As Sears Holdings has filed for Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court and announced immediate closure of 142 stores of its 700 remaining stores this year, its apparel suppliers in India are worried for their payment as well as about further orders. There are more than 30 Indian apparel exporters who supply apparels and other textile goods to Sears Holdings. All these Indian exporters are well known and are top companies of the trade. Sears Holdings is unable to pay US $ 134 million in loans that had become due, the retailer lagged behind many of its competitors as limited finance hindered investment and revamping of its stores.
Apparel Resources approached Sears Holdings subsidiary Sears Holdings India (SHI), Pune, regarding the issue. One of the seniors from the company shared, “Things will take place normally. We intend to pay to all Indian vendors for their goods and services provided on or after filling date.” SHI provides corporate IT services to Sears Holdings Corporation and its family of companies including Sears Roebuck and Co. and Kmart Corporation. There are nearly 1600 headcounts in SHI’s Pune, Bangalore, and Hyderabad office.
“All things are on our website and we are working as we used to work earlier. As of now, our focus is to support our retail team as the holiday season is here,” told one of the senior employees of Sears Sourcing India. Nearly 40 people are working in the Noida office of Sears Sourcing India (another subsidiary of Sears Holdings) which is responsible for apparel and textile sourcing.
SHI corporate communication department shared with Apparel Resources, “Sears received approval of ‘first day’ motions from the Court, ensuring that we continue to operate as usual. Sears Holdings is open for business and we expect to move through the restructuring process as expediously as possible. Additionally, our member programs continue and we will pay our vendors in the ordinary course for all goods and services provided moving forward. The Company is committed to working with its vendors and other partners to help maintain inventory levels and ensure timely product delivery.”
Reacting on the situation Raja M. Shanmugham, President, Tirupur Exporters’ Association (TEA) informed Apparel Resources, “It is a really big issue. Such an indication from the US market can hurt business sentiments. Secondly, there are at least 10 apparel suppliers in Tirupur who are supplying garments to Sears. If they had not taken proper precautionary measures, there would have been a risk for their payments.” TEA is a respected body of Tirupur based apparel exporters which is India’s biggest hub for knitted garments.
Delay in payment is expected among the Indian apparel suppliers and these suppliers are of the opinion that it is too early to contemplate on default in payments. CFO of a Gurgaon-based export house who has factories abroad also informed, “We are tracking all developments as things are dicey. Normal communication is going on but nothing has been committed so far. It is too early to say anything as nothing is certain.” The company has a decade-old business relation with Sears.
“Order quantity of Sears is huge as they place at least 30,000 to 40,000 pieces of per style. Few of their order reach up to even 2 lakh pieces so it is very difficult to find a substitute client who can offer such volume order. Any Indian supplier may need at least 4-5 buyers to replace Sears,” shared a Marketing Head of the Tirupur-based export house on the request of anonymity, who is still working with Sears but has reduced business willingly for the last few months.
Panic for Indian apparel exporters is natural as a decade ago, in such a similar situation with a company Karstadt Quelle (one of Europe’s largest department store & mail order group at that time), payment of some Indian exporters was defaulted which lead to huge losses.
On the other hand, there is an example of Gymboree (US-based children’s apparel chain) too that filed for chapter 11 bankruptcy in June 2017, and officially re-emerged in September 2017. It is a rare example of a retailer that filed for bankruptcy and was able to reorganize its business successfully. “Gymboree was very much transparent about their bankruptcy and effectively communicated every point. We are hoping that Sears will follow the same,” said another well-known exporter who is a supplier to Gymboree as well as Sears.
Mark Cohen, former Sears Canada CEO, is of the opinion that Sears was ‘toast’ ever since its 2005 Kmart merger. “The notion of “some turnaround or some transformation” plan in place since then is “just plain bogus,” he said.
“Already market feedback was not good about Sears Holdings, so we reduced our working with the company. Now, we work on and off with Sears,” CEO of one of the top apparel exporters of Faridabad explained.
