(Adds closing share price)
By Nandita Bose and Richa Naidu
March 22 Suppliers to Sears Holdings Corp
told Reuters they are doubling down on defensive
measures, such as reducing shipments and asking for better
payment terms, to protect against the risk of nonpayment 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,
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 percent at $7.98 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."
SIGNS OF WEAKNESS
Still, Sears' cash position has shrunk dramatically in
recent years. Sears, which lost $2.22 billion in the year ended
Jan. 28, 2017, had $286 million in cash on hand, down from $609
million in 2012.
Retailers in distress often use their accounts receivable to
finance operations, and Sears had $466 million in receivables,
down from $635 million in 2012.
Another supplier to Sears, Arnold Kamler, CEO of New
Jersey-based bicycle manufacturer and importer Kent
International Inc, said he was not surprised by Sears' Tuesday
announcement. He said he noticed a warning sign last year when
Sears pushed to increase its purchases, which occurred "because
a lot of their current suppliers were either cutting them off or
limited them on credit."
Kamler said he declined to sell Sears more product and that
he receives a report once a week from his accounting department
because of concerns around billing, payments and deductions.
The Bangladesh-based clothing supplier said Sears'
announcement is making him re-evaluate accepting new orders.
"So far there was only speculation that they would declare
bankruptcy in 2017. But now they are acknowledging it, which
definitely complicates our relationship with them and our
decision to accept future orders from Sears," the executive
A second clothing supplier from Bangladesh who did not wish
to be named said he renegotiated payment terms with Sears a year
ago and was being paid within 15 days of sending a shipment,
compared with the traditional 60 days. He is considering asking
the company for an advance payment on orders going forward.
Neil Saunders, managing director at retail research firm
GlobalData, said tension will grow as the year goes on. "As we
move towards the last quarter, I think we'll find there are more
and more suppliers that are not necessarily willing to engage
with Sears" and will demand cash up-front.
Another sign of Sears' weakness is that insurance companies
that once provided policies to Sears vendors - insuring against
nonpayment for their goods - are no longer doing so.
Doug Collins, regional director for risk services at
Atradius Trade Credit Insurance, said his firm has stopped
providing insurance to Sears vendors. "We tried to hang in as
long as we could," he said. "Vendors may try to get a few more
cycles in before the worst happens, and then it just depends if
they're lucky or not."
(Reporting by Nandita Bose in Las Vegas, Richa Naidu and Sruthi
Ramakrishnan in Bengaluru and Tim Aeppel in New York; Writing by
David Greising; Editing by Matthew Lewis)