The end could very well be near for Sears Holding Corporation.
On Wednesday,The Wall Street Journal reportedthat the ailing retailer's suppliers have begun to tighten the terms under which they provide merchandise. This is a troubling development that often presages a retailer's demise.
According to the article:
Reading between the linesAt first glance, the length of time that Sears has to repay its suppliers may seem like a nuance. After all, what's the difference between 15 and 60 days in the whole scheme of things?
But aside from the fact that each of those reduced days ties up an estimated $48 million in Sears' increasingly scarce capital, the more critical point is what it telescopes about the company's ability to stock its stores during the upcoming holiday season. Not to mention, given Sears' performance over the past few years, evidenced by a long pattern of declining same-store sales, it would be illogical to assume that its vendors will do anything but continue to tighten these terms.
We've seen this beforeIt's worth noting that a similar loss of confidence among suppliers led to the downfall of Circuit City in the lead-up to the 2008 holiday shopping season. On Nov. 3, 2008, the now-defunct electronics retailer issued a press release stating:
Exactly one week later it filed for bankruptcy, citing its deteriorated relationship with vendors as the primary culprit:
The issue in instances like this is that suppliers fear they won't be compensated for the merchandise they provide. Two years after Borders filed for bankruptcy protection in 2011, for instance, Penguin Putman, Hachette Book Group, and Simon & Schuster were collectively owed more than $80 million for books that they had shipped to the bookstore chain on credit.
It's not over for Sears just yetThis isn't to say, of course, that Sears is necessarily destined to failure. I believe it is, but there are rumors that it could raise as much as $2 billion by spinning off as many as 300 of its best stores into a publicly traded real estate investment trust. If it's able to do so, that'd provide a critical source of funds that could see it through the year, if not longer.
But the problem with this strategy is that it presupposes that investors will be receptive to such a REIT on sufficiently palatable terms to Sears and its creditors. I, for one, struggle to understand how anyone could even remotely consider buying shares in such a company. If Sears ends up going under, releasing those locations will take a herculean effort, with many bound to remain vacant.
My point is that Sears is descending further and further into a financial abyss from which it will be increasingly difficult to emerge absent a miracle. But while we've known this for some time, it wasn't until this week that the acuteness of its troubles were on display for all to see.
The article Yet Another Ominous Development for Sears Holding Corp. originally appeared on Fool.com.
John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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