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Macy’s Risk Rises as Credit Insurers Withdraw Coverage

By Rich Duprey – Apr 30, 2020 at 8:02AM

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Macy's may find it difficult to obtain merchandise as it tries to rebound from pandemic-related store closures.

Two of the world's biggest credit insurers have reportedly stopped writing coverage for Macy's (M -1.07%), increasing the likelihood the retailer will have a more difficult recovery once the coronavirus pandemic passes.

Policies offered by credit insurers protect vendors and suppliers from a customer going bankrupt and being unable to pay. Even in the throes of Sears' (SHLDQ) last days, it was able to obtain insurance, albeit at exorbitant rates. 

Without coverage, terms for payment could change for Macy's, like requiring faster payment for merchandise, which could increase pressure on the company when it attempts to reopen stores, bring back furloughed workers, and continue making payments on its large debt load.

Macy's Herald Square store

Image source: Macy's.

Retail running dry

Bloomberg reported both Coface and Euler Hermes Group stopped writing policies for Macy's and have been more reticent to issue coverage for other retailers, too, as the COVID-19 outbreak has increased the possibility of their going under.

The report comes as Forbes reports Macy's told vendors it was extending its payments to them to 120 days, while Kohl's (KSS -0.75%) is pushing them out as far as six months. J.C. Penney (JCPN.Q) and Gap (GPS -2.15%) have also extended payment terms with their suppliers, for an unspecified length of time.

While some have informed their vendors the issue was non-negotiable, without insurance coverage, suppliers could reduce or stop shipping merchandise altogether to protect themselves from potential losses.

Although some analysts believe Macy's has sufficient liquidity to survive the downturn, the retailer is looking to raise as much as $5 billion in debt secured by its real estate holdings.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Macy's, Inc. Stock Quote
Macy's, Inc.
$15.67 (-1.07%) $0.17
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
The Gap, Inc. Stock Quote
The Gap, Inc.
$8.21 (-2.15%) $0.18
Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
Kohl's Corporation Stock Quote
Kohl's Corporation
$25.15 (-0.75%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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