc caused by the coronavirus pandemic. Lawmakers acted with unusual speed and cooperation to produce the largest economic rescue package in U.S. history, just hours before the release of a Labor Department report showing a record 3.3 million Americans applied for unemployment benefits last week.
Apparel & Footwear
Designer Brands Inc. is putting 80% of its employees on unpaid leave. The parent company of DSW Shoe Warehouse said in a filing with the Securities and Exchange Commission that the unpaid leave would begin March 29 as it tries to blunt the impact of coronavirus on its sales. On a March 17 call with analysts, the company announced it would close all 1,000 DSW Shoe Warehouse, The Shoe Company and Shoe Warehouse stores, but keep its e-commerce open. It had said on the call it would pay employees for two weeks after the stores closed. While the employees won’t get direct compensation for the time off, they will still receive employee benefits, including medical, prescription and dental benefits. Employees not placed on leave will have their pay cut, the company said, including a 20% reduction in the base salaries for all executives and a 20% reduction in cash retainers for all non-employee directors serving on its board.
Negotiators couldn’t agree on terms, and J. Crew is no longer considering taking its most profitable brand public in the near future, said the people, who asked not to be identified discussing a private matter. J. Crew could reverse the decision and offer a revised proposal if market conditions improve, the people said. A representative for J. Crew declined to comment. J. Crew was relying on the Madewell deal to raise capital and ease its heavy debt load. The company listed outstanding long-term debt at almost $1.7 billion at the end of the fiscal year that ended Feb. 1. The transaction could shore up J. Crew’s junk-rated balance sheet, which includes some debt that’s quoted as trading for about 87 cents on the dollar.
The women’s fashion retailers Oasis and Warehouse have begun exploring a sale even as the coronavirus pandemic forces the shutters down on its UK-wide store estate. Sky News has learnt that The Oasis and Warehouse Group, which is owned by the failed Icelandic lender Kaupthing, has held conversations with potential buyers in the last few days. The decision to consider a sale comes amid the most turbulent period in the history of the British high street, with all “non-essential” retailers ordered by the government to shut from Tuesday. Oasis and Warehouse, which target fashion-conscious female customers, trade from just over 90 standalone stores and a further 437 concessions in department stores such as Debenhams and Selfridges. The talks about a sale reflect an unprecedented period of soul-searching by retailers as they explore options to bolster liquidity and plot a path back towards normal trading.
Dov Charney is easy to get ahold of. He spends most of his waking hours in his manufacturing facility in South Central Los Angeles, where he keeps a humble room furnished with a twin-sized bed that adjoins the factory floor. And, perhaps somewhat surprisingly, given his divisive reputation, his phone number is readily available.
He even keeps on his read receipts; when I texted him last week, he responded almost instantaneously. Los Angeles Apparel, a facsimile of his firstborn American Apparel, opened in 2014, originally as a wholesale distributor before launching an online shop that sells au courant edits of all the old classics. On March 13, Los Angeles Apparel began offering three-packs of cotton facemasks for $30 via its website.
Athletic & Sporting Goods
Hockey equipment manufacturer Bauer has offered to “modify its production line,” to make protective visors and masks for healthcare workers during the COVID-19 crisis, according to The Canadian Press. Nike is taking a similar route to aid nurses and doctors during the coronavirus pandemic. CEO John Donahoe announced that the company is “prototyping personal protective equipment (PPE) such as face shields to help doctors and nurses during the outbreak,” per Business Insider.
Nike Inc. said a 36 percent hike in global digital growth drove sales and earnings ahead of expectations in the third quarter ended February 28 and helped the brand recapture lost sales due to store closures in China from the coronavirus outbreak. Digital sales grew in excess of 30 percent in all geographies for the Nike Brand as well as for Converse in the quarter.
