With stores temporarily shut down due to the coronavirus pandemic – and a zero-to-zero chance in the near future – America's department store is facing a cash crunch.
The department store chains have enough liquidity to make it about five to eight months, with stores sitting dark, in this coronavirus pandemic, according to an analysis released Friday by Cowen & Co. go on for so long.
Cowen measures cash as cash plus revolvers relative to key expenses such as rent, labor and promised dividends. Cowen said that labor costs are about 10% of annual turnover, while rent is about 3%, to give a sense of what some of these expenses look like.
J.C. Penney and Nordstrom are doing a little better and have enough cash to last eight months with their stores closed, Cowen said. Kohl and Macy have enough for five months, it says. Cowen made these forecasts assuming all of these dealers bring in $ 0 in revenue from their brick and mortar stores.
Representatives from Penney, Macy & # 39; s, Nordstrom, and Kohl did not immediately respond to CNBC's request for comment.
If closures of stores due to the corona virus last longer than eight months, then "liquidity becomes a significant risk factor," Cowen said.
So far, it doesn't seem that anyone has a sense of when retail in the United States can come roaring back to life.
Macy's CEO Jeff Gennette told workers earlier this week in a note obtained by CNBC: "While we originally hoped to open our stores on April 1
" After losing most of the store closure sales, we must take unusual measures to save money during this whole crisis, "he added.
Every Macy's, Kohl's, Nordstrom, and Penney are already taking drastic steps to cut costs – like stopping stock repurchases and stopping dividend payments.
On Wednesday, Nordstrom said it would extend store closures through at least April 5. It said it would begin lifting some corporate employees from April 5 for six weeks. Nordstrom said it will pay the shop workers until April 5, while they will receive their full benefits throughout the month of April.
"This is the most difficult decision we have made in the company's long history," CEO Erik Nordstrom said of the changes.
Macy's said that the workers who are directors and above will take a pay cut, with effect from April 1 through the duration of the crisis. The dealer also postpones bonuses and 401K matches.
"We may need to take further action that will have a direct impact on our great colleagues," Gennette said in the note sent earlier this week. "This will be our last resort. If we need springs or layoffs, it will be to ensure the survival of our company."
Kohl's has fully withdrawn its $ 1 billion unsecured credit facility to increase its cash position and "maintain financial flexibility" amid such uncertainty. Macy's has also pulled down $ 1.5 billion under the credit facility.
Cowen further believes that department stores cut current orders and shipments of goods until the end of June or July, knowing that consumer demand will not be there. Shoppers are not looking for dresses or new denim. Many consumers are put out of work and are just trying to get enough groceries to get by.
"In the meantime, suppliers are canceling as many orders as possible, which will weaken important school returns [and]," said analyst Oliver Chen.
Each of these dealers is also likely already in talks with their landlords, such as mall owners Simon Property Group and Macerich, to ease the burden of paying rent when stores are empty. CNBC previously reported that these discussions between tenants and property owners were ongoing. The restaurant chain The Cheesecake Factory, for example, said this week that it will not be able to pay the April rent in its nearly 300 locations – many of which are in shopping malls next to department stores.
Pressure is already beginning to hit malls as well.
Macerich, who runs the Tysons Corner Center in Tysons Corner, Virginia, said Friday that it recently borrowed $ 550 million on its revolving credit line. It drew its earnings outlook for 2020. Earlier this month it cut its dividend.
With all the disruption in their COVID-19 businesses, department stores, clothing retailers and footwear players could see operating revenues fall as much as 40% this year, according to an analysis by Moody's. Previously, Moody's asked for a narrower 5% drop for department stores.
Overall, Moody's requests that the US retail industry's operating revenues fall by 2% to 5% this year, and retail sales will fall to 3%.
Right now, online retailers are only absorbing a fraction of lost store sales, Moody's senior analyst Christina Boni told CNBC in an interview. "If these retailers [trying to] turned business before this, it makes the mountain more difficult to climb."
Macy's, Penney and Kohl's shares have all fallen more than 65% this year. Nordstrom's share is down more than 60%. All four warehouse shares sold on Friday amid a sharp decline in the broader market.
Simon Property shares, which have a market value of $ 17.7 billion, are down 61% so far this year, while Macerich's shares, valued at approximately $ 888 million, have fallen 77%.