Enough to survive?

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Department stores have enough cash to last as much as eight months while their doors remain temporarily closed, according to one analysis. J.C. Penney and Nordstrom are better positioned during the coronavirus crisis because they have enough cash to go that long, but Kohl’s and Macy’s could suffer if store closures last five months, according to an analysis by Cowen & Co. Cowen measures liquidity as cash plus revolvers relative to key expenditure including rent, labor, interest expense and committed dividends. Labor, which accounts for about 10% of annual sales, remains the biggest fixed cost for retailers. When announcing the temporary closures in mid-March, most retailers said they would keep paying their workers but they were looking at a two-week

timetable. That moment has now passed, and many retailers are no longer paying a good portion of their workers, though they are still paying their health benefits. Cowen and other analysts do not think the temporary closures will last more than a few months. Still, retailers are under increasing financial pressures. Many have started to cancel orders, cutting expenses and are suspending share buybacks. Oliver Chen, a retail analyst at Cowen & Co., says what will drive retailers’ long-term viability is consumer spending trends, relationships with suppliers and performance over the critical holiday period. “Rents, rent negotiation, and the state of all malls including middle and lower tier malls will all be important topics,” he added

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