Ven­dors lim­ited their risk dur­ing Sears ‘death watch’

Los Angeles Times - - BUSINESS BEAT - By Matthew Townsend

If Sears Hold­ings Corp. ends up in Bank­ruptcy Court, there will be plenty of pain to go around be­tween in­vestors los­ing money and thou­sands of job cuts. Sup­pli­ers, how­ever, may be more pro­tected than you’d ex­pect.

In bank­ruptcy, ven­dors of­ten re­cover only a frac­tion, if any­thing, of what they’re owed. Some Sears sup­pli­ers said they started to re­duce their ex­po­sure to the strug­gling re­tailer long be­fore the lat­est de­vel­op­ments, buffer­ing them in the event of a pos­si­ble restruc­tur­ing.

“We have been selling [to] them, but keep­ing a tight leash,” said Jay Fore­man, chief ex­ec­u­tive of toymaker Ba­sic Fun.

Given Sears’ years of strug­gles, some ven­dors said they ne­go­ti­ated fa­vor­able pay­ment terms well ahead of news that it could file for bank­ruptcy pro­tec­tion as soon as this week­end. Many large sup­pli­ers are get­ting paid in ad­vance of ship­ping goods, while some smaller ones have cut pay­ment terms to a few weeks, in­stead of months, ac­cord­ing to peo­ple fa­mil­iar with the si­t­u­a­tion who asked not to be named be­cause the deal­ings are pri­vate.

That gives them less ex­po­sure than sup­pli­ers had with Toys R Us Inc., which sur­prised many ven­dors by fil­ing for bank­ruptcy in Septem­ber 2017 — and then liq­ui­dat­ing. Sears this week was said to have hired M-III Part­ners to pre­pare a bank­ruptcy fil­ing; lenders are said to be ham­mer­ing out a deal that would keep some stores open through Christ­mas.

The Sears ven­dors that re­duced risk have been more will­ing to keep selling to the com­pany.

“If we get hung with a bit of a loss, it wasn’t un­ex­pected, and the busi­ness we’ve done along the way made the risk worth­while,” said Fore­man, whose busi­ness took a hit from Toys R Us.

The fa­vor­able pay­ment terms also let some sup­pli­ers get an early sense that the com­pany’s fi­nan­cial stress may have in­creased, peo­ple fa­mil­iar with the si­t­u­a­tion said. A few weeks ago, Sears de­layed a pay­ment to a ven­dor with­out ex­pla­na­tion, giv­ing that sup­plier an in­di­ca­tion that things may have turned south, one per­son said.

An­other com­pany, which asked not to be iden­ti­fied be­cause the mat­ter is pri­vate, was ship­ping goods only if Sears paid in ad­vance. The re­tailer re­cently said it couldn’t keep do­ing that, and the sup­plier stopped ship­ping. A third ven­dor had a load of goods ready to ship, but it had been wait­ing for weeks for Sears to pay.

“Bot­tom line: They’ve been on the death watch for years,” Fore­man said.

Townsend writes for Bloomberg.

Brian Cas­sella Chicago Tri­bune

SEARS shop­pers in Oak Brook, Ill. The chain is said to be pre­par­ing a bank­ruptcy fil­ing. “If we get hung with a bit of a loss, it wasn’t un­ex­pected,” a ven­dor says.

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