Photo: RetailWire
Retailers turn to government for help in a time of need
Friday was the first day small businesses — including thousands of retailers dealing with forced closures — could apply for loans as part of a $2.2 trillion coronavirus rescue package from the federal government. The rushed program, not unsurprisingly, got off to a rough start.
The Paycheck Protection Program (PPP) allocates $349 billion in federally-guaranteed SBA 7a loans to assist businesses with under 500 employees. The loans are forgiven if a business uses the funds to retain workers for eight weeks or rehire for positions it cut in the wake of the pandemic.
Technical glitches plagued the rollout as thousands of businesses flooded banks with calls and emails. Banks scrambled to set up lending procedures, with guidance from the Treasury arriving the night before. SBA administrators were overwhelmed as the PPP is more than 12 times the amount of SBA loans originated in all of 2019.
The overall $2.2 trillion CARES Act, the third phase of relief packages so far, is aimed at stabilizing business. More than 10 million Americans have applied for unemployment benefits in the past two weeks.
The package also provides $454 billion to support loans made by the Federal Reserve, although those loans will only focus on businesses with investment-grade debt and leaves out many chains. Other parts of the act include over $300 billion in direct payments to Americans, expanded unemployment insurance and tax relief.
The National Retail Federation said money heading to the public or other industries will help put money in customers’ pockets.
“Companies that were investing, growing and contributing to a vibrant economy just a few weeks ago have been thrust into survival mode through no fault of their own,” NRF’s CEO Matt Shay said. “They need a bridge to get through this turbulent time and back to the business of job creation and economic prosperity.”
Congress is already debating a phase-four, less-bipartisan to address recovery efforts that may include a massive infrastructure program favored by President Trump, as well as additional funding to hard-hit states, more tax relief and, potentially, tariff relief. A Business And Employment Continuity And Recovery Fund — modeled after the 9/11 Victims Compensation Fund — is being considered and may also support retailers with more than 500 employees.
- Coronavirus Aid, Relief and Economic Security (CARES) Act – The Office of Majority Leader
- Confusion surrounds launch of $349B in small-business loans – The Hill
- Thousands of applicants, zero loans: Trump’s small businesses lending program is a failure to launch – NBC News
- Frenzy and Desperation as Small Businesses Grab for Government Aid – The New York Times
- Coronavirus stimulus from Congress will bring billions to cash-strapped retailers – National Retail Federation
- ‘Our Industry Will Fail’: Retail Leaders Ask for Emergency Aid – The New York Times
- Why some of America’s best-known companies won’t qualify for bailout money – Politico
- ICSC’s CEO’s Letter to the U.S. Administration – ICSC
Discussion Questions
DISCUSSION QUESTIONS: What advice would you have for retailers about taking advantage of the federal government’s stimulus packages? Do you agree that retail should be among the distressed industries receiving emergency funds and other aid from the federal government?
Poll
BrainTrust
Bob Amster
Principal, Retail Technology Group
Ralph Jacobson
Global Retail & CPG Sales Strategist, IBM
A key flaw in the CARES legislation is that it aims to support companies who maintain their payrolls. A worthwhile goal, to be sure, but it doesn’t really help the countless retailers and other service providers who have to furlough workers when there is no revenue coming in. Let’s hope CARES 2.0 addresses this shortcoming in the first legislation, along with more tangible (and fast-moving) support for those furloughed workers.
I am glad the small business owners are getting the help they desperately need. First, they should understand the loan obligations and covenants thoroughly. Second, they should look at the categories that are doing well, apply critical thought on what will likely do better – and try to align their sourcing towards that. One of the big challenges will be aligning supply with demand. Think and plan a lot, before executing.
As much as helping small business with deferment of loans, rent abatement and other similar tools is important, putting money directly into the hands of furloughed consumers is also very important. If these people have money to spend, they will. That will cause the retail businesses that have had to furlough their own employees to rehire some, many, most, or all.
Exactly. Somehow we think companies are the magic elixir to solving the problem. The problem is solved when people have money in their hands. We can give all the loans we want to retailers but after this is all over, if people don’t have cash, nothing happens. And many retailers will not be able to pay back the loans.
When they write the legislation, do they ask “how convoluted can we make this?”
I fully agree with you Bob. The big problem is the laid-off employees are having great difficulty trying to navigate their state’s unemployment portal.
One only has to look at the percentage of GDP that is generated by consumer spending to conclude that retail should absolutely be one of the distressed industries receiving emergency relief early. As for the stimulus – patience will be the order of the day. This is completely overwhelming for those trying to execute this – it will not be without its problems.
If you’re a business that needs stimulus assistance, you should’ve already submitted your application. There is no question that more businesses than not will require federal assistance. We should not make the blanket statement that all retailers need help. There are certainly those that are doing better than ever due to overwhelming consumer demand. However, a more surgical approach is necessary to help ensure that those who need it (e.g., retailers of ANY size that have been shut down as required by the government, employees who cannot work due to the same restrictions, etc.) get it.
Though it may not be anyone’s fault the stimulus is too little, too late. A good deal of damage has already been done and for many small businesses this is applying a tourniquet just in time to keep the patient breathing, not a long-term solution for their recovery. Ditto for the consumer stimulus. Forty percent of Americans have less than $400 in savings in the bank, so they are probably already $1,200 in debt. It’s a back-fill, not a bonus. Of course there will be a second round of stimulus, and no doubt a third, and possibly a fourth — and that’s only if the virus goes dormant in the summer. But even if it does, it is likely to come back before there is a vaccine whose effectiveness is dependent on coronavirus not mutating, which is of course what viruses do, otherwise we would have wiped out the flu decades ago. I do agree that retail is among the distressed industries, but I would urge all retailers to think through and after the pandemic before they decide on the best course of action. This could easily go on for anywhere from three to eighteen more months, again, assuming no mutation. Grabbing the cash is a good tactical move but it is no substitute for a long-term strategy.
There is no playbook for this one. Most of the world has gone with the government paying a high percentage of the wage costs to keep employees from being laid off. This also servers to keep money in everyone’s pockets. I think we’ll have a tougher time here when things start up again, as companies will have to go through a rehiring process and some of their former employees will not be available. In the end though if we don’t have demand for goods and services ready for reopening, none of these measures will help regardless of how aid is delivered. I vote for getting money into the hands of people who 1.) need it to survive and 2.) need to start spending again. This makes the case for a bottom-up funding approach that will rekindle demand.
This stimulus will be fraught with scams as all government programs are open season for the folks who want something for nothing. Remember the shovel-ready $87 billion dollar stimulus that ended up being wasted? I hope this isn’t the case, but anything this size will end up getting in the wrong hands of people who do not need it, while others who really need it can not get a dime. This money will likely vanish quickly, with very little followup or accountability.
We have done well with this situation, and I’m not gonna apply for anything, and I hope others do the same. Am I skeptical, yes. With $2-3 trillion, if done right, the neediest should get another chance to continue on, and I hope it works. It would be nice for a change to see that the money gets distributed as it was intended to be.
I can’t imagine anyone — particularly on a site named RetailWire, of all places! — arguing against retail being a prime target of relief efforts. It’s been among the hardest hit industries. As for an infrastructure plan: what-the-….?
History shows money in consumer hands is most critical. But given the current environment, they don’t have good ways to shift that into stores.
So, YES! Retail is a distressed industry without question and needs emergency funds as well.