To meet obligations during the coronavirus crisis, retailers are tapping credit lines, suspending shareholder dividends and cutting executive pay.

Retailers large and small are in survival mode during the coronavirus crisis. With little money coming in from stores, liquidity—the ability to pay expenses as they come due—is paramount.

Smaller e-retailers say they have been furloughing workers and trimming expenses in any way they can, such as pulling back on marketing. In addition to mass furloughs of store personnel, large store-based retailers that sell on the web have reported taking steps such as tapping credit lines, issuing bonds, suspending shareholder dividends and cutting executive pay.

“I’ve been through recessions and downturns… but I’ve never been through something like this,” says Pamela Brown, director of Village Gallery, which operates three art galleries in California and sells art online. The company generally gets 80% of its sales via its now-closed stores. It continues to sell art online, but those sales have been down as well, Brown says, without giving specifics.

Brown—who has been in the art gallery business since 1978—says she is doing what she can to stay liquid. Those actions include furloughing the retailer’s 16 employees and carrying a balance on company credit cards for the first time. Also, she negotiated deferred rent payments from Village Gallery’s landlords.

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“This [pandemic] is no one’s fault, but it’s everyone’s problem,” Brown says.

15% off and no promises about delivery

GiftsForYouNow.com, a personalized product retailer that sells such items as sweatshirts, picture frames and coffee mugs, closed its production facility due to state-mandated closures of non-essential businesses, says Jim Tuchler, president. Because of that, the company has furloughed 65 of its 100 employees.

To get through the coronavirus crisis, Tuchler says the company cut wages and employee hours by about 80% and is examining every expense. The goal is to find ways to emerge leaner and “scrappy” after the coronavirus crisis is over, he says. GiftsForYouNow.com also is negotiating with the company’s landlord in exchange for agreeing to a longer lease, he says.

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Its production facility closure has caused GiftsForYouNow to lose about 60% of its revenue, Tuchler says. But orders keep coming in, he says, and a “skeleton crew” is processing as many as possible—but the retailer makes no promises about delivery times.

On its website, GiftsForYouNow posted the statement: “GiftsForYouNow has temporarily suspended production following the government’s stay-at-home recommendations. We will continue to take orders, with plans to resume production and shipping as soon as possible. Thank you for your support during this time.” In hopes to spur orders, the retailer offers 15% off across the website.

More stores, more liquidity problems

Like Village Gallery and GiftsForYouNow, bigger retailers must face the reality of fewer customers and less revenue—but on a much larger scale.

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With their stores closed, the risk of insolvency for department store operators is real. According to research from S&P Global Market Intelligence, department stores’ odds of defaulting on loans over the next year soared to 42.1% as of April 7. Only a few weeks earlier, Feb. 28, department stores’ odds of defaulting on loans over the next year was 7.4%, S&P Global says.

In this climate, department store operators are slashing costs, starting with furloughs of hundreds of thousands of workers. Those chains that can do it are drawing on lines of credit and issuing bonds to generate liquidity. Some are getting advice from consultants to explore other options.

According to Reuters, department store operator, Macy’s Inc. (No. 5 in the 2019 Digital Commerce 360 Top 1000) is working with investment bank Lazard Ltd. “to explore options for bolstering its finances.” Lazard advises companies on advice on mergers, acquisitions, raising capital and restructuring their capital structures, among other things.

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A Macy’s spokeswoman said the retailer is “exploring numerous options to strengthen our capital structure” and has “relationships with a range of advisors,” but declined to be specific. She says reports saying Macy’s has $7 billion in lease obligations are misleading. “Our long-term lease liabilities are $2.9 billion,” she says, citing the retailer’s most recent Form 10-K, an annual report required by the U.S. Securities and Exchange Commission that provides a summary of a company’s financial performance.

All Macy’s 775 stores closed March 18 “and will remain closed until we have a clear line of sight on when it is safe to reopen,” the company said in a March 30 statement.

While Macy’s continues to sell online, the company says the store closures mean it has lost most of its revenue. “We’ve already taken measures to maintain financial flexibility, including suspending the dividend, drawing down our line of credit, freezing both hiring and spending, stopping capital spend, reducing receipts, canceling some orders and extending payment terms, and we are evaluating all other financing options,” the statement says.

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Macy’s also furloughed most of its 125,000 employees, leaving what the company calls “the absolute minimum workforce needed to maintain basic operations.”

