L.L.Bean CEO: Congress needs to step up for ‘middle market retail’

Discussion
Photo: @craftygator via Twenty20; Source: llbean.com
Apr 01, 2020
George Anderson

Grocers, mass merchandisers and warehouse clubs may be doing big business with consumers stocking up on everyday staples as the realities of social distancing and stay-at-home orders become all too real for millions of Americans. While these essential retailers are looking to hire workers to meet growing demand, others in apparel and other non-essential categories are closing stores across the country and furloughing workers in numbers unprecedented in the retail industry and nation’s history.

Congress has stepped in with a number of pieces of legislation to help ease the pain being felt by so many, but it still has work to do, according to L.L.Bean CEO Stephen Smith.

In an interview with CNBC’s Courtney Reagan, Mr. Smith contended that the recently passed $2 trillion stimulus package does not address “middle market retail” companies such as his. Essential retailers are continuing to operate, he said, while smaller retailers with fewer than 500 employees are eligible for Small Business Administration loans. The middle market, he said, employs up to 30 million workers, either directly or as vendors.

“All of those apparel retailers, every label of a piece of clothing that someone is wearing right now, all of them are struggling mightily with full rent, full payroll and, if they’re store-based, close to zero sales,” Mr. Smith said.

L.L.Bean has closed its stores but continues to fulfill orders placed online and on the phone.

A message posted on the Bean website says the retailer has implemented “temporary measures such as voluntary unpaid days, extended lack of work programs as well as reduced workweeks and reduced pay for salaried employees across all levels. This will allow us to continue to offer medical coverage for our hardworking employees and help them quickly return to serve our customers when stores are back open and business resumes.”

Like other companies that have stepped up in this crisis, Bean is employing workers to make face masks for medical workers. The material used in the masks comes from the company’s dog bed liners, which Mr. Smith described to CNBC as being breathable, durable and washable.

“A number of our employees said, ‘Hey, we are the best stitchers, cutters and sewers. We make the best boots in the world. … We can make masks, gowns and booties as well,’ and they immediately started experimenting,” he said.

Bean expects to turn out about 10,000 masks a day by the end of this week. The masks are being tested by the Massachusetts Institute of Technology.

DISCUSSION QUESTIONS: Do you agree with L.L.Bean CEO Stephen Smith that Congressional action is needed to support “middle market” retailers negatively affected by the coronavirus outbreak? If so, what form should that assistant take? How quickly do you expect companies such as L.L.Bean to rebound once the current situation has passed?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"If we let all of the middle of retail fail, I fear the ripple effect in terms of employment and thus consumer spending could significantly delay any recovery."
"If we don’t keep the demanders liquid, then recovery is going to be much more difficult."
"I have to take a deep breath here. The “middle market” has been suffering for a decade or more. The current situation will just exacerbate their problems."

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18 Comments on "L.L.Bean CEO: Congress needs to step up for ‘middle market retail’"


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Mark Ryski
BrainTrust

Virtually every business is being affected by the crisis and can make a strong case for Federal government support. But when you consider the challenges the Federal government has keeping people alive and fed, considering the troubles of yet another industry is becoming numbing. While I believe that Mr. Smith raises excellent points and concerns, the Federal government is so preoccupied with life-saving efforts, I just don’t think middle market retailers are going to hit high on the priority list.

Dick Seesel
BrainTrust

Mark, I agree completely. When the “best case” scenario for COVID-19 deaths is between 100,000 and 240,000, the fate of apparel retailers seems minor in comparison. Are they suffering from lack of traffic and demand? Absolutely — and the laid-off employees are suffering, too. First things first: Saving lives.

Richard Hernandez
BrainTrust

While I agree that middle market retailers will definitely feel the impact during and after the pandemic, I ask the same question that I asked last week in a different conversation on a similar topic – what are you doing to now and proactively to lessen the blow of the loss of sales and/or having to furlough employees? While I don’t disagree with the financial help, I believe you at least should have to show (or would have to show) you had a plan of action before any funding would be dispersed.

