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While Sears struggles to get customers into its stores and lost $1.7 billion last year, the retailer is also encountering problems in keeping its shelves stocked with merchandise. The company’s vendors are reportedly nervous to ship to the retailer given its poor financial results and touchy cash flow situation. Vendors are asking Sears to pay their bills sooner in exchange for a discount. This ties up tens of millions of extra dollars’ worth of capital up at a time.

This is an issue that came up before the holidays as well, when the companies that insure retail shipments limited how many shipments to Sears they would cover at any given time, due to worries about the company’s continuing existence.

One source familiar with Sears’ supplier agreements told the Wall Street Journal that the company is promising a quicker turnaround on its payments in exchange for small discounts of maybe 3-5%. That isn’t the kind of spectacular sale that pulls customers in for deep discounts on ladies’ casualwear, but it’s a nice deal in the wholesale biz.

The problem for Sears is that paying off those bills from suppliers sooner ties up more of their money. A credit analyst told the WSJ that Sears is paying vendors an average of 9 days earlier than at this time last year. For every day that the payment is moved up, it ties up an additional $48 million of Sears’ already limited funds.

In a statement to the Wall Street Journal, a Sears representative explained that Sears is not having any problems paying its bills or filling its shelves with merchandise. He pointed out that higher fees to insure shipments to Sears only reflect a perception in the industry that Sears is about to collapse, and don’t reflect reality. Sears is totally going to pay its suppliers and meet its obligations.

That’s good news, but unless they’re able to fix their core business soon, they may not be able to meet their obligations by borrowing money from the boss or forming a real estate investment trust with the stores that they own.

Sears Tries to Calm Supplier Jitters [Wall Street Journal]

by Laura Northrup via Consumerist