retail news in context, analysis with attitude

Axios reports that office supply retailer Staples has informed its landlords around the US that it will not make its rent payments for April, even on stores that remain open because they are deemed essential.

The story makes the point that Staples only told the landlords about its position over the past three days, made no commitment to paying May rents, expressed no willingness to negotiate for lower rents or make deferred payments, and made it clear that it expects landlords to continue to providing services such as electricity, water, and garbage pickup.

Landlords have few options, Axios reports - they are forbidden to evict anyone under current federal mandates.   But these commercial landlords are "stuck in a tightening vise, forgiving or deferring payments from shuttered tenants while still needing to meet their own mortgage obligations."

Axios makes the point that this is not just a case of a distressed retailer not paying its rent:  " Private equity firm Sycamore Partners took Staples private in 2017 for $6.9 billion. It also split the company into three independent operating entities — U.S. retail, Canada, and corporate supply.

"Sycamore last year refinanced its buyout via $3.2 billion in new debt, out of which it paid itself a $1 billion dividend. Or, put another way, Staples took on $1 billion in additional debt, thus reducing its financial flexibility in a crisis."

KC's View:

Ah.  "Private equity."  Two words that increasingly give me agita whenever I hear them, especially when related to retail.

Axios makes the case better than I could - that "most American businesses are struggling, and the pain is particularly acute in physical retail. No one ever made a model for this. At the same time, so many are pulling together to alleviate pain when possible. Staples and Sycamore are an exception, choosing instead to exacerbate it."

And a really smart friend of mine from the business was outraged:  "The Sycamore bastards took a $1B dividend on the debt re-fi, but now won’t pay their contractual obligations," he wrote me.  "This is SUCH a bad look for PE, and one more reason why they shouldn’t be in retail."

No argument here.