28 August 2017

Sears: It's Only A Matter of Time?

In this morning's news feed from the American Bankruptcy Institute:
U.S. department store operator Sears Holdings Corp. is having trouble stocking shelves, as some vendors have fled while others are demanding stricter payment terms because of difficulties hedging against default risk, Reuters reported on Friday. The strain in Sears’ supply chain is exacerbated by the scarcity and high cost of a type of vendor insurance known as accounts receivable puts, which ensure a supplier will be paid even if the retailer files for bankruptcy, according to interviews with Sears’ vendors and insurance brokers. “It’s too expensive,” Michael Fellner, owner of Montreal-based women’s wear company Lori Michaels Apparel & Manufacturing Inc, said of the specialized vendor insurance. He said he stopped shipping to Sears in March, when his insurer stopped providing coverage. Two other small vendors told Reuters they stopped supplying Sears this year because they could not afford the insurance, whose cost spiked after Sears warned in March of “substantial doubt” over its ability to continue as a going concern. They asked not to be identified discussing confidential commercial arrangements.
In other words, the possibility that the parent company of Sears and K-Mart will find itself in Chapter 11 is increasing. As followers who read my many posts on the bankruptcy of Family Christian Stores may remember (here and here if you don't), I have a particular interest in issues related to inventory financing. (A recent post on the related topics of drop-shipping, purchase-money security interests, and consignments here).

Rest assured: If Sears does seek to reorganize, I'll be following this aspect of the case carefully.

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