Modell’s Sporting Goods Inc. halted its going-out-of-business sales as customers shelter at home and states order most merchants to close. The bankrupt retailer stopped liquidation sales and closed all stores as of March 21, Chief Executive Officer Mitchell Modell said in an interview. It plans to resume once the bans are lifted, he said. Modell’s sought court protection earlier this month and said it would shut all of its 153 locations.
While the competition side of sports has been put on hold for now, the business side continues, including the sale of the Ironman Group. New York-based Advance Publications Inc. announced Thursday it had entered a definitive stock purchase agreement with Wanda Sports Group Company Limited to acquire the Ironman Group in an all-cash transaction. The Ironman Group includes Ironman and Ironman 70.3 triathlons, including two on Hawaii Island — the Ironman 70.3 Hawaii triathlon run along the Kohala coast and the Ironman World Championship, held every October in Kailua-Kona. The deal is reported to be valued at more than $700 million. Orkila Capital is a co-investor in the deal.
Cosmetics & Pharmacy
Vault, a new men’s health and wellness company, raised $30 million in Series A funding for expansion, taking aim at other male-focused telemedicine companies like Hims, Ro, and Manual, and wellness brand Asystem. Vault Health, an at-home healthcare practice specializing in men’s medicine, was launched last summer by founder and CEO Jason Feldman, who formerly headed Amazon’s Prime Video Direct and Global Innovation. This funding will allow the business to reach more potential patients and expand to more areas beyond New York, Florida, Tennessee, and Texas, where it currently offers treatments to 42 cities across the US. Vault offers at-home or in-office visits with nurse practitioners to measure the testosterone levels of customers, followed by a doctor’s prescription for injections, topical gels, creams, or oral medication. Vault also offers three kits that include various ingestibles focused on physical appearance, sex drive, and mental awareness.
In what it called “the most ambitious hiring drive” in the company’s history, CVS Health plans to immediately fill 50,000 full-time, part-time and temporary roles across the country. The available positions include store associates, home delivery drivers, distribution center employees and member/customer service professionals. The company will utilize a technology-enabled hiring process that includes virtual job fairs, virtual interviews and virtual job tryouts. Many roles will be filled by existing CVS Health clients who have had to furlough workers, including Hilton and Marriott. In addition, the company is awarding bonuses to employees who are required to be at CVS facilities to assist patients and customers in this time of “unprecedented need.” Bonuses will range from $150 to $500 and will be awarded to pharmacists and certain other health care professionals on the frontlines, store associates and managers, and other site-based hourly employees.
Charlotte’s Web is making an acquisition that will give it a big edge in the food/drug/mass CBD market. The Boulder, Colo.-based company is acquiring Abacus Health Products, which markets the CBDMedic and CBD Clinic brands. The transaction is expected to give the company roughly 34.7% market share in the FDM channel. The deal will see Charlotte’s Web offering a total equity consideration of $99 million in stock. Abacus shareholders will receive 0.85 of a common share of Charlotte’s Web per Abacus share. Charlotte’s Web said the deal, by combining its CBD wellness products and Abacus’ OTC topicals, will make it the world’s largest vertically integrated CBD company.
Discounters & Department Stores
Dollar General and Dollar Tree are among the retailers that could benefit after the COVID-19 pandemic subsides, JPMorgan analyst Matthew Boss said Thursday. “Discounters, dollar stores, off-pricers and strong global brands I actually think could emerge stronger from this, take market share, use their size and scale,” Boss said on CNBC’s “Halftime Report.” On the contrary, Boss said, the coronavirus crisis and its resulting economic shock could represent more bad news for department stores and mall-based specialty stores.
Macy’s on Wednesday effectively hit pause on several elements of its recently announced “Polaris” turnaround plans saying that the COVID-19 outbreak in the U.S. “is taking a heavy toll on our business and the industry as a whole.” CEO Jeff Gennette will forgo compensation as the department store “intends to reduce pay for all levels of management Director level and above, effective April 1 and lasting for the duration of the crisis,” according to a company statement.