Department store chain J.C. Penney Co. Inc. (No. 40) is in a similar situation. According to Bloomberg News, J.C. Penney has hired AlixPartners LLP—a management consulting firm known for its corporate turnaround expertise—to help find options for managing its roughly $4 billion of debt. Bloomberg previously reported J.C Penny is working with restructuring advisers from the law firm Kirkland & Ellis LLP and Lazard Ltd.

The retailer says it also has taken several actions to improve its cash position to remain liquid during the pandemic. Those actions include deferring capital spending and cutting other kinds of expenditures, tapping a revolving credit line, pausing hiring, and extending the terms for payment of goods and services. J.C. Penney says it also suspended 2020 merit-based pay increases and is evaluating other financial options.

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J.C. Penney continues to sell online. On March 31, it said its ecommerce distribution centers and customer care would remain open to fulfill online orders and answer customer inquiries but did not say how many workers those operations employ. J.C. Penney operates 850 stores across the United States and Puerto Rico and has 95,000 employees.

Department store chain Nordstrom Inc. (No. 18) reported recently it exited fiscal 2019—which ended March 3—with a healthy balance sheet, including $853 million of cash. A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time.

To weather the COVID-19 storm and boost liquidity, Nordstrom says it will suspend its quarterly cash dividend beginning in the second quarter of fiscal 2020 and draw down $800 million on a revolving line of credit. It also will expand a previously announced $200 to $250 million cost-cutting plan, adding further reductions of more than $500 million in operating expenses, capital expenditures and working capital. Nordstrom also is suspending share repurchases.

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Additionally, Nordstrom announced an offering of $600 million in secured notes at 8.75%. The retailer expects the offering to close on or about April 16. Nordstrom plans to use the net proceeds for fees and expenses of the offering and for general corporate purposes.

Like Macy’s and J.C. Penney, Nordstrom continues to sell online while its 380 stores remain closed. Nordstrom closed its stores March 17.

Other large publicly traded retailers are also taking steps to make sure they can pay bills until sales start flowing in a more normal way. The following are some prominent examples of how retailers are shoring up liquidity.

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Duluth Trading Co.

Casual wear, workwear and accessories retailer Duluth Trading (No. 181), which sells online and at more than 60 stores, closed its bricks-and-mortar locations March 29. The retailer temporarily laid off an undisclosed number of hourly store employees and provided them with 2 weeks of pay. But the retailer, which gets about 50% of its revenue from online sales, continues to operate its online business and its distribution centers remain open. On April 6, the company provided staff at its distribution centers with a $2.50 hourly premium while Duluth Trading stores remain closed.

The workwear retailer also says CEO Steve Schlecht will waive all cash compensation for the balance of fiscal 2020 and members of the board of directors will forego cash retainers for the second and third quarters of 2020. Duluth trading also is reviewing all operating expenses—which includes seeking price concessions with vendors and reductions in lease expense for its stores.

Beyond the layoffs, measures to conserve cash include:

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  • 6-month pay reductions for senior leadership ranging from 10% to 20%.
  • Furloughs of varying lengths, with benefits intact for 68% of salaried staff.
  • A permanent 10% reduction in corporate staff.
  • Plans to open four stores in fiscal year 2020, reducing its previously disclosed plan by one store.

As of April 10, Duluth Trading had $85 million outstanding on a $130 million line of credit and a cash balance of $13 million, the company reported.

Lands’ End

Apparel retailer Lands’ End, which sells online and at 26 stores, says it furloughed about 70% of its corporate employees and nearly 100% of its retail employees starting March 28, 2020. Lands’ End (No. 59) also increased by $25 million the credit available under asset-based credit agreements with Wells Fargo N.A. and other lenders, making a total of $200 million available. As of April 6, $115 million in capacity remained available under those agreements, Lands’ End says.

Other cash-saving moves include:

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  • Temporarily reducing base salaries. The retailer cut the base salary of CEO Jerome Griffith by 50%. Lands’ End also reduced executive team salaries by 20% and made “scaled reduction” throughout the company.
  • Eliminating fiscal 2020 merit-based pay increases.
  • Temporarily suspending the company’s 401(k) match.
  • Temporarily reducing board of directors’ compensation.
  • Significantly reducing other discretionary operating expenses.

Wayfair Inc. 

In a statement about its response to the COVID-19, online-only housewares and home furnishing retailer Wayfair Inc. (No. 12) announced it is taking steps to shore up its balance sheet and boost liquidity.

To do that, Wayfair made a private placement of $535 million in convertible senior notes. Investment firms Great Hill Partners and Charlesbank Capital Partners led the transaction. One of Wayfair’s largest public shareholders, The Spruce House Partnership, also participated. Convertible senior notes are a kind of bond that is convertible into shares of the issuer’s common stock.

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