March 20--Sears took to its blog Thursday to say paying its vendors early doesn't indicate trouble in its supply chain. But one corporate restructuring expert says that's often exactly what it means.
In a Thursday report, The Wall Street Journal said Sears has offered to pay some vendors within 15 days, faster than its normal terms of up to 60 days for apparel or hard goods suppliers, in exchange for a discount.
According to the Journal, the deal compensates suppliers for the risk of shipping to Sears, because insuring receivables from the troubled retailer has become so expensive and at least one insurer, Euler Hermes Group, has canceled its policies.
In a response posted to the Hoffman Estates-based company's blog Thursday, Sears Holdings Chief Financial Officer Rob Schriesheim said there's nothing wrong with paying vendors early, comparing it to a family that would prefer to pay off its credit cards early if it was able and there was a benefit to doing so.
But Ted Stenger, managing director at turnaround firm AlixPartners, said it is "very unusual" when a company begins to broadly agree to terms shorter than industry standards, and "typically not a good sign because it indicates that there's significant pressure in the system." Typically payment windows are 30 to 60 days, he said.
While shortened payment terms can be desirable for a company that is coming from a position of strength, he said, in the case of Sears, which lost $1.7 billion last year, it indicates that vendors are seeking alternative ways to mitigate their risk when they can't do it through credit insurance.
"The general market for financing (Sears and) Kmart is shrinking and getting smaller, and that's going to continue to create problems for the vendors, which will in turn create problems for Sears and Kmart," said Stenger, who served as treasurer at Kmart when it was restructuring prior to its sale to Eddie Lampert, who later merged the company with Sears.
In his blog post, Schriesheim emphasized that Sears has 50,000 suppliers and vendors and "providers of insurance have never had to pay a claim to any vendor tied to SHC's business." Its operational performance is improving, he added. Its fourth-quarter loss narrowed to $159 million from $389 million the prior year.
"Vendors who spent their own money to hedge against nonpayments did nothing more than decrease their profits," he wrote. "That's in part why most of our vendors understand that they just don't need insurance."
Sears hopes to raise $2 billion by spinning off of up to 300 of its stores into a real estate investment trust, which it expects to complete by June 1, a move that would give the company "substantially more financial flexibility to improve our operations, address any vendor concerns and meet our obligations," Schriesheim said.
Sears stock closed at $41.37 Thursday afternoon, up 3.17 percent.
aelejalderuiz@tribpub.com
