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Distressed retailers play “hot potato” with landlords and suppliers

Marielle Segarra May 28, 2020
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A "closed" sign on the Victoria's Secret shop in Herald Square. Eduardo Munoz Alvarez/Getty Images
COVID-19

Distressed retailers play “hot potato” with landlords and suppliers

Marielle Segarra May 28, 2020
Heard on:
A "closed" sign on the Victoria's Secret shop in Herald Square. Eduardo Munoz Alvarez/Getty Images
HTML EMBED:
COPY

Victoria’s Secret filed a lawsuit this week asking a judge to let it break the lease on its store in Herald Square in Manhattan because of the pandemic.

Also, J.Crew has gotten court approval to defer its rent payments, as did Pier 1.

The whole thing is starting to feel a bit like a game of hot potato, with each company trying to pass the pain on to somebody else.

Hot potato — you know the game, right? The potato’s hot, nobody wants it and it goes round and round the circle.

Basically overnight, American consumers stopped buying clothes and shoes and lots of other things, and big retail chains do not want to be holding that potato. So they pass it along, for instance, to their landlords.

“I would call it more throwing the potato as hard as they can at landlords,” said Joel Bines, managing director at AlixPartners. “Essentially, the retailers have said, we’re just simply not paying rent and we’ll figure it all out later.”

Landlords might win legal battles with the retailers eventually and get their rent money. But in the meantime, they have to pay their mortgages. They can try to toss the spud to their banks and see what happens.

The next potato? Retailers are passing it to their suppliers.

“Just extending the analogy way farther than it was designed to be extended, it’s more like retailers cutting up the potato and handing pieces of the cut-up hot potato to various suppliers in various amounts,” Bines said.

In practice, that means canceling orders and delaying payment. “So yes, I want the product, but instead of paying you in 30 days or 60 days, I’m going to pay you in 120 days,” said Craig Rowley, senior client partner for retail consulting at Korn Ferry.

The retailers have a lot of power here, so vendors will try to hang in there and meanwhile, pass the tater even further if possible. 

“The vendors then go to their suppliers or the people who provide them fabric, materials and the like, and push back on them to say, again, the same way we just had orders canceled, so now we’re going to cancel your orders,” Rowley said.

Finally, there is the debt potato (yeah, we’re still doing this).

A lot of retailers have racked up billions of dollars in debt over the past decade. Now, they’re filing for bankruptcy and getting rid of it. In other words, passing the potato yet again.

COVID-19 Economy FAQs

What do vaccines mean for economic recovery?

COVID-19 is not going anywhere anytime soon, according to expert witnesses who testified at a recent hearing held by the Joint Economic Committee. Put simply, we can’t eradicate the virus because it infects other species, and there will also be folks who choose not to get the vaccine or don’t mount an immune response, according to Dr. Céline Gounder at NYU School of Medicine & Bellevue Hospital. “That means we can’t only rely on vaccination,” Gounder said. She said the four phases of recovering from the pandemic are ending the emergency, relaxing mitigation measures, getting to herd immunity and having long-term control.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

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