It’s never a good sign when one’s suppliers resort to making signs that literally tell a company that its business “sucks” — but suck is the situation Payless found itself in recently with disgruntled shoe manufacturers assembled in China.
Things broke down to sign making because Payless owes those shoe makers hundreds of million of dollars — and they are bankrupt (or more accurately about to be) and thus are not getting paid. And now they are pushing the Chinese government to stop shipments from Payless’s Xiamen warehouse to the U.S., or to sue Payless in American courts.
“Vendors are getting extraordinarily nervous,” said Hilldun Corp. Chief Executive Officer Gary Wassner, whose firm finances fashion suppliers. He now gets two or three extra calls a day from worried manufacturers that sell to retailers, including luxury stores.
Bankruptcy has become an epidemic in retail of late — and that is worrisome news for suppliers who are toward the end of the payout order. Secured creditors are paid first when the court assess claims — vendors after.
“Their unsecured status pushes them down the line,” said Steven Ruggiero, head of research at financial firm R.W. Pressprich & Co.
And insurance is less a boon that it once was, as firms that help protect suppliers from buyer bankruptcy began scaling back the policies offered as of 2014. For example, Wells Fargo used to offer factoring for Sears’ vendors to give them a cushion — but with the state of things at Sears these days, that no longer looks like a good risk.
And angry vendors mean getting back from bankruptcy is even harder, according to Christa Hart, a retail and consumer consultant at FTI Consulting Inc, since supplier networks are “the lifeblood of the company and its future.”
Struggling companies often suspend or delay payments to their vendors as a quick way to conserve cash — but that often kicks off a vicious cycle that leads to empty shelves, turned-off customers, and eventually bankruptcy.
“Lack of faith — and canceled shipments — from vendors and factories have precipitated numerous retail bankruptcies,” Hart noted.