Date
22 October 2018
Sears is scrambling to secure financing for its expected bankruptcy, and has been unsuccessful so far, sources said. Photo: Reuters
Sears is scrambling to secure financing for its expected bankruptcy, and has been unsuccessful so far, sources said. Photo: Reuters

Sears skips payments to vendors amid bankruptcy concerns

Sears Holdings Corp. has started to miss payments to vendors, adding to concerns about its future after sources said the US department store operator was preparing to file for bankruptcy in the coming days, Reuters reports.

Three vendors told the news agency that Sears has missed scheduled payments in the last couple of weeks.

It was not immediately clear how widespread the vendor problems were and how they would affect Sears’ supply chain ahead of the holiday shopping season.

Sears is also scrambling to secure financing for its expected bankruptcy, and has been unsuccessful so far, sources familiar with the effort said late Wednesday.

Vendors could stop shipments if they are worried Sears cannot pay, potentially sending the retailer into freefall.

“We went into business with them with our eyes open and knew this day would come one day,” said Arnold Kamler, chief executive officer of Parsippany, New Jersey, bike maker Kent International Inc. Kamler said he withheld a shipment to Sears after it missed a regular payment last week for the first time.

Sears did not respond to multiple requests for comment.

Vendors are usually considered unsecured creditors and usually get pennies on the dollar in bankruptcy court.

For this reason, securing a sizable financing package to carry Sears through bankruptcy could boost confidence among vendors.

Sears’ talks on Wednesday night with some banks, including Bank of America and Wells Fargo, about securing debtor-in-possession financing ended unsuccessfully, according to two people with knowledge of the discussions.

Sears could file for bankruptcy as early as Sunday, and it would need to secure the financing by then to avoid liquidation, the sources said. It was not clear whether Sears will succeed.

Bank of America and Wells Fargo did not immediately respond to requests for comment.

The Wall Street Journal first reported on the unsuccessful debtor-in-possession talks.

If Sears files for bankruptcy, stocking shelves adequately could prove key to escaping liquidation. Both vendors and creditors will be looking at the retailer’s sales performance during the holiday season in deciding whether to continue to back it, sources have said.

“If consumers walk into a store and there are empty shelves, it lowers consumer confidence and that is what has ultimately happened,” said Brett Rose, CEO of United National Consumer Suppliers, a wholesale distributor of overstocked goods such as 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.

As Sears’ financial condition deteriorated over the years, some vendors stopped supplying it, cut down on shipments or tightened repayment terms, concerned about the retailer’s financial woes and the soaring cost of insuring supply agreements.

Sears said its inventory decreased in all categories, most notably apparel, tools and outdoor living, including lawn and patio furniture. Inventory at discount chain Kmart also decreased in all categories.

The belt-tightening has been in sharp contrast to Sears’ legacy. At its peak in the 1960s, Sears sold everything from toys and auto parts to mail-order homes, and was a key tenant in almost every big mall across the United States.

But it has struggled to reinvent itself in the face of online competition from companies such as Amazon.com Inc. and other brick-and-mortar retailers, including Walmart Inc.

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CG

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