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Economy

How to help heartland businesses survive Covid-19 crisis: 5 recommendations from Merchants association

1. RECALIBRATE THE CIRCUIT BREAKER EASING SCHEDULE

FMAS recommends reducing Phase One to two weeks if community infection numbers remain low, so that businesses can reopen. The Government said Phase One is expected to last for at least four weeks. The association also proposes that food and beverage joints be allowed to have dine-in customers at 50 per cent capacity.

2. GIVE CONSUMPTION VOUCHERS

It suggests the Government give $500 vouchers to be distributed to households to spend at neighbourhood precincts, town centres and hawker centres.

3. SPEED UP BANK LOAN PROCESSING

It calls on banks to speed up loan processing where possible, so businesses can get the funds to tide over this period.

4. WAIVE THE TEMPORARY OCCUPATION LICENCE FEE

FMAS would like all town councils to waive the fees for outdoor display areas, outdoor refreshment areas and overhead signage for April to June, in addition to a 50 per cent rebate for the rest of the year.

5. EXTEND RELIEF MEASURES

It also requests an additional extension of support measures such as the property tax and commercial rental rebates, Jobs Support Scheme and foreign workers levy wavier since the reopening of businesses has been delayed.

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Business

Pandemic claims another retailer: 118-year-old J.C. Penney – The Denver Post

NEW YORK — The coronavirus pandemic has pushed the storied but troubled department store chain J.C. Penney into Chapter 11 bankruptcy. It is the fourth major retailer to meet that fate.

As part of its reorganization, the 118-year-old company said late Friday it will be shuttering some stores. It said the stores will close in phases throughout the Chapter 11 process and details of the first phase will be disclosed in the coming weeks.

Penney is the biggest retailer to file for bankruptcy reorganization since the pandemic and joins luxury department store chain Neiman Marcus, J.Crew and Stage Stores. Plenty of other retailers are expected to follow as business shutdowns across the country have evaporated sales. In fact, U.S. retail sales tumbled by a record 16.4% from March to April.

“The coronavirus pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country,” said Penney’s CEO Jill Soltau in a statement. “As a result, the American retail industry has experienced a profoundly different new reality, requiring J.C. Penney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company. “

Many experts are skeptical about Penney’s survival even as it sheds its debt and shrinks the number of its stores. Its fashion and home offerings haven’t stood out for years. And moreover, its middle-to-low income customers have been the hardest hit by massive layoffs during the pandemic. Many of them will likely shop more at discounters — if they shop at all, analysts say.

“This is a long, sad story,” said Ken Perkins, president of Retail Metrics, a retail research firm. “Penney offers no reason to shop there compared to its competitors, whether it’s Macy’s or T.J. Maxx or Walmart. How are they going to survive?”

Penney said that it has $500 million in cash on hand and has received commitments of $900 million in financing to help it operate during the restructuring. It said that it will be looking at different options, including the sale of the company. The restructuring should reduce several billion dollars of its debt and provide more flexibility to navigate the financial fallout from the pandemic, Penney said.

Like many department stores, Penney is struggling to remain relevant in an era when Americans are buying more online or from discounters. Sears has now been reduced to a couple hundred stores after being bought by hedge fund billionaire and its former chairman Eddie Lampert in bankruptcy in early 2019. Barneys New York closed its doors earlier this year and Bon-Ton Stores went out of business in 2018.

The pandemic has just put department stores further in peril as they see their sales evaporate with extended closures. Even as retailers like Penney start to reopen in states like Texas and Florida that have relaxed their lock downs, they’re also facing Herculean challenges in making shoppers feel comfortable to be in public spaces.

In fact, Green Street Advisors, a real estate research firm, predicted in a report last month that more than 50% of all mall-based department stores will close by the end of 2021. It expects that Penney will eventually liquidate its business, noting that a smaller company won’t solve its main problems.

Like Sears, J.C. Penney’s troubles were years in the making, marking a slow decline from its glory days during the 1960s through 1980s when it became a key shopping destination at malls for families.

The company’s roots began in 1902 when James Cash Penney started a dry good store in Kemmerer, Wyoming. The retailer had focused its stores in downtown areas but expanded into suburban shopping malls as they became more popular starting in the 1960s. With that expansion, Penney added appliances, hair salons and portrait studios.

But since the late 1990s, Penney struggled with weak sales and heavier competition from discounters and specialty chains that were squeezing its business from both ends. Penney’s began flirting with bankruptcy nearly a decade ago when a disastrous reinvention plan spearheaded by then CEO Ron Johnson caused sales to go into free fall.

Johnson drastically cut promotions and brought in hip brands that turned off loyal shoppers. As a result, sales dropped from $17. 3 billion during the fiscal year that ended in early 2012 to $13 billion a year later. Many longtime customers walked away and have not returned. Johnson was fired in April 2013 after just 17 months on the job.

Since then, Penney’s has undergone a series of management changes, each employing different strategies that failed to revive sales. The company based in Plano, Texas, has suffered five straight years of declining sales, which now hover around $11.2 billion. Its shares are trading at less than 20 cents, down from $1.26 a year ago, and from its all-time peak of $81 in 2006.

Soltau has acted swiftly since joining the company in October 2018. She jettisoned from stores major appliances that were weighing down operating profits. That reversed the strategy of her predecessor, Marvin Ellison, who brought appliances to the showroom floor after a 30-year absence in an attempt to capitalize on the troubles of ailing Sears.

Soltau turned the company’s focus back to women’s clothing and goods for the home like towels and bed sheets, which carry higher profit margins. Furniture is still available, but only online.

Still, sales and profits have remained weak. For the fiscal fourth quarter ended Feb. 1, sales at stores opened at least a year dropped 4.7 adjusted for the exit of appliances. Profits were down 64%.

