A Florida toy importer braces for retail upheaval
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[May 26, 2020] By
Rajesh Kumar Singh
(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
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.
[to top of second column]
Basic Fun CEO Jay
Foreman and Care Bears costume characters stand in front of the
company's showroom at Toy Fair New York in New York City, U.S. on
February 24, 2020. Ashley Mady/Basic Fun/Handout via REUTERS/File
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.
With the health crisis making it tougher for companies to forecast their
earnings, Foreman also worries banks will not only refuse to lend more but start
foreclosing on the existing loans.
Banks have a pivotal role in determining the pace and nature of the
post-pandemic economic recovery, he said.
"(The) government needs to allow forbearance, amendments and restructuring of
loans, so companies can make it through," Foreman said.
(Reporting by Rajesh Kumar Singh; editing by Diane Craft)
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