Photo: Getty Images/Jorge Villalba
Canceled orders and furloughed employees are part of today’s retail reality
In a letter to vendors last Thursday, Ross Stores canceled all purchase orders through June 18, joining numerous other “non-essential” retailers that are taking drastic steps to preserve cash as a shield against the impact of the coronavirus.
The off-price retailer also extended payment terms on existing merchandise by 90 days. The move comes as non-essential stores began temporarily closing locations in mid-March.
WWD reported last week that moves by stores to cancel orders and postpone payments to vendors has increased as the operational and financial realities of the outbreak have become clear.
“We’ve taken actions to give Macy’s Inc. financial flexibility to sustain the business through the prolonged closure,” Jeff Gennette, Macy’s CEO, told WWD. “Some of those actions — cancelling orders, extending payment terms — directly impact our partners. We don’t make these decisions lightly.”
For non-cancelled orders, Macy’s extended its payment terms to 120 days from 60.
A Wall Street Journal report last week said H&M, Marks & Spencer and Primark were among European retailers suspending or canceling orders. A H&M spokesperson told the Journal, “Our long-term commitment to suppliers will remain intact, but in this extreme situation we need to respond fast.”
Many retailers are quickly rolling out cost-containment efforts, including reducing salaries and implementing furloughs. The top executives at Dick’s Sporting Goods, Kohl’s, Macy’s, Nordstrom and L Brands have all agreed to forgo their salaries and reduce the pay of their management teams.
Yesterday, both Macy’s and Kohl’s announced they were furloughing the majority of their employees. In Macy’s case, that means around 125,000 people will not be working; for Kohl’s, the number is about 85,000.
Macy’s said fewer furloughs would take place in its digital business, distribution centers and call centers. “We expect to bring colleagues back on a staggered basis as business resumes,” the department store retailer said in a statement.
Nordstrom has also announced that it is furloughing a portion of corporate employees for six weeks.
“This incredibly tough decision enables us to continue providing much-needed benefits, including health care, to our people,” CEO Erik Nordstrom and chief brand officer Peter Nordstrom wrote in a letter to employees. “It means that when life goes back to normal, as we know it eventually will, we can keep providing consistent employment and pay to tens of thousands of people.”
- Ross Stores tells vendors it will cancel merchandise orders through mid-June – CNBC
- Retailers Rile Vendors With Order Cancellations – Women’s Wear Daily
- Retailers Cancel Orders From Asian Factories, Threatening Millions of Jobs – The Wall Street Journal
- Nordstrom Provides Business Update Related to Coronavirus – Nordstrom
- Macy’s, Inc. Provides Additional Business Update in Response to COVID-19 Outbreak – Macy’s
- A Message from Our CEO Roger Rawlins: COVID-19 Operations Update for March 25, 2020 – Designer Brands
- Macy’s, Inc. Provides Business Update in Response to COVID-19 Outbreak – Macy’s
- Kohl’s Extends Temporary Store Closures Nationwide and Provides Business Update in Response to COVID-19 Pandemic – Kohl’s
Discussion Questions
DISCUSSION QUESTIONS: Should the needs of employees take precedence over vendor partners as retailers seek to preserve liquidity in response to the coronavirus pandemic? What overall advice would you have about making and communicating such extreme cost-cutting decisions?
Poll
BrainTrust
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Jasmine Glasheen
Content Marketing Manager, Surefront
This is a very sad situation in which many retailers will need to make tough decisions to survive. Most need to preserve cash and that does mean cancelling orders and furloughing staff. That said, retailers should be as generous as they can to their employees – including keeping health plans intact and so forth. Pain is unavoidable in this situation, but humanity and decency are essential.
The goal is survival. Retailers now are making some of the most difficult, traumatic decisions they have ever faced and there is no room for sugar coating or positioning. Being clear, candid and setting the right expectation is the right thing to do. I believe that retailers should place their employees ahead of vendors in the short-term, but it’s important to realize that vendor partners are also an extension of the retailers’ business and they too have employees that rely on the business from retailers.
Ditto. The vendors have to pay their raw materials costs to their vendors, so Macy’s and the rest of them who are extending their terms of payment, maybe the producers will not survive. I can not get those terms and would be cut off from my suppliers if payments are not met on time. Pay half now and half later, and that would be a good compromise, as all parts of the business model are struggling.
You said it all, Mark. There isn’t anything else to add. It’s a vicious circle.
I was going to jump in and comment, however Mark’s comments clearly encapsulated the very unfortunate circumstances the retail industry is in. It’s clearly all about survival at this stage. It’s shocking to see how quickly the situation has escalated over the past few weeks. Thousands upon thousands of loyal retail employees have been furloughed, and the entire retail business model has been disrupted, without any clear understanding of when we will be returning to a sense of normality.
