'We converted our manufacturing facility… our folks there are making about 5,000 masks a day per shift': L.L. Bean CEO

L.LBean CEO Stephen Smith joins Yahoo Finance’s On The Move to break down how the retail business is faring, and how his company is using its resources and production services to help amid the coronavirus pandemic.

Video Transcript

- Well, one of the big issues we're paying attention to is the rising unemployment because of the coronavirus crisis and what companies are doing. And joining us now to help us understand getting through this crisis from a retail perspective is the CEO of LL Bean, Stephen Smith. It's great to have you here on Yahoo Finance.

And I want to point out that LL Bean started as a catalog company and had that one store in Freeport for the first time in-- what, 108 years? The retail outlets are closed. But as you had said when this announcement was made, your employees are still being paid. They're getting benefits during the closures, and you're still operating via the internet. Can you tell us more about how you get through this, and also the effort you're doing to make medical supplies?

STEPHEN SMITH: Yeah. Thanks so much for having us on. LL Bean is a 108-year-old business. Still family owned, still here in Maine. Amazingly, the flagship campus in Freeport has only been closed five times in company history, and this is the first time it's ever been closed for more than 24 hours. And we did put in place immediately work at home. We closed our stores.

We had a pandemic pay policy for our employees. We extended that to pandemic PTO. We have moved to an extended lack of work, which is our version of a furlough. But we are making sure that recovering the benefits for all affected employees as well as waiving some of the hourly requirements for benefits in 2021, which helps eliminate some of the anxiety for folks who are really concerned about benefits.

And yeah, we have done some great things. And this company is an amazing company with just an awesome group of employees. And the second we started to see some of the issues that were happening around medical supplies, a lot of our employees said, how can we help? What can we do more of?

We also have a very tight business community here in Maine, so we're very well connected with Maine Med and Maine Health and even the governor's office. And so we really quickly converted a portion of our fulfillment center to be able to pick, pack, and deliver food for the Good Shepherd Food Bank. The vast majority of their employees are retirees and senior citizens and are at high risk for COVID-19, so we helped take over their operations.

And then we converted our manufacturing facility where we make our world-famous and awesome Bean Boots and Boat and Totes. And our folks there are making about 5,000 masks a day per shift, so we'll be able to get up to about 10,000 masks per day, and sort of humorously, interestingly, out of our dog bed lining, which turns out to be breathable, durable, and just an amazing fabric.

And then we other piece we're doing which is also-- I'm just incredibly proud of is we're using our existing supply chain to procure PPE for the main medical community. And through our buying offices and through our air freighting, we have a million masks coming into the state of Maine in the next bunch of days. And so we've been able to convert our operations to really try to help the Maine community.

JULIE HYMAN: Steve, it's Julie Hyman here. So it's amazing how creative and nimble a lot of this country's manufacturers have been. Getting back to the retail side for a moment, I am curious how many workers are affected by the furlough you're talking about. And just to be clear here, those folks are not getting paid right now, right? They are getting the benefits that you discussed, but not payment. What kind of interaction are you having, have you had with those employees about this whole process?

STEPHEN SMITH: Yeah, that's correct. So what happens with that is we do cover benefits, and they do remain employees. So when we're back to work, they come right back into work. But they are able to apply for unemployment. And because hours were dwindling, it actually can be more-- it can be better for them financially to go ahead and apply for unemployment.

I'll tell you, that is my biggest concern for the retail industry right now, and all of our used-to-be competitors, but now brethren in this together-- the store-based retailers in that middle market-- retail, apparel, all the things that you like to buy and that you want to buy-- those folks-- you know, retail is one in four-- supports one in four jobs in America. And the top 10 retailers are about 4 million employees, but from 11 to 50 is 40 million employees.

And all those stores and store-based retailers that closed their stores for the good of-- for public health reasons, which is fantastic, they are really suffering for working capital. And to tie it to what Heidi was saying earlier about unemployment rates, you're going to see so many retailers sending people to unemployment because it already was a challenged industry, store-based specifically, and those stores need working capital. They can't pay full rent. And you're going to start to see those deferrals happening this month. They can't pay full payroll, so you're going to see furloughs and layoffs coming. And then-- so they need that relief now.

And a little bit to Tyler's point earlier from Citi, extending lines of credit so people are, A, able to survive the crisis right now, to survive for another day, but the other reason-- and I do think this is not covered well right now-- what every retailer is doing to survive is cutting future inventory receipts. It's the easiest way to conserve cash for the future, but that means that we are cutting inventories for the fall and winter. And that will make it very difficult for us to fuel our own recovery in the back half of the year. We're not going to have enough things to sell. And these are the things that people want and like. It's not essential retail. It's everything that probably all of you are wearing right now. All the familiar brands are in the same trouble.

JULIA LAROCHE: Stephen, it's Julia LaRoche. And we appreciate you filling us in on everything that's going on in retail. And you're right. It's a massive industry, huge employer. Do you feel-- I guess you don't feel this-- that you're getting the right support? And what else can help move the needle for you guys? What are the things that you need the most to help your employees?

STEPHEN SMITH: Yeah. I think for total retail-- I'll keep us specifically out of it, but for total retail, rent mitigation, something around working with landlords and landlords working with banks so that banks can support landlords. To allow retailers to be able to defer or skip rent for 60, 90 days, I think, is absolutely critical from a working capital perspective.

I am deeply appreciative of the CARES Act and the improvements to unemployment. That gives every retailer much greater peace of mind when you move to furloughs and layoffs, which are huge decisions, that you know that there's a backstop for them. So that has been very helpful.

I think any kind of support for retailers who are doing the right thing-- if we are continuing with pandemic pay, if we are continuing-- you know, we've switched manufacturing from boots to masks. We're not selling-- we're not making margin on those things. We're not selling those things. So how do you support the businesses that are doing the right thing?

And then I do think some suspension of tariffs and some of the punitive tariffs, because those have really massively impacted the apparel and footwear industry. And even if it's just a suspension, that's cash out the door in the hundreds of millions of dollars in each of these months. And that's cash that could be used to keep some of those retailers alive.

- Stephen, you brought up the tariffs. And I know that the American Apparel and Footwear Association, the AAFA, which represents thousands of retailers in the United States and worldwide, has lobbied the administration to drop those tariffs. As China gets back up to speed-- and I know you have extensive experience before LL Bean in China-- what are you hearing about the efforts to get those tariffs removed? Is the administration responding?

STEPHEN SMITH: I hear that they are. So I know the AAFA and the NRF, the National Retail Federation, both are-- they are professional lobbying organizations. And I believe they are making headway. They've done a lot of work with our congressional delegations in all of our states in both the House and Congress. And I know that letters signed by over 200 retail leaders have been in with the administration, and they are working with the appropriate people. I have not heard any updates. Everything continues to move by the day and by the hour. But I believe there is some progress there.

- As I say goodbye to you, I've just got to let everyone know one of the reasons, maybe, to shop at LL Bean-- my mom bought me this sweater in 1984.

STEPHEN SMITH: I love that.

- I'm fatter, and I've stretched it out a bit, but it's still in good shape, Steve. So we wish you and everyone and Beans the best.

STEPHEN SMITH: Yeah. Thank you so much, Adam. Thanks for having me on.