Tags: Sears | Supplier | Loans

Sears Supplier Loans Are Said to Be Halted by CIT Starting Today

Thursday, 12 Jan 2012 08:07 AM


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Sears Holdings Corp.’s suppliers will no longer be able to get loans from CIT Group Inc. for their shipments to the retailer, according to two people familiar with the situation.

CIT, the largest U.S. company that provides what’s known as factoring, told clients it would no longer approve credit for orders starting today, according to the people, who declined to be identified because the information isn’t public.

One risk when a factoring company pulls credit to suppliers is that others may follow suit. Hoffman Estates, Illinois-based Sears has enough liquidity that it will weather the situation, said Matthew McGinley, managing director at International Strategy & Investment Group in New York.

“Even with Sears’s deteriorating financial condition, it is pretty unlikely that a vendor shouldn’t ship over the near term,” he said yesterday in a telephone interview.

Sears has lost ground as shoppers have flocked to such rivals as Macy’s Inc. Chairman Edward Lampert, who along with his hedge fund owns about 60 percent of the U.S. department store chain, has presided over four years of declining sales since merging Sears Roebuck with Kmart in 2005.

Goods factored by CIT represent less than 5 percent of the company’s inventory, Sears said.

“We disagree with their action” and “point out that other factors are approving shipments to Sears,” Chris Brathwaite, a Sears spokesman, said yesterday in an e-mailed statement. “It’s important to note, that Sears Holdings has more than adequate liquidity and ample resources at our disposal.”

Short-Term Credit

Factoring companies such as New York-based CIT provide money on a short-term basis for manufacturers to produce goods for retailers. In return, they get a fee based on a percentage of the total order.

“We don’t comment on specific customers,” Curt Ritter, a spokesman for CIT, said yesterday in a telephone interview. The New York-based company is led by John Thain.

Clothing and home goods, items for which credit is often provided by factoring companies, account for about 28 percent of Sears’s sales, according to Gary Balter, an analyst at Credit Suisse Group AG. Lands’ End and other private-label goods sold by Sears aren’t factored.

Sears has a $3.275 billion credit facility, in addition to other assets and credit in Canada, McGinley said. Larger and healthier vendors to Sears don’t need to use factors, he said.

Whirlpool, Electrolux

Still, even the largest suppliers are affected by Sears. Appliance maker Whirlpool Corp., which received 8 percent of its 2010 revenue through Sears, fell 8.9 percent on Dec. 27 when the retailer said holiday sales declined and it would close as many as 120 stores.

Whirlpool’s only larger customer in 2010 was Lowe’s Cos., according to data compiled by Bloomberg.

Stockholm-based Electrolux AB got 5.8 percent of its revenue through Sears in 2010, making Sears the biggest customer for its appliances. Electrolux dropped 2.5 percent after the store closings were announced.

Sears Holdings rose 8 percent yesterday to $32.90 at the New York close. The shares have fallen 55 percent in the past year.

© Copyright 2014 Bloomberg News. All rights reserved.

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