Sycamore’s Belk Faces Vendor Questions Over Late Payments
(Bloomberg) -- Some suppliers to department store chain Belk Inc. are consulting lawyers and growing uneasy about continuing to ship to the chain after the retailer has delayed payments for months, according to people with knowledge of the matter.
With the busy holiday shopping season approaching, suppliers say the Sycamore Partners-backed retailer is months overdue in paying them, said the people, who asked not to be named discussing private negotiations. Some vendors are threatening to withhold future shipments, one of the people said.
A representative for Belk didn’t respond to a request for comment. A representative for Sycamore declined to comment on behalf of the company.
While reduced stock can be a death knell for retailers, particularly during the crucial holiday season, there aren’t yet signs that Belk’s problems with certain vendors have become overwhelming, the people said.
Retailers across the country are struggling to keep up with their bills as the Covid-19 pandemic keeps shoppers at home. Many are deferring rent payments to manage their cash -- store tenants have accumulated $52 billion in missed rent in the past eight months. Some are also being strategic about which vendor payments they make or delay in a bid to shore up liquidity.
Belk has been particularly aggressive with the latter tactic, according to the people with knowledge of vendors’ accounts. Some link the maneuvers to Sycamore’s ownership. Moody’s Investors Service described the New York-based private equity firm as being known for “aggressive financial strategies” in its most recent report on Belk.
A mid-priced chain concentrated in the southern U.S., Belk has typified the pressures facing department stores as shoppers increasingly seek out specialized outlets and buy more online. The more than 130-year-old chain has almost 300 stores across 16 states.
Charlotte, North Carolina-based Belk is better off than some its peers after it completed a refinancing late last year that pushed out debt maturities, according to Moody’s. It also has a loyal customer base, and about half its stores aren’t in malls, which have been plagued by waning foot traffic, the credit grader added.
Still, a more than $900 million term loan Belk got last year now trades for around 34 cents on the dollar, according to data compiled by Bloomberg. And for many suppliers, the risk of shipping to Belk is more acute than ever before.
Department store vendors have broadly lost support from invoice buyers and credit insurers, which have been pulling back from serving the retail industry and raising prices on existing policies as their client base increasingly struggles financially. Without the insurance they’ve long relied on, suppliers have suddenly had to add risk management to their job responsibilities.
“In the absence of receivable insurance alternatives, many suppliers are being forced to take on all of the receivable risk themselves for the first time,” said Dennis Cantalupo, who runs Pulse Ratings, an independent credit-rating and consulting firm.
The risk for retailers, of course, is that vendors will cut them off after too many missed payments, depriving them of a source of inventory, at least until they make good.
“It can become a relatively easy decision; if you are at your credit limit with a certain retailer and they have not paid past due invoices, a lot of times you just can’t extend any more credit,” Cantalupo said.
Department stores must also monitor payments so they don’t find themselves ill-equipped to deal with accumulated liabilities when they do seek to catch up on overdue payments.
David Wander, a bankruptcy partner at Davidoff Hutcher & Citron, said retailers are facing a double whammy next year when the measures they’ve taken to defer liabilities like vendor payments and rent catch up with them.
“For the next two quarters it’s going to be really ugly,” Wander said. “There’s been a lot of kicking the can down the road, but that only goes so far.”
©2020 Bloomberg L.P.