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Reopening Retailers Are Clearing the Inventory Deck for Back-to-School, Holiday: Week Ahead

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Retailers including Macy’s, Nordstrom and Kohl’s are putting themselves on a liquidity path to navigate back-to-school and holiday selling seasons.

Macy’s this past week completed a nearly $4.5 billion raise through a combination of $1.3 billion of senior secured notes and $3.15 billion via an asset-based facility. It will allow Macy’s to pay down, with some existing cash on hand, the $1.5 billion it drew down from a revolver and retire its old credit line. The retailer plans to pay down $530 million due in January 2021 and $450 million due in 2022.

Kohl’s issued $600 million of new debt and replaced a $1 billion revolver with a larger $1.5 billion secured line. According to Cowen & Co. analyst Oliver Chen, Kohl’s doesn’t have any maturities until 2023.

And Nordstrom, which drew down $800 million from its revolver, issued $600 million of secured debt. Chen said the retailer has reopened at least 40 percent of its full-price and Racks stores, and should have 75 percent of its fleet, or 118 doors, reopened by the weekend.

So far, retailers that have started their phased-in reopenings have said sales, while certainly not at pre-COVID-19 levels, are still better than expected. Wells Fargo economist Tim Quinlan attributed the recent spike in shopping as the result of pent-up demand and consumers eager to spend their stimulus checks. But even he said consumer spending likely won’t head back to pre-COVID levels, despite early results, due to to the huge disruption in the labor market, where the unemployment rate is currently at 13.3 percent due to furloughs and jobs permanently lost in the aftermath of the coronavirus pandemic.

There’s also concern about where the economy is headed, as some states including Florida and Arizona see alarming upticks in coronavirus infections while hotspots like New York have been on the decline. And looking ahead into the fall season, there’s still talk about a possible second wave of infections, barring some moonshot breakthrough with vaccines or anti-viral treatments.

Retailers are aware of those risks and taking them into account in navigating the third and fourth quarters.

“We expect to head [into the third quarter with] clean inventories and with newness for our customers,” Felicia Williams, Macy’s interim chief financial officer (CFO), said in a fireside chat Tuesday with CEO Jeff Gennette and Chen at Cowen’s 2020 New Retail Ecosystem CEO Summit.

Kohl’s commenced its reopening on May 4, with 90 percent of stores, of 1,047, newly reanimated as of Monday, according to CEO Michelle Gass, who also spoke at the Cowen Summit along with CFO Jill Timm.

Gass said Kohl’s is “pleased with the sequential improvement in stores” while noting the “very fluid environment.”

Gass addressed the eight brands the Kohl’s recently dropped, and how it is focusing on the labels that appeal to the next generation. “We don’t want to be overly reactive. This is a point in time to take a step back to reevaluate the Kohl’s of the future,” she said.

That future sees a tremendous opportunity in beauty, a category where the retailer will lean in as a “convenience play” as more than 75 percent of its customers are women. And while accessories can be “turned down a bit,” and the “dressy side can be trimmed down,” Kohl’s will be betting on feeding the winners over the next couple of years. That means more athleisure, active, and home, Gass said.

Timm said the chain pared first-quarter receipts by 30 percent in April, mostly due to store closures. In the second quarter, the company pulled forward inventory receipts for some back-to-school product for the end of June and July. As the company moves into holiday, it will take a “conservative approach,” she added.

Heading into fall and holiday will also mean finding out which retailers that are under bankruptcy court protection will be the Chapter 11 survivors in a post-COVID-19 world. Neiman Marcus has yet to announce any store closures, while J.C. Penney has a looming July 15 deadline that requires it reach an agreement with first-lien lenders or be put up for sale. The company this week got the nod from the bankruptcy judge overseeing its case to hold off until July 13 for June and July rent payments on its stores. It also hasn’t yet made any rent payment for May for most of its leased stores. And as the world moves past the next few weeks, the retail sector could find other nameplates joining the ranks of the distressed group. Tailored Brands and Ascena Retail are said to be contemplating the need for debtor-in-possession financing. Ditto for Brooks Brothers. And New York & Co.’s parent RTW Retailwinds said in a regulatory filing that there’s a good chance it will consider itself a Chapter 11 filer as well.

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