It's as though a memo went out to the entire retail world.
Retailers big and small, healthy and distressed, have issued a chorus of letters and phone calls to their suppliers, canceling shipments and asking for longer payment terms.
"Every single one of our retail partners over the course of the last six weeks has come to [us] for help," Sandra Betterson, general manager of accessories supplier Chateau International, said in an interview. "Every single retailer that had product going out in March, April, May, June has either canceled their orders or put every single thing on hold."
Along with the cancelations, retailers on 30-day payment terms have asked to pay within 90 days. Those on 90-day terms have asked for another 90 days. Some who were already late on payments have asked to have until June, and then to pay in installments, Betterson said.
With much of the retail world shuttered in response to the COVID-19 pandemic, retailers have been spreading their pain up and down the chain. Many have furloughed employees, cut management salaries and skipped rent.
And they've squeezed their suppliers, too. Pulse Ratings has documented more than 40 retailers that have postponed payments to retailers during the pandemic. Dennis Cantalupo, CEO of Pulse Ratings, noted in an interview that the number of retailers that have pressed for more favorable payment terms is likely even bigger than the list his firm has compiled.
While large retailers have been issuing press releases about how they have been responding to and affected by the pandemic, their suppliers — many of them still suffering from last year's tariff wars — are going through much of the same turmoil behind the scenes.
Some feel as though their relationship with retailers is only going one way at the moment, with retailers dictating the new terms of the pandemic world. Retailers have much of the leverage. And at a time when there's no cash coming into the system and nowhere for their products to go, suppliers don't necessarily have the budget or even see the point in legal fights when contracts are broken.
A frozen system
First came the canceled orders. Purchase orders were nixed as discretionary retailers across the country collectively closed tens of thousands of stores.
"The first week of the quarantine saw a wave of uncertainty take hold of the retail markets," David Wander, an attorney who chairs Davidoff Hutcher & Citron's bankruptcy and creditors rights practice, told Retail Dive in an email. "In the second week, the system completely froze, with large retailers such as Macy's canceling purchase orders across the board and furloughing almost all employees."
Wander added that vendor clients in India and Bangladesh "were in a state of shock, with multi-million dollar purchase orders being canceled by one retailer after the next."
Another supplier Retail Dive spoke with, who asked not to be named out of fear of damaging customer relationships, said that "every retailer and their brother was picking up the phone wanting to cancel" orders after store closures. For suppliers generally, products tied to canceled orders were everywhere along the supply chain: in warehouses, ports, on the water, on trucks on their way to retailers.
Betterson said that litigating canceled orders wouldn't be worth the effort and expense for many suppliers, as did others Retail Dive spoke with.
"It furthers the point that the suppliers are really looking at this as a partnership," Cantalupo said. "They understand the world we're living in and they're being reasonable."
In April, top executives at Stage Stores — a retailer already struggling with liquidity strains before the pandemic hit — told its supplier base it would require concessions on payment terms from them as the retailer tries to avoid bankruptcy.
Stage Stores is just one of dozens, if not more, of retailers making similar demands or requests, or demands thinly veiled as requests.
As with cancelations, there's little smaller suppliers can do when retailers ask for longer payment terms. "We have no recourse to go to but for our retailers to pay us," Betterson said.
And there again, suppliers understand the situation is dire and the circumstances extraordinary. "Where we have receivables, we're being asked for extended terms, and we're giving those terms where we can," Jay Foreman, CEO of toy maker BasicFun!, said in an interview. "How can you pay us if you have goods sitting in a closed store?"
For suppliers that don't like the terms, they have few if any options with much of the retail world shut down outside of grocers and mass merchants. The Walmarts and Targets of the world are staying open as essential retailers, but that's a limited market, and getting products in those stores has always been competitive.
"It's always a negotiation, and the suppliers realize that and they're pushing back where they can," Cantalupo said. "Right now, what's the sense of pushing back? No one's buying goods from you. You can't force someone to pay you. They're gonna pay you when they pay you."
Cantalupo added that suppliers are hoping to have more leverage once physical retail reopens. "The retailers need to be careful that they don't alienate their suppliers for when the doors do reopen," he said. "There might not be unlimited merchandise to go around."
As part of the retail ecosystem, suppliers are going through many of the same challenges as retailers. Revenue has dropped off or disappeared, making cash a scarce resource. And so companies are making all the same tough decisions as retailers.
"We have furloughed employees. We have terminated employees. We have cut salaries to employees. All three," Betterson said. Other suppliers Retail Dive spoke with had furloughed or laid off employees as well.
Suppliers are also filing insurance claims, or trying to, and some are applying to federal stimulus funds and Small Business Administration programs. Like retailers, they are also negotiating with landlords and other creditors. Foreman said his company was paying 50% of its rent currently and asking for forbearance where possible.
But while everyone is suffering from a cash flow dearth, it's not necessarily felt in the same ways or in the same measures across the ecosystem.
"I don't want to sound like I'm crying or complaining — it's just a fact, the vendor side is getting the hardest part of the stick in a lot of ways," Betterson said. "We have the goods. We have the open invoice. We have the same expectation to pay our rent, the same expectation to pay our suppliers, the same expectation to pay our employees."
She added: "And when doors open for the retailers, there should be, hopefully, an immediate cash flow from their consumer. But they have that money — they have it and they're holding it back from us. They have time to use those funds."
A lost quarter
And also like the retailers they serve, suppliers are trying to understand when business can resume and what comes next.
Wander said that, "negotiations have begun between the retailers and vendors, with the expectation that stores will reopen, in some manner, for the summer season." He added that "some [purchase orders] are being restored and discounts are being negotiated, as the supply chain slowly starts up again."
The big uncertainty is when stores will reopen and how consumers will react once they do. For some, the second quarter is basically written off, with the focus now on back-to-school and holiday.
"The graduation period is totally shot," one supplier said. "I have more graduation goods that got canceled than I'll ever know what to do with. ... The excess inventory that's going to be floating around on the marketplace is going to be massive."
As another example, Betterson says her company had product set to ship this spring for the Easter holiday. "What do I do with a bunny rabbit Critter Crew handbag tomorrow?" she said.
For Foreman and his company, the pandemic's timing landed, mercifully, in one the slowest periods of the year for toy sales, after many of his retail customers had already paid off their bills from holiday shipments. Had it hit in August, with holiday shipments out, it could have been disastrous for toy suppliers, and plenty of others.
Still, Foreman says he's watching the news carefully and concerned about what happens if stores remain closed for an extended period, the pandemic recurs in another large wave or if consumer spending remains depressed after stores reopen. He's also worried about some retailers financially on the edge.
"You have to think about if they're going to open," he said.