Walmart and Sam’s Club on Wednesday said they are granting rent relief to many of the more than 10,000 smaller businesses operating within their stores, which include hair and nail salons, optometrists, food franchises, veterinary clinics, and local and regional banks. The company is “waiving rent for all Walmart property partners for the month of April, as well as for the hundreds of eye doctors who operate at Sam’s Clubs,” according to a joint corporate blog post from Walmart U.S. CEO John Furner and Sam’s Club CEO Kath McLay.
With stores temporarily shut due to the coronavirus pandemic — and a slim-to-zero chance of opening in the near future — America’s department stores are facing a cash crunch. Department store chains have enough liquidity to make it about five to eight months, with their stores sitting dark, in this coronavirus pandemic, according to an analysis released Friday by Cowen & Co. It says that is “better than feared” because the firm does not anticipate the temporary store closures will drag on for that long. In making these assumptions, Cowen is measuring liquidity as cash plus revolvers, relative to key expenses such as rent, labor and promised dividend payments. Cowen said labor costs are about 10% of annual sales, while rent is about 3%, to give a sense of what some of these expenses look like.
Emerging Consumer Companies
Cat Person, a new brand centered around cats and selling cat food, toys, an accessories, launched online. Founded by a former employee of Harry’s, the company is backed by Harry’s Labs, its venture and innovation arm. The initial product lineup includes high-protein cat food (wet food, dry food and treats), a modular cat bed ($80), a cat bowl ($40, designed to prevent whisker fatigue) and catnip toys ($7). Customers can also subscribe to a customizable recurring meal plan — Cat Person says that an average four-week shipment would cost $68.85.
As shoppers in the U.S. and Europe are spending more time in their homes thanks to shelter in place orders, apparel brands are seizing the opportunity by offering sales on items like loungewear and leggings, and marketing their products as essentials for people working at home. Companies have redesigned homepages to highlight sweatpants and lounge wear, and running contests to enable customers to build their “work from home” wish lists and giving them a chance to win money towards their purchase.
In the face of forced store closings and with no end in sight, b8ta announced that it is furloughing retail employees, which will affect around 250 employees. It is also laying off over half of its corporate employees, and reducing pay for remaining employees. The company had previously guaranteed pay from March 15-28. It is offering a one-time relief check of $1,000 for full-time employees and $500 for part-time employees.
Grocery & Restaurants
The parent companies of the nation’s largest and most beloved brands, whose restaurants are primarily run by franchisees, are putting together relief packages to help small business operators hammered by dine-in closures tied to the COVID-19 pandemic. Yum Brands said it has established a Global Franchise Health and COVID-19 Support Team to “urgently assist” KFC, Pizza Hut and Taco Bell franchisees impacted by the coronavirus outbreak. Subway, McDonald’s, Chick-fil-A and Qdoba have also announced various forms of relief, including deferral of franchise royalties and rent deferrals.
The Hain Celestial Group, Inc. has completed the divestitures of two more brands, continuing in its plan to strategically shed non-core businesses and become a smaller, more profitable company. US Durum Products Ltd., Lancaster, Pa., a couscous manufacturer, has acquired the Casbah brand of Mediterranean-style mixes and side dishes from the Hain Celestial Group. Nature’s Touch Frozen Foods, Montreal, a processor of frozen fruits, has acquired the Europe’s Best brand of frozen fruits and vegetables. Financial terms of the transactions were not disclosed. The two transactions are the latest in a string of strategic divestitures by Hain Celestial.
Gas stations and convenience stores — a retail segment with more than $650 billion in sales — are coming to terms with a world where fewer people smoke, buy fuel or need to ask for directions. For much of their history, gas stations and convenience stores, which are usually intertwined, have been small, often independent businesses — a way to realize the American dream. But the industry is slowly going corporate and many stores are finding the old sources of profit are drying up. The decline of cigarette smoking, the rise of GPS-enabled smartphones, the development of more fuel-efficient vehicles, and other factors, are forcing gas stations and convenience stores to rethink how they draw customers in.