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Analysis & Comment

Coty hives off majority stake in Wella portfolio to KKR

(Reuters) – Coty Inc (COTY.N) said on Monday it would sell a majority stake in its hair and nail care brands, including Wella and OPI, to U.S. buyout firm KKR & Co Inc (KKR.N) for $3 billion in cash in a push to simplify its product portfolio and cut down debt.

Shares of the company rose 15% after it also laid out plans to cut costs by $700 million and announced an additional $1 billion investment by KKR.

Coty, which has been struggling with slowing sales and mounting debt, had put the brands on the block last October and has since seen interest from some well known consumer names such as Unilever (ULVR.L) and Henkel (HNKG_p.DE).

The portfolio was valued at about $7 billion earlier this year, Reuters reported, before the novel coronavirus ravaged the market, redirecting consumers’ focus towards online beauty products including home dye kits.

The company’s brand portfolio became complicated after it failed to integrate the more than 40 brands it acquired from Procter & Gamble (PG.N) in 2016, forcing it to rethink its strategy.

In an effort to revitalize its sales, the company bought a majority stake in Kylie Jenner’s make-up and skincare businesses late last year, banking on Jenner’s more than 270 million social media followers to attract a younger audience.

Still, Coty on Monday reported a wider-than-expected loss and revenue fell 23% for the three months ended March 31.

As part of the deal with KKR, the private equity firm will also get two board members, the company said, also announcing its will suspend its dividend for the next one year.

Coty said that under the deal, which also includes the Clairol and ghd brands, the businesses will operate as a standalone company, with KKR acquiring a 60% stake and Coty retaining the rest.

New York-based Coty will continue to fully own its mass beauty business in Brazil, for which the company was exploring options.

Excluding items, it posted a loss of 8 cents, compared with Wall Street estimates of a 1-cent loss, according to IBES data from Refinitiv.

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Business

Demand dives at apparel retailers as virus-wary shoppers stay home

NEW YORK/MADRID (Reuters) – As virus-wary shoppers stayed home in the United States and Europe, apparel retailers braced for a blow to sales and a potential inventory glut. Some slashed orders at garment factories while others began discounting merchandise.

U.S. retailers including Macy’s Inc (M.N), Saks Fifth Avenue and Gap Inc.’s (GPS.N) Banana Republic sent notices to shoppers late Thursday saying they were open for business in a move to stem losses due to a steep decline in traffic.

In Europe, Zara owner Inditex (ITX.MC) said on Friday it would temporarily close stores in the areas of Spain worst affected by the coronavirus, including Madrid. In Italy, most shops were shuttered on Wednesday.

In New York, stores in some of the world’s most heavily visited shopping districts like Fifth Avenue and Madison Avenue were practically empty on Friday despite pleas to customers.

“Our stores are open for business and continue to be a safe place for you to shop,” Saks President Marc Metrick said in an email to shoppers late Thursday.

Kohl’s Corp (KSS.N) said it had experienced softer demand, especially in areas most affected by coronavirus. On Thursday, Gap Inc. said it expected a $100 million revenue hit this quarter due to the coronavirus outbreak.

LVMH’s (LVMH.PA) Sephora beauty chain, Ulta Beauty (ULTA.O) and MAC Cosmetics, owned by Estee Lauder Companies Inc (EL.N), have all ordered employees to cancel makeovers of customers, to avoid touching faces with hands, which can spread the virus.

At specialty and fashion apparel stores in the United States, retail transaction velocity, a measure of sales, fell nearly 10% from Feb. 15 to March 9 from its year earlier level, according to a Customer Growth Partners LLC report.

In China, the world’s biggest apparel-buying market, consumer demand remains a major concern even as shoppers begin to venture out of quarantine.

NO APPETITE

Further up the supply chain in Bangladesh, the world’s second-biggest apparel manufacturer after China, brands are asking for cuts in orders of up to 30% and seeking discounts, said Rubana Huq, head of the Bangladesh Garment Manufacturers and Exporters Association.

Even as retailers begin to repair broken supply chains due to recently closed Chinese factories, they must now scramble to avoid a glut of unsold stock.

“Our supply chain is not the issue and it’s not the concern. It is consumer demand in an environment where you have 80% of the stores being closed,” Adidas Chief Executive Officer Kasper Rorsted told analysts on Wednesday.

Adidas, which makes nearly a third of its sales in Asia, said it would clear excess inventory in China by selling stock at a discount in outlet stores.

H&M said on Friday it was in close contact with its suppliers and evaluating the situation together with them.

“I usually do shop half online and half in stores, but I am avoiding malls and stores for the last few weeks,” said Sarah P., 42, of Rockville, Maryland, a legal assistant who requested that her last name not be used.

She said that prior to taking a break from going out and shopping, she spent most her dollars at Nordstrom Inc (JWN.N), Macy’s, J. Crew, Banana Republic, Sephora, and Zara stores.

“It started because of flu and cold, but now it is nonnegotiable with coronavirus. Too risky.” Luxury leather goods maker Salvatore Ferragamo, known for its Vara shoe and Ferragamo Studio bag, said it had started shifting products between regions. “Of course when the virus starts spreading everywhere that becomes much more difficult,” Chief Financial Officer Alessandro Corsi told analysts on Tuesday, adding any discounts would be strategic so as not to tarnish the cachet of its star products.

The bottom line is that slump in demand for apparel and accessories that happened in China had now spread to the rest of the world said Siddiqur Rahman, a Dhaka-based garment exporter who supplies brands like H&M (HMb.ST), C&A, Gap, Walmart (WMT.N) and Mango.

“There is no appetite for garments from European and American brands. Cities are locked down. Who will buy clothing?” he said.

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