A Florida toy importer braces for retail upheaval
Date: Tuesday, May 26, 2020
(Reuters) - Most U.S. states have begun to reopen their economies, but Jay Foreman, chief executive of Basic Fun, said he’s more worried than ever.
The Boca Raton, Florida importer sells toys to retailers like Walmart Inc (WMT.N), Target Corp (TGT.N), Amazon.com Inc (AMZN.O), TJX Cos Inc (TJX.N) and J.C. Penney Co Inc (JCP.N), many of which were forced to temporarily shutter their stores because of the pandemic-induced lockdown. About 30% of his customers are still closed.
Some U.S. customers have been unable to pay past bills to Basic Fun, but Foreman said his bigger concern is their worsening financial health.
“We are worried less about what they owe us today and more about what they won’t buy from us tomorrow,” Foreman said.
J.C. Penney filed for bankruptcy protection on May 15, with plans here to permanently close about a quarter of its roughly 850 stores.
Foreman expects his sales to fall 20% this year from 2019’s $150 million - an extraordinary reversal from estimated double-digit growth at the beginning of the year.
Basic Fun is one of millions of U.S. small businesses facing an uncertain future after the new coronavirus shut down shops, restaurants, schools and travel in the world’s biggest consumer economy. Over the next 12 months, Reuters will chronicle the journey of several owners around the United States.
Foreman also worries that an uncoordinated reopening and hasty relaxation of social distancing could lead to a second wave of coronavirus cases, sending the economy back into lockdown with a prolonged, far more devastating recession.
Nearly 39 million Americans have filed for unemployment benefits since March 21. A failure to extend those benefits beyond July could further hurt consumer spending, he said.
“It is not a typical financial crisis - people are even more scared, more worried and more reluctant to part with their money,” he said.
Basic Fun’s sales, so far, have defied trends in the broader economy, thanks to strong demand from Amazon, Walmart and Target and panic buying in February and March, as retail outlets anticipated a prolonged supply disruption following the coronavirus outbreak in China.
The pandemic’s timing, at what is traditionally the weakest season in the toy industry, also helped.
Still, Basic Fun has started to cut costs.
The company has laid off 10% of its staff in early March, reducing global headcount to 150. Weeks later, all remaining employees, including Foreman, took on average a 25% salary cut. In April, the company furloughed 22 employees in the United States.
Advertising budget has been slashed. A forbearance agreement with the company’s landlord has reduced the rent bill by 42%.
Overall, Foreman has lowered operating expenses by at least 30%.
A $2.4 million government-sponsored small business loan Basic Fun received in the last week of April under the Payroll Protection Program will help pay salaries and rent, freeing up other resources to purchase inventory.
It was also approved by the federal government for a $150,000 economic injury disaster loan - just a sliver of Basic Fun’s $2 million request.
Foreman is now eagerly awaiting the launch of the Federal Reserve’s “Main Street Lending Facility,” hoping for a $12 million loan.
Basic Fun uses term and revolving credit facilities to fund its business, but an uncertain outlook has diminished access to credit.