Kohl’s, Macy’s, Gap, Belk Among Retailers Taking Extended Terms With Suppliers

Landlords and employees are not the only people getting stiffed by retailers desperate to conserve whatever cash they can get their hands on.

They are now also telling their suppliers the check is most certainly not in the mail.

With their stores closed and revenue at just a fraction of pre-pandemic levels, many of America’s big retailers are struggling to find a way to survive the coronavirus economic collapse. First they began laying off – furloughing is the nicer way they have put it – their employees, putting more than one million retail workers out of jobs. Then they told their landlords they wouldn’t be paying their rents in April…and maybe beyond.

As for the companies who supply them with all the products they sell, many giant retailers first began cancelling any new orders. They then stepped up their game by refusing to accept any incoming shipments that had been previously ordered and were arriving at U.S. ports.

And now, they’ve dropped the third shoe: they are simply not paying for goods already delivered and accepted, telling their vendors they have unilaterality extended the payment terms out from the standard net-30 days to 60 or 90 days. Some are now going even further, with reports they are saying they won’t pay their bills for as long as 120 or even 180 days. For those who are calendar-challenged that’s half a year…and counting.

And while it’s one thing to tell giant corporations like a P&G or consumer electronics vendors they aren’t getting paid, many of these suppliers are smaller companies who themselves are running out of cash, not to mention patience. We’ve all heard the predictions of the number of retailers that won’t survive into the PostPad period, but less well reported are the hundreds – perhaps thousands – of their suppliers who will go under too.

In a recent report on the subject in Retail Dive, Dennis Cantalupo, CEO of Pulse Ratings, said, “We have compiled a growing list of 30+ retailers who have sent communications to suppliers dictating new payment terms.”

“What is surprising is that some very healthy retailers have extended terms, which we feel places an unfair burden on their supplier partners who are also desperately trying to manage cash flow during this crisis.”

The number of retailers taking this approach includes many high-profile names. “We previously announced that we extended payment terms for vendors to 120 days,” a Macy’s spokeswoman told one online publication.

A vendor who wished to remain anonymous and does business with Kohl’s said he received a curt letter from the retailer saying they would be taking 180-day terms for all outstanding payments. He said it was not negotiable.

Penney’s said last month that it was “extending the terms for payment of goods and services,” but has not shared details on how far out it has pushed its payments to vendors.  A vendor said Belk has also told its suppliers it was taking extended terms but did not specify for how long.

Gap may be among the most troubled retailers out there, issuing dire forecasts on its continued existence. It stopped paying rent in April and has said it could run out of cash if this shutdown continues. It has not specified publicly how it is paying its vendors but at least one said terms have been extended.

In the U.K., apparel retailer New Look went even further and told its suppliers it was suspending payments for existing merchandise “indefinitely.” It said vendors could pick up their goods if they wanted, which would seem to be an impractical solution to the problem.

Another British retailer, Arcadia Group, which owns Topshop among other brands, took its terms to 90 days and told its suppliers, “We are able to cancel any order at any stage,” saying it was “not responsible” for any of the costs associated with producing the goods. It did say it would “bring in any order at a 30% discount” that was in transit on March 17.

Not all retailers are stiffing their suppliers. Discounters like Walmart and Target who have remained open are reportedly paying on time as are some other stores that have closed, including Nordstrom. Others, including the TJX group and H&M, initially held off paying for existing goods but have resumed payments and are current, several vendors said.

But the retailers who are suspending payments are not just creating financial havoc for their vendors. Much of the merchandise involved in these orders was produced by third-part factories in Asia, often smaller manufacturers who have seen their orders dry up over the past 90 days and don’t have the cash reserves to remain in business.

Even as parts of the U.S. economy start – or talk about starting – reopening, the repercussions of this pandemic are likely to reverberate up and down the supply chain for months, even years, to come.