Cracker Barrel is focusing on its “core businesses” in this time of uncertainty surrounding the coronavirus pandemic. Those businesses do not include Punch Bowl Social, a restaurant-entertainment concept that Cracker Barrel Old Country Store Inc. invested significantly in starting in July 2019. Cracker Barrel will not continue to invest in the concept, the company said. Over the past few weeks, Punch Bowl Social closed its 19 units across the country as federal and state mandates and guidelines dictated. The brand has laid off most of its staff. The concept, which focuses on in-person experiences, is not pursuing off-premise alternatives, as many other restaurant brands have done. When Cracker Barrel reports for the third quarter on May 1, it expects to record a $133 million impairment charge to cover its 58.6% stake in Punch Bowl Social.
Home & Road
Fiesta dinnerware is reinventing itself as the newly formed Fiesta Tableware Company following the acquisition of the former Homer Laughlin China Company’s foodservice operations by British hospitality tabletop giant Steelite International for an undisclosed sum. Steelite is assuming manufacturing and sales responsibilities for the two foodservice brands: the Homer Laughlin China Company and the Hall China Company. The existing Fiesta retail business is not part of the sale and will continue to operate in Newell, W.Va., as a retail-only tabletop and giftware manufacturer. In addition to the iconic Fiesta brand, which was manufactured by The Homer Laughlin Company beginning in 1936, The Fiesta Tableware Company will also manufacture and sell other tableware designs to retail, the company said. Steelite will be the exclusive seller of Fiesta dinnerware in the foodservice market.
With many consumers in their second or even third weeks of working from home across the U.S., they are spending more time in their kitchens and home offices, and as a result, those categories are among those that have seen recent upticks in sales. While NPD’s U.S. consumption trends for early March was similar to last year’s period (the week ending Mar. 7 saw 2 percent dollar growth overall), Chief Industry Advisor Marshal Cohen expected that to change over the next two reporting weeks, as trends have begun to emerge. Already growth in small appliances was seen for the week ending Mar. 7, as more people are focusing on cooking and cleaning, said Cohen. “This is likely to continue as these products offer assistance with living a socially distant and healthy lifestyle.” Wayfair has also seen housewares perform well recently, said John Costello, spokesperson. Sales across kitchen and storage grew about 50 percent year over year, and small electrics increased more than 100 percent year over year, he said.
Shares of At Home Group Inc., the home décor superstore, were up by 22% in trading this morning after the company posted its fourth-quarter and full-year earnings. At Home posted a net sales increase of 12.3% to $397.7 million in the fourth quarter ended Jan. 25 compared with $354.1 million in the previous year’s fourth quarter, driven mainly by the increase in new stores. “We were pleased with the momentum we saw in the back half of the fourth quarter as comparable store sales accelerated, and we exited the year with a healthy inventory position and $105 million in free cash flow improvement,” said Lee Bird, At Home Group chairman and CEO. “We have been implementing key merchandising and marketing initiatives in fiscal 2021 to continue driving the business forward.” The company has temporarily closed all 212 of its stores in 39 states as a result of the COVID-19 pandemic, but it has also expanded curbside product pick up services to 100 stores.
Casper Sleep “could face liquidity challenges later this year,” an analyst report warns. Wedbush recently examined coronavirus impacts on four bedding companies it covers, Tempur Sealy International, Purple Innovation, Sleep Number and Casper. It said that based on its updated cash flow forecast to reflect sales and EBITDA pressure from the effects of the coronavirus, it projects Casper to need more capital by the end of the year, “either through tapping its high-interest subordinated credit facility or through other means.” While it said that Casper could cut capital expenditures to as little as $5 million per quarter if it is able to defer store openings, “it will still be cash-strapped if our EBITDA forecasts are accurate. Raising capital at acceptable terms could be challenging if the environment does not improve materially.”
