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Vendors Scale Back Following Sears News; Analysts Say Bankruptcy is Next

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Nobody wants to do business with a store that may soon be out of business.

Since Sears announced its “substantial doubt” over whether it will be able to remain in operation in the near future, vendors have started pulling back even more than they had been.

Suppliers to Sears told Reuters they’re already beginning to reduce shipments and ask for better payment terms to reduce the risk of nonpayment, as one thing Sears warned of was a possibility of not being able to meet its financial obligations or secure any additional funding to do so. Some vendors have even said they won’t be taking any new orders from Sears at all.

According to former Sears Canada chief Mark Cohen, vendors will likely be wary from here on out.

“Whatever vendors continue to support them are now going to put them on even more of a short string,” Cohen told Reuters. “That means they’ll ship them smaller quantities and demand payment either in advance or immediately upon delivery.”

More than just vendors pulling back, some are saying Sears’ demise signals the decline of U.S. malls. And not that U.S. malls weren’t already struggling without Sears’ ongoing issues, but with the once-largest U.S. retailer failing, faith in the survival of traditional malls is dwindling even further.

America is already overstored, with five times as much per capita retail space as the U.K., for example, so store closures were inevitable. This year alone, Macy’s said it was closing 68 stores, J.C. Penney said it would shutter up to 140, and both BCBG and Bebe said they would close all of their stores and focus on e-commerce. Sears Holdings has closed 10 percent of its namesake stores since 2015 and 26 percent of its Kmart stores in the same period. There are 695 Sears stores left and 735 Kmart stores, and 150 more stores are already on the chopping block for this year.

Higher-end A malls are the ones likely to survive, and in second-tier malls, where Sears typically lives, the departure of what was once a viable anchor store may force other tenants to reconsider their position there.

Sears has inadvertently rendered itself irrelevant over the years, focusing on financial strategies over stores and assortments, and providing consumers with little that was compelling enough for them to shop there. Last year, Sears store sales fell 7.4%.

For some, Sears’ end can’t come fast enough. The retailer seems to have been prolonging the inevitable for far too long and climbing further and further into debt to do it.

“In addition to slowing sales, maturing debt weighs on the company’s prospects. The firm has $596 million in debt that is coming due in 2017, and that more than doubles to $1.29 billion in debt maturing in 2018,” Morningstar Credit Ratings said in commentary Thursday. “With the latest news, a bankruptcy filing has become more probable, under which we would expect the company ramp up its store closings beyond those with leases coming due.”

In an attempt to temper the bankruptcy buzz, Sears Holdings chief financial officer Jason Hollar said in a blog post Wednesday that Sears is still focused on long-term profitability.

“To clarify, the comments from our Annual Report quoted by the media are in line with regulatory standards that require management to assess and disclose potential risks the company could face within one year from the reported financial statements,” Hollar said. “As 2016 proved to be another challenging year for most ‘bricks and mortar’ retailers, our disclosures reflected these developments. While historical performance drives the disclosure, our financial plans and forecast do not reflect the continuation of that performance.”

The statement also said that Sears’ independent auditors claim the company is a “going concern,” which Hollar said means it is still a viable business that can meet its financial obligations for the foreseeable future.

Sears stock was up 2.81% to $8.42 as of publication time.

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