The drip-drip-drip of speculation is turning into a deluge of reality as more suppliers reportedly are turning off the spigot of inventory to Sears Holdings (NASDAQ: SHLD) due to fears the retailer is headed for bankruptcy.
What started with the supposition that JAKKS Pacific had stopped shipping toys to Sears’ Kmart stores after the toymaker cryptically referenced the company on its earnings conference call last month has apparently become a rout. Insurance brokerage Arthur J. Gallagher & Co. told Business Insider that at least six of its clients had “significantly” reduced their shipments to Sears because of a belief that retailer won’t survive as a going concern.
The brokerage represents the suppliers in cases with insurance companies in the event a retailer does go under so they can be paid for their receivables. The firm said one of its clients had stopped shipping inventory to Sears altogether.
The chain operator has been hanging on seemingly by the thinnest of threads, counting on stopgap, short-term loans from Chairman and CEO Eddie Lampert, who has used his hedge fund, ESL Investments, to prop up Sears as sales have fallen and losses widened.
Only three months ago, he extended credit to the store in what looked like a bid to stop this sort of speculation about the company. By ensuring Sears had sufficient cash heading into the all-important Christmas season, he ought to have calmed the nerves of jittery suppliers. In the past, in conjunction with other loans made to the retailer, terms of the deals with vendor were changed so they received accelerated payments on their receivables. Rather than the typical 60-day or 90-day cycle, some Sears vendors were paid within 30 days.
But it doesn’t seem to have worked, and after the first crack in the dam appeared with Jakks Pacific, it didn’t take long for others to appear. Now, the whole facade may be about to come crashing down. Sears Holdings has been on life support for some time, but this Christmas, its suppliers may finally pull the plug.
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Rich Duprey has no position in any stocks mentioned.
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