Will Retail Bounce Back From the Pandemic?

Companies are facing a liquidity problem amid uncertainty over when stores can reopen.

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There’s a new normal in store for several of the nation’s large retailers when COVID-19 health restrictions begin to subside, and experts such as Mark A. Cohen, the director of retail studies, say the industry should not expect a quick recovery.

“We’re looking at a window of normalcy, whatever that is going to look like, opening in late 2021, if not 2022,” Cohen, a former CEO of Sears Canada, says. “We’re going to see an incredible amount of disruption in the interval.”

The pressing issue for large retailers such as Macy’s, JC Penney, and Kohl’s remains the uncertainty about when they can open and resume some semblance of normal business operations.

“These companies can’t put a pin on the calendar,” Cohen said. “Hopefully, they are making plans to open based on a variety of scenarios and conditions.”

Georgia and South Carolina announced this past week that they would allow some stores to open on a limited basis, with social distancing measures remaining in force, but most state governments have kept retail businesses shut.

Cohen is skeptical of optimistic projections from the Trump administration about when stay-at-home orders will be lifted and stores can throw open their doors.

“This notion that the shutdown is going to be substantially over by May 1 is complete nonsense,” Cohen say. “Experts are saying that there’s not going to be a unified calendar; it’s going to have to occur literally community by community.”

Opening stores, according to Cohen, creates some challenges for firms, such as ensuring employees are safe from possible infection, but retailers are also facing a series of unknowns in terms of their financial well-being.

“There’s no analog for this,” Cohen says. “You can’t, as some people did in 2008, look at previous recessions and create a series of expectations. The current crisis has no basis for opinion other than guessing, and it’s going to be tough.”

The challenges imposed on retailers by the shutdown have exacerbated existing problems in the sector. Macy’s, the nation’s largest department store in terms of sales, announced in February it would close approximately 125 stores, a fifth of its locations, over the next three years.

“Macy’s is, in some respects, the last man standing,” Cohen said. “They have been in decline for years and have not come up with a real strategy for a new migration path to the new, online retail reality.”

Cohen notes that retailers who have struggled in adjusting to e-commerce are facing “devastation” by the economic downturn.

The lack of growth in online sales points to a key problem for most retailers – a lack of liquidity.

With a few exceptions, only large and consistently profitable businesses, such as Wal-Mart or Apple, have the luxury of holding sizable volumes of cash.

“Most businesses, and certainly most retailers, live and die by the cash consumption cycle,” Cohen says. “They buy merchandise, they pay for it soon after they receive it, and they eventually sell it.”

The net between what firms pay for merchandise and what they sell it for then gets applied to the financing for next cycle of merchandise. 

“Some retailers are sitting with billions of dollars of merchandise that they may or may not have paid for and it’s not selling,” Cohen says. 

To shore up their credit facilities, retailers have furloughed their employees and in some cases stopped paying rent, creating what Cohen calls a “footrace” against the length of the crisis and how much it will cost once stores reopen.

“Once they do, they are going to have to start paying their people and their bills,” Cohen said. “This is very complicated and challenging period.”

Cohen predicts some firms will enter a period of restructuring through Chapter 11 bankruptcies, but even those will have to wait until the pandemic begins to wane.

“You can’t conduct a bankruptcy while we are shutdown, because they rely on, among other things, going out of business sales, which of course can’t take place now.”

Cohen says that the new economic realities caused by the pandemic should force both industry and the government to create strategies with the knowledge that a similar crisis could reoccur.

“It’s very easy to be lulled into prosperity and assume someone else will deal with the problem,” Cohen says. “There’s got to be a higher level of responsibility from government and industry. Firms have to learn how to be more capable of protecting their constituencies, their employees and their process so it can function in a disruptive period.”

About the researcher

Mark Cohen

Mark A. Cohen has been in the retail business since his graduation from Columbia University in 1971. (MBA '71, BS Electrical Engineering '69) He has over 20 years...

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