Pier I Imports is temporarily laying off a large number of its employees and reducing pay for those that remain to help mitigate the financial impact of COVID-19. The struggling home goods retailer, which filed for bankruptcy protection in February and is pursuing a sale, has implemented a furlough program that includes approximately 65% of home office associates and for certain store and distribution employees. The program is in effect until further notice. In addition, Pier 1 is reducing compensation by 20% for retained associates, “who are critical to ensuring business continuity and a seamless customer experience” on its e-commerce site. At the corporate level, Pier 1 is reducing pay for executive VPs and above by 50%, and reducing compensation for senior VPs by 30%. Also, compensation for all members of the chain’s board will be reduced or deferred by 50%. The furlough program and all pay reductions started March 23, and will remain in effect for a period to be determined, according to Pier 1.
Jewelry & Luxury
Signet plans to furiously cut costs in order to withstand the devastating economic effects of COVID-19, chief executive officer Gina Drosos announced on a conference call Thursday. Earlier last week, the company announced it was closing all of its brick-and-mortar stores as a result of the outbreak. It then tapped $900 million from its existing credit facility for “further financial flexibility” and pledged “aggressive” cost-saving measures.
Pandora has hired Martino Pessina, H&M’s president of North America, as its first chief commercial officer, the Copenhagen, Denmark–based company announced Tuesday. Pandora first disclosed that it was creating the position earlier this month. In his new role, Pessina will be responsible for commercial operations across the charm brand’s 100-plus markets and will work to improve global merchandising, store development, planning, and execution. He will also lead a new function called network and franchise management, overseeing the company’s retailers and franchises globally.
As couples postpone their nuptials to prevent the spread of the new coronavirus (COVID-19), there’s no denying that wedding season will look and feel different this year. But that doesn’t mean prospective partners will stop shopping for engagement rings altogether. In fact, as more Americans practice social distancing, the amount of time cooped-up couples spend browsing online is bound to increase. Perhaps it’s no surprise that the wedding ring trends we expect to stick around during this unprecedented year are uniformly minimal: Simple, pared-down styles are the perfect accessory during a time of high drama.
Perfumes and designer handbags are now not so much a luxury as a temporary irrelevance. In the unusual times we are living in with Covid-19, luxury purchases have given way to necessities. France is on a wartime footing, said President Emmanuel Macron, who put the country on full lockdown in a bid to curb the propagation of coronavirus. Italy, Spain, the UK and India are among the other countries on nationwide lockdowns. “The enemy is invisible, and it requires our general mobilization,” Macron said on 16 March in a speech to the nation. Some companies are embracing the order readily. Luxury conglomerates including LVMH, Kering, L’Oréal and Hermès are turning over some of their manufacturing facilities to the voluntary production of crucial public health products: the sanitizing gel and masks that France urgently requires.
Office & Leisure
Joann Stores is among the latest retailers to get a credit downgrade on concerns surrounding the effects the spread of coronavirus will have on its business. S&P Global dropped Joann’s issuer rating to CCC from B- last week, with analysts citing “unprecedented headwinds amid the COVID-19 pandemic,” according to an emailed press release. The ratings firm gave the crafting retailer a negative outlook, indicating possible further downgrades. S&P analysts said that “a sharp decline in revenues caused by the COVID-19 pandemic will likely hurt Jo-Ann’s long-term viability.” “At stores that remain open, we expect steep traffic declines in the double-digit percent area in the coming weeks as consumers practice social distancing,” the analysts said. “The business is already strained by tariff-related cost pressures, as well as competitive forces. A small 10%-12% online presence is not enough to withstand this pressure, in our view.”
