Sears vendors pulling back amid fears
Tension expected to mount ahead of the key fourth-quarter selling season
Suppliers to Sears Holdings Corp said they are doubling down on defensive measures, such as reducing shipments and asking for better payment terms, to protect against the risk of non-payment as the company warned about its finances.
The company’s disclosure turned the focus to its vendors as tension is expected to mount ahead of the key fourth-quarter selling season amid rising concern about a potential bankruptcy, they said.
The storied American retailer, whose roots date back to 1886, said on Tuesday that “substantial doubt exists related to the company’s ability to continue as a going concern.” Shares of the company closed down 12.3 per cent at $7.98 (Dh29.28) on the Nasdaq. Earlier, the stock recorded its biggest one-day percentage decline since November of 2012.
The managing director of a Bangladesh-based textile firm said his company is using only a handful of its production lines to manufacture products for Sears’ 2017 holiday sales. Last year, nearly half of the company’s lines in its four factories were producing for Sears.
“We have to protect ourselves from the risk of nonpayment,” said the managing director, who declined to be identified for fear of disrupting his company’s relationship with Sears.
Mark Cohen, the former chief executive of Sears Canada and director of retail studies at Columbia Business School in New York City, said vendors will keep a close eye on Sears’ finances. “Whatever vendors continue to support them are now going to put them on even more of a short string. That means they’ll ship them smaller quantities and demand payment either in advance or immediately upon delivery.”
He added: “Sears stores are pathetically badly inventoried today and they will become worse.” Jason Hollar, Sears’ chief financial officer, said in a Wednesday blog post that Sears’ move to raise capital in recent months is helping strengthen the company’s balance sheet. Sears is “a viable business that can meet its financial and other obligations for the foreseeable future,” Hollar said.
He cited a $1 billion increase in liquidity from a new secured loan facility and a new asset-based loan that provided $250 million more in “financial flexibility”.
Still, Sears’ cash position has shrunk dramatically in recent years. Sears, which lost $2.22 billion in the year ended January 28, 2017, had $286 million in cash on hand, down from $609 million in 2012.