Tougher oversight for rescue funds
The House yesterday overwhelmingly approved adding $320 billion to the federal small-business loan fund. At the same time, the Treasury Department and the Fed vowed to crack down on companies taking advantage of rescue lifelines with new guidelines and measures to increase transparency.
Rescue funds now come with more conditions:
• The Treasury Department warned big publicly traded companies to prove that they need emergency loans intended for small businesses, after public uproar over such groups’ borrowing tens of millions from the fund. It warned that offenders would be investigated. (Several companies, including Shake Shack and the owner of Ruth’s Chris Steak House, said they would return the millions they had received.)
• The Fed said it would publish information every month on companies that used its bailout funds, including names, amounts borrowed and the interest rate charged. “This seems to me like the Fed trying to pre-empt some of the issues that really plagued them in and around the financial crisis,” Mark Spindel, the author of a book about the Fed, told The Times.
The Times’s Peter Baker outlines the grim math behind deciding when to restart: How many deaths from the coronavirus are acceptable, versus how many lives broken by ongoing economic shutdowns? The choice is complicated by a dearth of diagnostic tests, vaccines and reliable treatments. (One promising drug, Gilead’s remdesivir, appears to have failed in its first randomized clinical trial.)
That hasn’t deterred Gov. Brian Kemp of Georgia from allowing some of his state’s businesses to reopen today. Despite usually being an ally, President Trump criticized the decision yesterday: “I’m not happy about it, and I’m not happy about Brian Kemp.” Georgians are confused about whether to start going to hair salons and bowling alleys again, and Fed data suggests that those are precisely the types of businesses that should reopen much later.
• The truth is that individual business owners will ultimately decide whether to reopen. “Hell no, we’re not opening on Monday,” the owner of the Plaza movie theater in Atlanta told The Times. “What happens if we open too soon and contribute to an outbreak? Traced to the Plaza Theater! You know what that would do to my business? I wouldn’t have one.”
What others are saying:
• Treasury Secretary Steven Mnuchin said he expected most of the national economy to be reopened by late summer.
• But Howard Schultz, the former Starbucks C.E.O., wrote that “what plagues our economy won’t heal by summer” and called for a “Marshall Plan for small businesses.”
Bill Gates on what comes next
The billionaire philanthropist has put forward some in-depth thoughts on what kind of world awaits on the other side of the pandemic.
• In a Washington Post opinion piece, Mr. Gates calls for multiple innovations: in testing, contact tracing, treatments and vaccines. “All of humanity can work together to learn about the disease and develop the capacity to fight it,” he writes.
• In The Economist, he outlines how these steps can prepare the world for future pandemics and help fight existing diseases. But he adds that tighter international cooperation will be important.
• And on his Gates Notes website, he takes a long view about the legacy of the coronavirus: “Melinda and I grew up learning that World War II was the defining moment of our parents’ generation. In a similar way, the Covid-19 pandemic — the first modern pandemic — will define this era.”
Amazon’s market share is … falling?
Amazon is one of the undisputed winners of the pandemic: Its share price reached all-time highs this month as lockdowns pushed people to buy more online.
Out of every dollar Americans spent online last week, 34 cents went to Amazon. That’s impressive — but Amazon’s market share was even higher before the pandemic. According to the market research firm Rakuten Intelligence, the e-commerce giant attracted around 42 cents of every dollar of U.S. online spending in January.
What gives? Our colleague Shira Ovide, who writes the On Tech newsletter, says this could be down to several factors. Online shoppers may be buying more groceries, which isn’t Amazon’s strong suit. Or Amazon’s shortages and shipping delays could have pushed people to other sites. Ultimately, however, the numbers probably reflect that as people turn more to e-commerce during lockdowns, Amazon is capturing a slightly smaller piece of a much larger pie.
Victoria’s Secret won’t go down without a fight
Yesterday, we wrote about Sycamore Partners’ effort to scrap its deal to buy a controlling stake in Victoria’s Secret. It’s the most prominent example of a buyer citing the pandemic to wriggle out of a transaction. And if successful, it could inspire other buyers that are having second thoughts about M.&A. struck before the outbreak.
L Brands is having none of it. The parent company of Victoria’s Secret submitted a scorching response to Sycamore, underlining how hard it will be for the private equity firm to reverse course. Here’s the kicker:
Sycamore and its representatives may wish that the world did not have to face the pandemic that now confronts us, and may regret that they did not negotiate the allocation of pandemic risk differently in the transaction agreement. But having made that commercial choice, Sycamore must now live by it.
Vanessa Friedman on fashion after the pandemic
The Times’s fashion director and chief fashion critic, who joined us on yesterday’s DealBook Debrief call, talked about the wrenching changes that the retail industry faces. The full recording is worth listening to, and here are some highlights:
🛍 “I think malls are in real trouble.”
Vanessa noted that 30 percent of square footage in American malls is taken up by department stores, with 10 percent by struggling Sears and J.C. Penney outlets alone.
“If you lose a tenant like that, particularly at a time like this, who is going to go into that space? Not a gym, not another store, probably not a restaurant,” she said. “And then if you lose the mall, there are whole communities that have grown up to serve the mall: people who work at the mall, highways built to serve the mall..”
🛍 “An emotional attachment that goes beyond a balance sheet.”
Several retailers were struggling before the pandemic hit, overloaded by debt taken on at the urging of various investment groups. Companies with strong family ownership stakes, including Nordstrom and European luxury houses like LVMH, are weathering the downturn better than others, Vanessa noted.
Family ownership “changes the time frame of investment and probably changes how much pain as an owner you’re willing to undergo personally to make sure your company survives,” she said.
🛍 “When I am released from my house, if I never put on my jeans again I will be happy.”
Shutdowns have scrambled clothing supply chains, canceled runway shows and disrupted the calendar that governs the fashion industry, Vanessa noted. Months of home confinement in jeans and sweatpants may also alter fashion tastes — but not in the way that might be expected.
“After another month or two of this, there will be a real return to a desire to get dressed,” she predicted. More profoundly, the pandemic could lead to a reassessment of buying behavior. “There was such a rush toward ‘fast fashion’ and just getting new stuff all the time before this happened, and this may well be an opportunity to change that,” she said.
The speed read
• The head of the House’s antitrust panel, Representative David Cicilline, called for a ban on M.&A. as part of Congress’s next coronavirus rescue bill. (Reuters)
• The sports-betting site DraftKings will start trading on the Nasdaq today, even though there are few sports to bet on. (Reuters)
• Google reportedly plans to cut its marketing budget by as much as half and drastically slow its hiring. (CNBC)
• Amazon reportedly used data from third-party sellers to compete against them. (WSJ)
Best of the rest