Sears Holdings Corp has begun to miss payments to vendors, fueling concerns about its future after sources claimed on Wednesday that the US department store operator was getting ready to file for bankruptcy in the coming days.
Three vendors said that Sears had missed scheduled payments to them in the past few weeks.
The scope of the issue was not clear right away as well as the manner in which it would affect Sears’ supply chain just before the holiday shopping season. Vendors could halt shipments if they are worried Sears cannot pay and will likely push the retailer into a freefall.
“We went into business with them with our eyes open and knew this day would come one day,” stated Arnold Kamler, who is the CEO of Parsipanny, New Jersey bike maker Kent International Inc. Kamler said he has withheld a shipment to Sears after it missed a regular payment last week for the first time,
Sears did not issue any comments regarding this.
If sears filed for bankruptcy, stocking shelves sufficiently would be key to escaping liquidation. Both vendors and creditors will be looking at the retailer’s sales performance during the holiday season when they decide whether to continue backing up the business, according to sources.
“If consumers walk into a store and there is empty shelves, it lowers consumer confidence and that is what has ultimately happened,” said Brett Rose, who is the CEO of Uniteds National Consumer Suppliers, which is a wholesale distributor of overstocked goods like garden tools, beauty products, and toys.
“If you can go to Amazon.com and get Craftsman tools, why do you have to walk into a Sears,” said Rose.
Vendors are typically considered unsecured creditors and face repayment of just pennies on the dollar in bankruptcy court.
Because of this, securing an adequate financing package to carry Sears through bankruptcy could bolster confidence among vendors. Sears has begun discussions with banks about securing such a debtor-in-possession financing.
With Sears’ financial health deteriorating over the years, some vendors already quit supplying Sears, reduce their shipments, or tightened their repayment policies as they have been anxious about the retailer’s financial woes and the soaring price of insuring supply agreements.
As vendors became more worried about the retailer’s financial ability, they started demanding for fully payment before they ship their order. However, Sears told vendors last summer that it would not repay for orders anymore, as per a source with direct knowledge of the matter.
Sears also attempted to keep vendors onboard by placing purchasing orders and not picking up the goods until it could make the payment, the source added.
Merchandize inventory at Sears was $2.7 billion as of August 4, a slump of nearly $719 million from a year ago, according to the business’ latest quarterly financial report. Sears has attributed this to shuttering stores and improved productivity.
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