Some Sears Suppliers Keep Their Distance After Bankruptcy

(Bloomberg) -- Shortly after filing for bankruptcy earlier this week, Sears Holdings Corp. sent a letter to suppliers asking for their “ongoing support.” That’s been a difficult pitch.

Some vendors have stopped shipping products to the retailer over concerns they won’t get paid, according to people with knowledge of the situation, who asked not to be named because the talks are private. Their willingness to continue working with the department-store chain during bankruptcy will play a crucial role in whether the company survives.

Suppliers had already been demanding better payment terms with the retailer over the past several years as its finances deteriorated. This included payment in advance of shipping for some vendors, instead of the traditional 60 days or so. Now that it has filed for Chapter 11, the retailer wants terms that are less favorable for suppliers, according to some of the people.

Sears, which is based in Hoffman Estates, Illinois, told vendors that it’s “committed to being a great partner to you through this period and beyond,” according to the Oct. 15 letter, which was obtained by Bloomberg News. It was signed by Chief Financial Officer Robert Riecker. The company didn’t respond to a request for comment.

Limited Communication

Some vendors are concerned because Sears’s communication has been limited beyond the initial email. One supplier, who asked not to be identified, said a representative for Toys “R” Us Inc. called within an hour of that company’s filing for bankruptcy earlier this year. There’s been no contact from Sears, which reinforces the gut instinct to write off the company, the person said.

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Other vendors said they have heard from Sears, which requested trade credit and assured them they will be paid. While some suppliers are staying away, others plan to keep shipping goods, another of the people said, highlighting appliance makers in particular.

Bigger vendors often have a higher tolerance for risk in a retail bankruptcy because they have more resources to overcome a loss. Additionally, big suppliers often get preferential treatment from a bankrupt chain, including the repayment of some of what’s owed before the filing.

Many of these suppliers, however, were burned by the collapse of Toys “R” Us, when suppliers were persuaded to ship to the toy retailer after it came up with a financing plan and more cash. Toys “R” Us liquidated in March after a lousy holiday sales performance, leaving many vendors unpaid. That’s increased the reluctance of some Sears suppliers to make post-bankruptcy shipments to yet another troubled retailer.