Gap Inc. stops paying rent
Retailer running out of money to operate.
A month after furloughing a majority of its store staff in the U.S. and Canada, Gap Inc. disclosed Thursday that it stopped paying rent in April for stores that were closed and will remain closed during the coronavirus pandemic.
The San Francisco retailer warned in a Securities and Exchange Commission filing that it’s running out of money. The company said it stopped paying rent in April, saving about $115 million per month in North America, and that since February, $1 billion in cash had run out.
Gap temporarily closed stores in the two countries, along with a significant number of stores globally, following government mandates that nonessential businesses be closed during the pandemic in hopes of curbing the spread of the virus.
Gap said that even if the coronavirus pandemic eases, shoppers may still fear coming into stores, and that will have longlasting impacts.
“Consumer spending generally may also be negatively impacted by general macroeconomic conditions and consumer confidence, including
the impacts of any recession, resulting from the COVID19 pandemic,” Gap said.
The company said it’s negotiating with landlords on lease terms, but may consider closing some stores permanently. Besides its namesake Gap brand, Gap Inc.’s portfolio includes Old Navy, Athleta, Banana Republic, Intermix and
Hill City. Gap owns its headquarters at 2 Folsom St. and counts 3,345 stores globally, 2,785 of them in the U.S. and Canada.
The coronavirus pandemic is proving to be devastating for retailers. Many were already struggling with declining shoppers at malls and a shift to online shopping. In March, regions across the country, including the Bay Area, shut down nonessential businesses like clothing retailers. Shelterinplace orders in San Francisco and several other Bay Area counties were extended until May 3, and federal social distancing guidelines have been continued as well.
In addition to industry woes, Gap was already under stress after a yearlong plan to spin off Old Navy into a standalone company was called off in January. Two months later, as the coronavirus spread, Gap said it would furlough a majority of its 80,000 retail workers.
The unprecedented store and mall closures pose a significant challenge to inventory management and the recovery of consumer demand, a Moody’s vice president, Christina Boni, said in a statement Thursday.
“Although the proposed transaction will enhance Gap’s liquidity, the transaction adds leverage and encumbers a significant portion of its real estate assets and intellectual property at a time when Gap is facing significant cash flow deficits,” Boni said.
Gap said it may not have enough money to sustain operations and needs to take “additional actions to both preserve existing liquidity and seek additional sources of liquidity” over the next year.
“There are no comparable recent events that provide guidance as to the effect the spread of COVID19 as a global pandemic may have, and, as a result, the ultimate impacts of the outbreak on our business, and the steps we may need to take to address those impacts, are highly uncertain and subject to change,” the company said in the regulatory filing.