The Wall Street Journal suggests that there is something wrong with Sears Holdings offering to pay a vendor earlier than the Journal thinks is typical for retailers. But why would that be a bad thing if we can afford to do so and we get a discount or other benefit from doing it?
Just like any other retailer, Sears Holdings can and does expect that it will receive benefits in return for any shorter payment terms it may provide to a vendor. Put another way, most families would like to pay off their credit cards on time or early if they could, and if there was a benefit from doing so (or a penalty for not doing so).
The story about early payments also repeats an October report about an insurer that some of our vendors used as a hedge against non-payments from a broad array of retailers. We have 50,000 suppliers and vendors. Providers of insurance have never had to pay a claim to any vendor tied to SHC’s business.
What does that mean? We are paying our vendors and meeting our obligations as we always have. Vendors who spent their own money to hedge against non-payments did nothing more than decrease their profits. That’s in part why most of our vendors understand that they just don’t need insurance. To date, we’ve had no material interruptions in the flow of goods to our company.
In fact, over the last three years on a comparable basis we have reduced our Q4 inventory levels (ending in Q4 2014) by $1.4 billion and our payables by $712 million. This decreases the level of vendor support (and supplier credit) needed to run our business and de-risks our business model in a way that benefits us and our vendor-partners.
We value our relationships with our vendors and suppliers and communicate with them regularly as we move through our transformation.
We understand those who challenge us on our operational performance. We’re challenging ourselves, too, as our associates across the country work hard every day to move this company forward profitably.
Our operational performance, while not yet where we want it to be, IS improving, as evidenced by the domestic Adjusted EBITDA of $125 million we reported in Q4 2014. This represents an improvement of $217 million over Q4 of 2013.
We announced last November that we have been exploring the formation of a Real Estate Investment Trust (REIT) to purchase between 200 and 300 of our store locations and to manage them as a pure real estate company. A successful completion of a REIT transaction, currently expected by June 1, would provide cash proceeds to Sears Holdings in excess of $2.0 billion, providing us with substantially more financial flexibility to improve our operations, address any vendor concerns and meet our obligations.
The subject of this blog could have simply been, “Look Closer.” Why? Because people who are really taking the time to digest the information we make public are seeing trends like what this post details. We also understand that if you’re not looking at our company closely, a lot of this can be hard to understand.
Thankfully, SHC has an abundance of valuable assets in its portfolio, and we have proven time and time again that we have numerous levers at our disposal to generate substantial liquidity should we choose to do so.
Robert Schriesheim is EVP, Chief Financial Officer for Sears Holdings.