Survival mode is essentially shutting down all the non-essential operations, significantly cutting costs, and preserving liquidity. The sad and shocking reality is the immediate and horrible impact it has on the retail employees.
Most businesses have very few options. If the company doesn’t survive, nothing else matters. So unfortunately, if employees need to be furloughed and vendor orders need to be canceled, it’s the only choice the business has. When you read that CEOs and top executives are forgoing their salaries along with management taking pay cuts, it shows these companies are doing everything possible to survive. It’s simple math; no sales means no money. When this ends, and we all pray and hope it’s soon, we will be experiencing a complete rebuilding mode. Unfortunately, many businesses will not have survived but, for those that do, they will be stronger than before. These are hard times, ones that will demand many hard business decisions, but the companies that will survive will do so through proper leadership.
I can’t disagree, but I wonder about the “after” (yes I’m optimistic there will be an after): will the execs see their foregone salaries offset by enlarged bonuses or backpay, and if so, how will the furloughed employees be compensated … if at all?
Hard to say and we’ll have to wait and see. But I think businesses will be so focused on getting back on track financially that any thought of big bonuses, added compensation and perks will not be something we’ll see for quite some time. I do expect most businesses to start off lean and mean and that could mean not everyone furloughed will have a job waiting for them when things return to normal.
This crisis could not have happened at a worse time for retailers – bills were paid for holiday receipts in February, stores closed in March which means a sharp reduction in cash flow. Protecting employees should be priority number one. However, retailers need to work in partnership with their suppliers on how to absorb some of costs either at a discount or not asking for markdown allowances on 120 day termed receipts – otherwise, there won’t be any suppliers left to do business with.
The advice I have for retailers is to be transparent, openly communicate the needs of the business to suppliers and stress to everyone the number one priority is protection of employees. Protecting employees now from the virus and protecting employee jobs in the future by trying to keep your retail business afloat. The cancellation of shipments and stretching of payments will ripple back through the supply chain to manufacturers around the world. Partnerships will be strained, but at this point we are all in this together for the long haul. There is no short-term fix on the horizon.
Yes, associates are more important than vendors. We are in the time of pedal meets the metal as they used to say. Culture means nothing if it does not take care of those most essential to the brand, its employees.
Well said Bob, and I couldn’t agree more. Just as consumers will remember the actions that companies took during the crisis, loyalty matters in corporate settings as well. The employees should be prioritized over any vendor partnerships.
Mark Ryski laid it out clearly. Rent will have to be deferred. Some deliveries will be deferred and many canceled. But employees will have to be the primary concern.
Unfortunately for Macy’s, Kohl’s and others, they are in the business of selling discretionary goods (mostly apparel) instead of necessities like food and cleaning supplies. Clothing is the last thing on people’s minds right now, especially if it involves dressing up and going out. (And retailers like Target and Walmart are still open for business if all else fails.)
Seasonal apparel in particular has an expiration date, and most of the selling season for shorts, tees and swimwear is being wiped out. This may feel like a minor problem compared to the virus itself, but the ripple effects on these retailers’ workforces — and on the broader economy — represent lost revenue that will never be recovered. “Pent-up demand” only goes so far for seasonal goods.
There are no winners. It almost feels like rearranging deck chairs on the Titanic. In industries where a small dip in Black Friday sales is considered detrimental, we are looking at sales completely wiped out for weeks and months. The effects are being felt throughout the chains. Everyone is affected sooner than later. It will be starting almost from scratch once this is over. Critical people would have been lost during this time. Whoever can reboot fast will be the winners.
Smart retailers do, and must have, a razor sharp view on merchandise flow and arrival dates for merchandise in times like this. The reality is that there will be drastic sales decreases because of the closings. Stores will and can find themselves in a dilemma of having older merchandise with less appeal to their customers when the stores are allowed to open. However, those invoices will still be due. At the same time, new product will be rolling into the stores. This makes for a shaky cash position. It is smart for retailers to cancel where they can and when it makes sense. It is all about cash flow and controlling inventory levels. All of this will require control of every expense, including payroll. It will get better. the industry will flourish again because of disciplined strategies and making hard decisions.
These are impossible choices. I would not presume to give advice to anyone who is forced between these two terrible options. If it were me, I would preserve as many of my associates as long as I possibly could and then deal with inventory issues when we come out of this. Perhaps suppliers will be able to make contingency plans to procure, produce and stage some new-season inventory so it can ship quickly then?