Jeff Sward
BrainTrust

It’s not a surprise that the recently passed “stimulus” package has holes and inequities. That’s not to cast blame, but merely to say that the haste in putting the package together made it impossible to be “fair” or “equitable.” So yes, the middle market needs support every bit as much as anybody else. I think it would also help if we correctly named the problem. I see this more as “survival” or a “safety net” scenario than a need for “stimulus.” The demand will return when it’s safe to shop again. (How quickly and in what sectors of the market? It’s impossible to say.) So what do businesses and employees need to tide them over until some kind of new normal sets in? Some kind of wage and health care subsidy? Will this whole scenario challenge the logic of employer-based health insurance? Congress absolutely needs to act. But it needs to do so in partnership with a reality-based Executive branch.

Jeff Weidauer
BrainTrust

While I think Mr. Smith makes a good argument, I suspect his pleas will fall on deaf ears. Congress will look at middle market retail and say they have done the work to help the affected employees with enhanced unemployment benefits, and those mid-level businesses aren’t critical right now.

Bethany Allee
BrainTrust

Yes, the government will need to do more to support middle market retail. Also yes, this is an opportunity for middle market retail to innovate how they do business.

For example, there’s a ton of inventory sitting in stores and on trucks. If they want to move it now, design pre-set packaged boxes where bored-at-home consumers get a surprise box of stuff in their size. The box is sold as a fantastic deal with minimal margin (the same model as folks like Fab Fit Fun), and the caveat to the consumer is that there are no returns. Another option is to yank this season’s items off the shelf, hold them for 2021, and invest all of the middle market’s time and energy into Fall 2020.

Right now the middle market – and all retailers – must innovate to survive.

Nikki Baird
BrainTrust

Yes, I believe this is a huge hole in the aid that has been given so far and is being considered for the future. Fashion is just as hard hit as cruise lines and I would argue actually more “essential” than that industry, yet cruise lines have already gotten their share of aid. Small businesses of any type can get the SBA loans to keep workers employed, but these mid-tier retailers have been left out in the cold. I would be very interested to know the employment impact these companies have – if we let all of the middle of retail fail, I fear the ripple effect in terms of employment and thus consumer spending could significantly delay any recovery.

Neil Saunders
BrainTrust

This is a tough one.

Given that the shutdown has been mandated by government, it is reasonable that government gives support to businesses, including retailers. There are hardships created by this that need to be addressed.

However, that support needs to be limited to allowing retailers to make up some of the losses incurred by this crisis. It cannot be general support that props up firms that are failing regardless of the present situation.

Quite how this is enacted is open to question. My view is that loans, access to funding and other mechanisms to help cash flow are probably sensible if this drags on for much longer. That’s not a completely blank check and it allows for some discrimination between viable businesses that are suffering because of things outside their control and weak retailers burdened with problems of their own making.

Mark Ryski
BrainTrust

Agreed Neil, distributing aid fairly is complicated. In Canada, the Federal government announced a program that will provide most businesses with up to 75 percent of their payroll expense if they keep paying employees.The trick is that businesses seeking this aid need to show at least a 30 percent decline in business as a result of COVID-19 — but what does that mean?

If my store/restaurant closes completely, that’s clear enough. But if you were already a struggling business, what’s the basis for determining the 30 percent sales decline? Compared to last month? Year-over-year? The rules are vague.

Craig Sundstrom
Guest

Thanks Mark (maybe the question should have been phrased as “Congressional/Parliamentary” action?).

But back to your main point, it’s a definite problem: if you’re a retailer that’s totally shutdown, it’s obvious, but what if you’re a wholesaler or online store that’s essentially selling on credit … “sales” are great, but not if people don’t (ultimately) pay. And that may not be known for months.

Brandon Rael
BrainTrust

The impacts of COVID-19, social distancing, and quarantine orders have had immediate and significant impacts on all industries, especially for the middle market of retail, where L.L.Bean sits. The middle of retail was already faced with challenges before the onset of COVID-19, and the apparel areas are highly exposed to business shocks from this pandemic.

While the stimulus checks and enhanced unemployment checks may offer temporary relief, the middle market retail segment represents one of the top employers for the U.S. market. We are witnessing the impacts of COVID-19, and most if not all the middle-market retail companies have already furloughed their store and corporate staff.

