Suppliers balk as Sears' vendor insurance contracts lag

Dive Brief:

Some Sears suppliers are uneasy while others are refusing to work with Sears as the longtime retailer foregoes vendor insurance, PYMNTS.com reported Monday based on a Reuters story.
Suppliers are increasingly reluctant to work with Sears without the security of an insurance broker guaranteeing payment if Sears files for bankruptcy. The cost of vendor insurance rose significantly once the company admitted doubt over its continued ability to survive.
Investments in vendor insurance by Sears have fallen steadily since 2013, when they totaled $232 million. In 2014, the total was $80 million. In 2015, there was no evidence of any investment in vendor insurance at all. Accordingly, merchandise inventory has dropped from $4.7 billion to $3.4 billion since 2016.

Dive Insight:

Sears' decline is likely hastened by recalcitrant suppliers, who may have been displeased by earlier comments from CEO Eddie Lampert.

In March of 2017, when Sears released its annual report indicating the company's poor condition, suppliers reacted by demanding faster payment or even refusing to continue supplying at all. One — Techtronic Industries — began seeking escape from its contract with the retailer, earning a public reprimand from Lampert. Previously, shaming tactics had been employed only by unhappy suppliers, who acted en masse to complain about Payless Shoes in an issue of Footwear News.

Good relationships built on trust and fairness are vital for suppliers and buyers, yet when a business begins to falter, what is due a former partner? In the case of Sears, the long-time collaboration with Techtronic was no longer in sync and Techtronic chose its bottom line over supporting a one-time partner.

Supplier relationships have often proven to be prone to failure, especially when demand becomes onerous to one party. Sears is not an exception, as a market-dominating company like Apple is also subject to supplier delays and shortages. The example of these companies can serve as a warning to buyers and suppliers, because the deterioration of a supplier relationship not only affects lead times, but also the bottom line, and can hamper other or future business relationships.