In these times, people are what matter the most. None of these decisions are easy for retailers to make right now. They are making the right choices to try and do everything they can to maintain health benefits for employees, even if that means implementing furloughs and extending payment terms to vendor partners or outright canceling orders. During these difficult times, no decision that would never have been on the table even 1 or 2 months ago can be off the table now. This is bringing new meaning to the term “corporate culture.” Retail brands that make these choices in a way that best supports their employees will be remembered by both those employees and their customers when we are past the pandemic. I also recognize those vendor partners are in the exact same position – they have employees, too, and certainly they are trying to do what is best as well. There simply are no good answers, just necessary ones.
I want to say that this is a balancing act, but defining the right balance is difficult, to say the least. Survival pretty quickly jumps to the top of the list. Survival with an evolutionary mindset toward what a new business model will have to look like. That’s going to mean some kind of rationing and reassigning of resources. Protecting employees and preserving cash are at odds with one another, but it sounds like many retailers are skillfully walking that line. Forgone salaries make sense. Furloughs with paid benefits makes sense. Businesses that have closed and are protecting employees have made good decisions. Non-essential businesses that have stayed open in the name of survival have made bad decisions.
When the revenue spigot stops, a company must drastically alter its cost structure and future liabilities so it can fight another day. The ripple effect from a sudden demand shock stop will reach all the way to the factories in China and elsewhere, and every operating intermediary in the supply chain.
Without any history as guide, retailers are fighting for survival as they deal with an unprecedented situation. Their moves to cancel orders and extend terms are expected; to furlough employees is a difficult but necessary step to avoid potential bankruptcy.
Future survival does require that those furloughed employees return and that retail supply networks remain viable. Retailers must view their employees as valuable assets absolutely necessary in any future scenario. As such, every furlough decision must be viewed with the future in mind. Once demand returns (and it will, but with a permanent upshift for online sales and home deliveries) retailers must be ready with skilled and knowledgeable employees as well as a healthy supply network (and stores).
Retailers need to use this down time to step up their online capabilities and greatly improve integration with their physical stores and consistency of the customer experience. Additionally, infusing digital skills and capabilities across the organization and implementing dedicated employee training programs catered to consumers’ post-pandemic shopping behavior will improve a retailer’s ability to reclaim lost demand and build a much stronger business.
What a surreal period of history we find ourselves in today. The decisions needed to be made by not just retailers, but everyone else too, could never have been planned for.
Survival comes first, of course. Looking after employees, the one who helped build your success all along (and will in the future again) is so important. You may not be able to pay them their full wage, or any at all, but how you treat them now will go a long way in determining how they will treat you when they come back.
Vendors always seem to “take it in the teeth” when business gets tough. Let’s just remember they have employees too, and aren’t just a company name.
Let’s start with employees. This part is relatively simple. If there is no work to do, a company should lay-off or furlough. Hopefully with strong support of healthcare benefits. (This shows how bizarre it is to link healthcare to employment.) Companies are not charities.
With regard to vendors — work with them to be able to put off as much as possible. They have commitments also. How little can they survive with? A retailer has made a commitment and has received the product. It must be paid for. It makes no sense to drive the vendor out of business. It makes all the sense to work with them so that both can survive.
This situation is one of those that is difficult to respond to with clarity. Certainly the needs of employees must take precedent over other costs. But the problem is that the vendors you owe money to also have employees that need to be paid, as do the vendors of those companies that vendor owes money to for products needed to make the products you need. This is a never ending cycle that will touch, and probably already has touched, everyone whether in the workforce or not.
This is such an awful, unprecedented, terrible time. Mr. Ryski is CORRECT. There has to BE a company that survives to go forward and terrible decisions must be made. Your associates, however, are YOU — and they are paramount!
How retailers treat their associates during this time will define their company for years to come. We’ve been talking about the erosion of top-down management styles and the need to make employees brand advocates for some time now, and this pandemic has shown the necessity of these actions in stark clarity.
The retail industry needs employees on the ground floor to survive, but even this cataclysmic outbreak hasn’t altered how delivery employees are treated enough to make showing up to work worth it. Instacart and Amazon workers are going on strike, ladies and gentlemen, and I don’t want to know what the world will look like if we run out of delivery drivers right now.
It doesn’t seem like this is an “either/or” it seems like a “both” … or really more like “neither,” as neither vendors nor employees can receive money that simply isn’t there. (And not to sound unsympathetic, but at least employees have the option of filing for unemployment. What does a vendor — who also has to pay employees — do during that long, extra two months?)
Information should be transmitted as personally as possible — i.e. ideally before press releases — but with thousands of vendors and hundreds of thousands of employees, it’s obviously impossible to do this one on one.