The vultures are circling Sears as new reports indicate that insurers to vendors are reducing coverage on orders to Sears Holdings (NYSE:SHLD). In retail, this often indicates the beginning of the end.
Three large insurance firms have reduced coverage, prompting at least one vendor to stop shipments, according to Bloomberg News. Euler Hermes Group is sending out cancellation notices, according to people close to the matter. Two other insurers have either done the same, or scaled back coverage.
Although the sources are anonymous, according to an email obtained by Bloomberg News, one supplier has opted to withhold products from Sears following a recommendation by its credit department.
Sears called Bloomberg's report misleading. "We want to make sure our vendors and the marketplace know all the facts and understand that Sears Holdings has significant financial flexibility to execute our transformation and meet our obligations," read a company statement. "[Sears Holdings] continues to meet all of our obligations, including paying our vendors and suppliers. To date we've had no material interruptions in the flow of goods to our company. We value our relationships with vendors and suppliers, and communicate with them regularly as we move through our transformation."
Sears contends it has the resources to continue. Last month it announced plans to sell most of its stake in Sears Canada valued at $380 million, and CEO Eddie Lampert loaned Sears $400 million from his own hedge fund, ESL Investments.
Sears currently has roughly $6.5 billion in inventory in stores and notes that the insurers, or factors, represent a small percentage of the retailer's assortment, notably apparel from smaller vendors.
"Our stores are well stocked and serving our millions of members every day. We also enjoy long term supply contracts with several of our major vendors which ensure us a regular flow of goods in some of our most important categories," according to the company. "Furthermore, less than three percent of our gross inventory is factored–a very small percentage of SHC's overall business. Additionally, one has to remember that factoring is generally employed on the apparel side of the business and that the vendors are generally smaller in nature–albeit still important to us as all our vendor partners are."
While retailers can, and do, recover from interruptions in the supply chain, Sears' increasingly perilous financial standing and sales results paired with reports of inventory interruption just before the holiday season aren't good news.
The question becomes, do Lampert and company have the cash to continue? And if so, for how long?
-See this Bloomberg News story
-See this Forbes story
-See this Forbes article
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