Retailers are being hit by a double credit whammy - the withdrawal or reduction of their lines of credit with major suppliers, and the loss of credit insurance.
Circuit City cited a lack of credit availability as one of the factors which contributed to its Chapter 11 filing, and now there’s a Reuters story on National Wholesale Liquidators, a discount retailer:
Discount retailer National Wholesale Liquidators said Monday that General Electric cut its credit availability by $15 million over the last few weeks, putting a “major hardship'’ on its ability to pay current and past bills.
“The reason they (GE) gave us was the environment outside was so bad that they are trying to protect themselves. This has put a major hardship on us to pay both our current and past due bills,'’ the letter said.
A second, equally painful new reality facing retailers is the potential loss of credit insurance.
Credit insurance is used by suppliers as cover against non-payment of goods they have dispatched to retailers, who may take up to 90 days to pay.
In the absence of such insurance, suppliers could insist on cash up front, or much shorter grace periods for payment of any goods delivered - conditions which cash-strapped retailers might find difficult to meet.Last month, the last of Woolworths‘ credit insurers withdrew cover for the retailer’s suppliers. JJB Sports, also in the UK, has faced similar trials.
Back in the US, Dow Jones reported (citing sources) that Euler Hermes had withdrawn its credit insurance for suppliers of GM and Ford:
According the sources, deliveries from the suppliers weren’t covered by insurance in the last two weeks, as the risk of the car makers failing to pay them for deliveries is too high.
Euler, which is a unit of Allianz SE, had stopped offering to insure the suppliers to around 20 per cent of its client list over the past year, mainly in the housing, retail and automotive sectors, according to Dow Jones.
Expect more headlines like this in coming weeks, particularly in consumer-facing sectors. Apparel retailers, here’s looking at you…
