Sears has started to miss payments to vendors, adding to concerns about its future after sources said on Wednesday that the U.S. department store operator was preparing to file for bankruptcy in the coming days.
Three vendors told Reuters that Sears had missed scheduled payments to them in the last couple of weeks.
It was not immediately clear how widespread the issue was and how it would affect Sears' supply chain ahead of the holiday shopping season. Vendors could stop shipments if they are worried Sears cannot pay, potentially sending the retailer into freefall.
"We went into business with them with our eyes open and knew this day would come one day," said Arnold Kamler, CEO of Parsippany, New Jersey bike maker Kent International Inc. Kamler said he has withheld a shipment to Sears after it missed a regular payment last week for the first time.
Sears did not respond to multiple requests for comment.
Were Sears to file for bankruptcy, stocking shelves adequately could prove key to escaping liquidation. Both vendors and creditors will be looking at the retailer's sales performance during the holiday season in deciding whether to continue to back it, sources have said.
"If consumers walk into a store and there is empty shelves, it lowers consumer confidence and that is what has ultimately happened," said Brett Rose, CEO of United National Consumer Suppliers, a wholesale distributor of overstocked goods such as garden tools, beauty products and toys.
"If you can go to Amazon.com and get Craftsman tools, why do you have to walk into a Sears," said Rose.
Vendors are usually considered unsecured creditors and face repayment of just pennies on the dollar in bankruptcy court.
For this reason, securing a sizable financing package to carry Sears through bankruptcy could boost confidence among vendors. Sears has started talks with banks about securing such a debtor-in-possession financing, Reuters reported on Wednesday.
As Sears' financial condition deteriorated over the years, some vendors stopped supplying Sears, cut down on their shipments or tightened repayment terms, concerned about the retailer's financial woes and the soaring cost of insuring supply agreements, Reuters reported last year.