The Essential Classification Divide Grows Among Retailers

The divide between essential and non-essential retail grows bigger by the day as deep discounters and dollar stores continue to add stores, employees and revenue during the COVID-19 crisis. In fact, Wall Street’s leading retail analysts believe deep discount shopping could be one of the behaviors that “stick” as the coronavirus crisis deepens and eventually ebbs.

“Discounters, dollar stores, off-pricers and strong global brands I actually think could emerge stronger from this, take market share, use their size and scale,” JPMorgan analyst Matthew Boss said Thursday on CNBC’s Halftime Report. “If we come out of this in more a recessionary backdrop, that’s where we still remain more cautious. That’s where we’re watching the balance sheet, and we’re really paying attention to competition and how fierce this might look on the other side of it as dollars may be more constrained.”

Dollar General, Dollar Tree, Big Lots, Ross Stores and other deep discounters are in the class Boss refers to. But to see the differences between “essential” (which several retailers in the dollar category are considered to be) and non-essential, check Ross Stores (considered non-essential). It has no eCommerce capacity and because it focuses on apparel could not be classified as essential. On Thursday it notified  vendors that it would cancel all merchandise purchase orders through June 18.

“This is the first time in our history that we are unable to deliver exceptional merchandise to our customers,” reads the Ross Stores memo, which was reviewed and reported on first by Reuters. It will also it extend payment terms on existing payables by 90 days.

Paul Rotstein, president and chief executive of apparel distributor Gold Medal International, which counts Ross Stores among its customers, said other retailers are canceling orders.

“We’ve had pretty much 100 percent cancellation from all major retailers,” he said, naming Macy’s Inc., Nordstrom Inc., TJX Companies Inc. and Burlington Coat Factory among his canceled orders.

Big Lots (essential) is thriving. This week it expanded its workforce, accelerated the application process and gave its workers a pay increase of $2 per hour. The company has also implemented curbside pickup for orders placed online and issued expectations for social distancing, offering disinfectant at the shopping cart area, and wiping down equipment used throughout the store.

Bruce Thorn, president and CEO of Big Lots, stated, “We want to serve our communities as long as possible during these uncertain times, but not at the risk of health and safety. Our stores offer vital products customers need, and we have more trucks on the road with deliveries to our stores in an effort to keep these assortments in-stock. We are postponing our Friends & Family event in April, which typically produces large crowds in our stores, and focusing on getting through this crisis. We know many are facing hard times and we’re committed to helping.”

However, before it can step up to its crisis potential, Big Lots has a nasty spat to address among its investors. Activist investors Macellum Advisors and Ancora Advisors issued a letter to the company’s shareholders on March 12 accusing the Big Lots board of poor judgement in looking at capital allocation.

“The Investor Group believes that Big Lots has the potential to be a best in class retailer, given that it operates in one of the most coveted segments of the retail industry, but believes the Company has been hampered by a Board that lacks relevant skill sets, has pursued a poor capital allocation strategy, and rejected credible offers to monetize Big Lot’s real estate assets,” the investors wrote.

“In the Investor Group’s view, the Board has demonstrated poor judgment in evaluating capital allocation plans and should not be entrusted to evaluate future asset dispositions or determine the best use of proceeds therefrom,” the letter said. “The Investor Group cautions the Board against choosing what they view as a far inferior means of monetizing the Company’s real estate assets using debt as a financing source and demand that no material decisions with respect to the Company’s real estate be made by this Board until after the Board is reconstituted.”