Amid Looming Credit Crisis, Retailers Turn to Fed and Treasury for Emergency Help
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An increasing number of retailers are seeking help from the government amid a looming credit crisis spurred by the coronavirus pandemic.
The American Apparel and Footwear Association — which represents more than 1,000 companies across the United States — penned a letter last week urging the Federal Reserve and the Department of Treasury to provide a financing guarantee as businesses run out of cash and struggle to obtain credit.
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Over the past couple months, the COVID-19 health crisis led to supply chain disruptions, impeding manufacturing and foot traffic to stores. Despite the federal government’s stimulus measures, many retailers’ balance sheets have taken a significant hit. What’s more, companies are now finding “vastly different” credit terms than prior to the pandemic as insurers scale back their coverage and services to avoid risk in today’s economy.
Addressing Fed chairman Jerome Powell and Treasury Secretary Steven Mnuchin, AAFA president and CEO Steve Lamar called on the agencies to structure credit insurance backstops in such a way that fashion, footwear and accessories companies can continue to access necessary funds during the COVID-19 health crisis.
“One of the side effects of the very severe liquidity and cash flow crunch we’ve experienced in the past two months — and the closure of most retail outlets in the country — is a commercial credit crisis that threatens to seize up our economy and stall the safe restart in its infancy,” Lamar wrote.
He added, “Unless this is fixed soon, the retail engine that supports one in four American jobs will have a hard time coming back to life. Moreover, many medium-and small-size retailers and suppliers that the CARES Act supported will be lost.” (The CARES Act, passed in late March, was designed to send direct payments and grant unemployment benefits to millions of Americans, as well as guaranteed hundreds of millions in loans to small-and mid-sized businesses.)
As the COVID-19 outbreak spread throughout the U.S., scores of stores, offices and businesses shuttered their doors for weeks, forcing many nonessential employers to terminate or furlough their workers. Since mid-March, more than 41 million people have filed jobless claims, while the pandemic also pushed nationwide chains from JCPenney to Neiman Marcus into bankruptcy.
Now that federal lockdown restrictions have eased in many swaths of the country, a growing number of retailers are opening their doors. However, saddled with merchandise, they now face the challenge of unloading goods at deep discounts to clear out their distribution centers and make room for upcoming seasons.
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