GameStop, the video game retailer, said that it would shift to online sales and curbside pick-up orders only and close its U.S. retail operations temporarily. The retailer had remained open at a time when most other non-essential retail stores had closed and had urged its employees to inform law enforcement of that if questioned, according to gaming site Kotaku, which got ahold of a company memo. “Due to the products we carry that enable and enhance our customers’ experience in working from home, we believe GameStop is classified as essential retail and therefore is able to remain open during this time,” said the memo, per Kotaku. Kotaku had interviewed GameStop employees who feared for their safety. Now the company says curbside delivery will “allow the company to continue to serve customers who have purchased online at GameStop.com and the GameStop app and have requested a product pickup at their local store.”
Marcus Lemonis, chairman and CEO of Camping World Holdings and star of CNBC show “The Profit,” is stepping up to assist employees experiencing financial and personal difficulties due to the COVID-19 crisis. Camping World announced that Lemonis intends to sell up to 500,000 shares of Class A common stock that he beneficially owns at a future date in accordance with applicable securities laws and contribute the proceeds to fund specific employee relief. The fund is in addition to the assistance the company is providing. In a statement, Lemonis, who does not take any form of compensation in his role as chairman and CEO of Camping World, said that Camping World is the most important part of my life and the Camping World team, many of which have been with the company for years, are the reason why.”
Technology & Internet
Ecommerce spending is up more than 40% year-over-year since President Trump declared a state of national emergency on March 13, according to an analysis of spending trends at 850 retail sites by digital marketing vendor Listrak. However, not all categories benefited from the emergency. With many parents walking the tightrope between work and caring for children, online purchases of toys are growing. Toys, sporting goods and camping products increased sales by 200% from March 13-24 compared with a year earlier. Additionally, industrial supplies sales increased 150%. Meanwhile housewares, home and hardware, and automotive, boating and motorcycle sales remained flat. Plus, as more consumers work from home and swap their work pants with sweatpants, online apparel sales fell 15%.
Facing overwhelming demand for household essentials like toilet paper and groceries, Amazon announced last week that it would hire an additional 100,000 workers in the US, and would give employees in the US, UK, and Canada a temporary raise of at least $2 through the end of April. It also decided to stop accepting all other items at its warehouses until April 5. In Italy and France, Amazon will deliver only essential items, regardless of what it has in stock. The change sent Amazon sellers—many already facing other disruptions caused by Covid-19—scrambling to find new ways to get their products to customers. Shipping times have begun lengthening, from as little as 24 hours to weeks or more, contributing to a precipitous decline in sales. For years, Amazon has encouraged millions of third-party merchants to enroll in its Fulfilled by Amazon service, allowing them to offload tasks like storing, packaging, and shipping to the company in exchange for a fee. Around 94 percent of Amazon merchants use FBA for at least some orders, while 64 percent exclusively rely on the service, according to the analytics firm Jungle Scout, which tracks data for Amazon sellers.
Finance & Economy
With consumer behaviors changing daily due to the COVID-19 pandemic, retailers and direct-to-consumer (DTC) brands are forced to reinvent how they do business. According to Sucharita Kondali, Vice President and Principal Analyst at Forrester, “Consumer confidence in the U.S. economy for the next 12 months is bleak, causing many consumers to buy less overall—both in-store and online.” Bloomberg reported that about half of retailers said their ecommerce traffic has trended downward since mid-February (the period when coronavirus began impacting the U.S.) and research conducted by CommerceNext shows that 64.5% of retailers are not seeing sales shift from stores to ecommerce. With the exception of grocery and general goods, most retailers and DTC brands are decreasing their forecasts for Q2 and making significant changes to their business. Ecommerce marketing and messaging strategies are shifting dramatically. Many are decreasing ad spend, switching from acquisition-based to retention-based tactics and adjusting their brand communications to reflect their empathy towards their communities.
Americans displaced by the coronavirus crisis filed unemployment claims in record numbers last week, with the Labor Department reporting a surge to 3.28 million. The number shatters the Great Recession peak of 665,000 in March 2009 and the all-time mark of 695,000 in October 1982. The previous week, which reflected the period before the worst of the coronavirus hit, was 282,000, which was higher than expected at the time.