Sears Enters Death Spiral:

Vendors Halt Shipments,
Insurers Bail
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When we commented yesterday morning on the unexpected "going concern" notice in Sears' just filed 10-K which sent the stock crashing, we pointed out the immediate spin provided by Eddie Lampert's distressed retailer which promised that its comeback plan may help alleviate the concerns, “satisfying our estimated liquidity needs 12 months from the issuance of the financial statements", to which however we added the footnote that "the question is what happens when vendors start demanding cash on delivery as concerns about SHLD.'s liquidity concerns continue to grow."

As it turned out, we wouldn't have long to wait, because overnight Reuters reported that the worst case Sears scenario we envisioned for Sears is now taking shape and that suppliers to Sears have told Reuters they are doubling down on defensive measures, such as reducing shipments and asking for better payment terms, to protect against the risk of nonpayment as the company warned about its finances.

The company's disclosure turned the focus to its vendors as tension is expected to mount ahead of the key fourth-quarter selling season amid rising concern about a potential bankruptcy, they said.

Quoted by Reuters, the managing director of a Bangladesh-based textile firm said his company is using only a handful of its production lines to manufacture products for Sears' 2017 holiday sales. Last year, nearly half of the company's lines in its four factories were producing for Sears. "We have to protect ourselves from the risk of nonpayment," said the managing director, who declined to be identified for fear of disrupting his company's relationship with Sears.