Recent editorial by long time AAPN friend and speaker Robin Lewis that is, as usual, incisive and well worth a read.
Get Lots of Cash Now!!!!
By Robin Lewis | March 29, 2020
As a reader of The Robin Report, you are a knowledgeable and important participant of the retail and related industries, and many of you are major leaders, or you would not be reading this publication. And we truly appreciate your support. However, this is not a one-way street. We either deliver valuable content, full of strategic insights particularly relevant to your specific business or we will not deserve your support.
Accordingly, during this historically unprecedented, business crushing period, we have requested of all our writers to focus on providing their expert perspectives on the impact of the coronavirus on the industries and businesses within their market sectors: current status, issues and challenges; short-term survival tactics; post-virus forecasting and planning, including de-scaling and consideration of major strategic and structural changes to the current strategic business models.
My article today is guidance for retailers on the immediate need for liquidity–the urgency of NOW!
Cash Is King! No, It’s Actually Lifeline #1, NOW
COVID-19 attacks the United States. And poof, overnight, some 150 retailers across the country either closed all, or part of their fleets voluntarily or by government ordered shutdowns. Consumers en masse retreated, locked down in their homes, and cut back drastically on spending, buying only food and essentials, all mostly online. This abrupt smack in the head hit all consumer facing industries which rely on consumers’ discretionary spending for profitable growth. As a reminder, roughly 70 percent of our GDP is driven by consumption.
Worse, this comes on the heels of a way over-stored retail industry that has been over-leveraged, struggling for top and bottom-line growth and losing foot traffic to e-commerce for over two decades, before the word COVID-19 was even uttered. By the second week of March, U.S. retail traffic was down more than 30 percent year over year, according to data from Cowen analysts. And many of the major mainstream retail brands that were on the brink of bankruptcy pre-virus will likely be wiped out before the virus is stopped and consumers feel safe enough to return to socializing and shopping.
So, the urgency to simply stay afloat for a huge swath of retailers is NOW, and the number-one tool is liquidity, meaning they must find as much cash as they can, as fast as they can, to weather this storm over a length of time that is totally unpredictable. The depth of the economic collapse wrought by the global pandemic is equally unpredictable, to say nothing of how long it will take to return to a pre-virus economy. The $2.2 trillion stimulus package (framed as a “bridge” not a “bailout”) will send money directly to consumers and is intended to prop up small businesses and giant corporations just to keep the economy above water.
However, our economy is so integrated and inter-dependent — plus complex with complicated international supply chains. We are at risk of a massive “domino effect” triggered by one link that fails, and then the whole economic system could plunge us into a depression. The New York Times recently reported, “The result will be a domino effect. It begins with just the stores that are closed and their employees, which then hurts the brands whose clothes they sell – in fact, many are already hurting from canceled wholesale orders. Then come the factories that produce the clothes for those brands, and the mills that spin the fabric, and even the farmers that produce the raw materials. Spillover includes the ads that will be pulled from glossy magazines, the landlords without tenants, logistics companies and transporters who will lose their clients.”
Manny Chirico, CEO of giant (AAPN member) PVH corporation (owner of Tommy Hilfiger and Calvin Klein), laid it out in another way in the same article. He said, “The formula has always been you create inventory, borrow against the inventory and then sell the inventory. But when you can’t sell the inventory because no shops are open and no one is buying, the whole chain falls apart.” He went on to say that his stores had already accepted their spring apparel – which is now sitting in darkened rooms. “It will come to a point where there will be pressure on cash flow even for a company of our size, with what I thought was a fortress balance sheet,” he said. Read More