Now is the time to help stimulate this segment before the financial impacts are so severe that this segment of retail may never recover.

Ricardo Belmar
BrainTrust

Yes, Mr. Smith is right – middle-market retailers will need as much help as both small and large retailers. However, many of these retailers (not necessarily L.L.Bean) were already in dire financial conditions before the pandemic hit the world. There are no easy answers for this segment other than to say they will need as much help as everyone else. What form that takes is up for debate as this shouldn’t be an excuse to save middle-market retailers that were on their way to failure anyway but, even in those cases, many of their employees were not at fault and shouldn’t be asked to take the brunt of the pain. This highlights the fact that Congress has yet to cover all the bases for assistance. And no, it’s not just about “stimulus” – it’s about survival for these retailers.

Gene Detroyer
BrainTrust

I have to take a deep breath here. The “middle market” has been suffering for a decade or more. The current situation will just exacerbate their problems. Should the government help Macy’s survive? Or Gap? Or even L.L.Bean? I am strongly against such help.

The stimulus package actually has more funds set aside for corporations than for people. That strikes me as a little upside down.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
5 months 23 days ago

It is a balance between supply side and demand side. Isn’t it? The push and pull is always going to be there. In the current situation, travel, airlines, small retail, hospitality — all directly impacted as a result of virus. For these, directly helping the corporations is the only way. The employees in those companies would obviously benefit as the companies become solvent.

There are other potential steps that government can take which will help people more than giving them money directly:

  1. Mortgage loan rescheduling by extending the term automatically by 1 more year – for those landlords that will extend the same benefit to tenants.
  2. Healthcare is other major expense looming for the people laid off. Cobra payments are going to be unaffordable. A standardized plan across the country with minimum possible deductible and co-pays would do wonders. Federal government can again provide a backstop for this.
Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
5 months 23 days ago

The lending rules can be relaxed to support viable businesses that were healthy pre-COVID. The challenge for middle retail is that their woes are not caused by the virus. Their inability to carve out the niche and stay relevant was the root cause. No amount of aid will fix that.

There is a clear distinction with hospitality, restaurants, mom and pop retail, travel and airlines, which is a direct result of COVID. Additionally there is also a good chance that these industries will bounce back in few months. There is no such possibility for middle market retail.

Peter Charness
BrainTrust

I am as concerned for the process we seem to go through in the US, as the results. Our political “sausage making” is neither quick, or complete, or fair. All of Europe and our Northern Neighbor simply enacted a practice where the government is stepping in to guarantee/pay 80% of the wages of everyone. No unemployment, start up time when this is over is easier with no hiring time lags/and other processes. And I believe (but can’t verify) that the cost of doing this is far less than our $2.1 billion bail package. We are a demand driven economy (70% consumer spending led). If we don’t keep the demanders liquid, then recovery is going to be much more difficult.

Craig Sundstrom
Guest

Unless you’re a diehard libertarian/Darwinist, it’s hard to argue with “do something,” since the alternative of “do nothing” just doesn’t sound right. But what exactly should be done? Presumably idled workers are being furloughed, so massive support of unemployment seems like a logical step. As for the more complex issue of company>vendor and company>landlord issues, technically we already have processes in place for that. They’re called default, bankruptcy, etc. I assume Mr. Smith feels that’s not the best route — and I don’t disagree — but I’m not sure how the whole of Business Law can be rewritten in the next month or so … at least in a way that doesn’t do more harm than good.

Kai Clarke
BrainTrust

Yes, Congress needs to step up for middle market retailers, especially ones who are converting their capabilities to desperately needed PPE equipment. Congress needs to create a fiscal pool of no-interest loans and ways to forgive in-kind expenses as a reward to these middle market retailers.

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Braintrust
"If we let all of the middle of retail fail, I fear the ripple effect in terms of employment and thus consumer spending could significantly delay any recovery."
"If we don’t keep the demanders liquid, then recovery is going to be much more difficult."
"I have to take a deep breath here. The “middle market” has been suffering for a decade or more. The current situation will just exacerbate their problems."

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