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October 19, 2018 1:30 PM, EDT

Some Suppliers Cautious After Sears Files for Bankruptcy

Sears store Patrick T. Fallon/Bloomberg News

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 identified 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 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 Losses

Sears, which is based in Hoffman Estates, Ill., told vendors that it is “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.

Some vendors are concerned because Sears’ communication has been limited beyond the initial e-mail. 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.

RELATEDSears Files for Chapter 11 Bankruptcy Amid Plunging Sales, Massive Debt

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 has increased the reluctance of some Sears suppliers to make post-bankruptcy shipments to yet another troubled retailer.

Eddie Lampert

Some expect Eddie Lampert, hedge fund manager to aid the dying company. (Gregory Bull/Associated Press) 

Sears faces a similar situation: It needs to perform well during the holidays. It’s a time when retailers ramp up marketing and discounts to get market share — not a ideal for a company that needs to preserve cash and win lenders’ confidence. Rivals also aren’t shy about trying to kill off a competitor when they smell blood.

In the letter, Sears referred to the $300 million it will get in bankruptcy financing and the possibility of obtaining $300 million more. That second piece is expected to come from Eddie Lampert, the hedge fund manager who led the retailer during its decline over the past decade.

“We have sufficient funding for ongoing operations,” Sears told vendors. The company intends “to pay vendors in the ordinary course for all goods and services provided on or after the filing date.”