Discount fashion retailer Ross Stores (NASDAQ:ROST) has cancelled all purchase orders for inventory from its vendors through June 18, according to a report by Reuters. The company is also extending its terms on all existing merchandise-related accounts payable by 90 days. Per Reuters, the organization stated the following in a letter sent to suppliers: “This is the first time in our history that we are unable to deliver exceptional merchandise to our customers.”
The action comes days after the Ross decided to close all of its stores for two weeks until April 3, and also follows a complete drawdown last week of its $800 million revolving credit facility to buttress its cash on hand.
Ross Stores’ move to freeze purchases of new merchandise may be a harbinger of similar actions by other fashion chains in the coming weeks. With nonessential retail operations shuttered for the time being across large swaths of the country, and with no clarity about how long these closures may be extended, Ross obviously found it prudent to stop adding inventory.
At the same time, the action may cause sporadic merchandise shortages when operations resume, resulting in lost sales. But Ross Stores’ management is willing to take this risk. It has instead prioritized the company’s personnel, promising to keep paying all full-time and hourly workers whose stores have been closed.
While the company undoubtedly doesn’t relish canceling orders and stretching out supplier accounts payable, these moves were probably necessary, as they preserve both its precious working capital and the its ability to quickly bounce back once business conditions begin to return to something closer to normal.