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Bike Suppliers Concerned About Sears Insolvency

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CHICAGO, USA – The troubled U.S. retail giant Sears Holdings Corp. had to file for bankruptcy on October 15. On that day, the in 1886 founded company which is also selling bicycles and cycling products at entry-level price points, filed for chapter 11 bankruptcy. Previously, Sears’ shares dropped double digitally.

Bike Suppliers Concerned About Sears Insolvency
The traditional business of Sears slowed down dramatically over the last few years. – Photo Sears

Regarding Sears’ bicycle business, mainly U.S. suppliers are affected by this bankruptcy. For example, Kent International Inc. is assembling bicycles for Sears. Since the opening of a completely new bicycle factory in South Carolina about four years ago Kent offers ‘close to market production’ for its private label and OE-business. How Sears’ financial troubles would disturb Kent’s future plans is still unclear.

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North American mass market retailers in trouble

The Toys’R’Us bankruptcy already resulted in dramatic results for suppliers of mass market retailers like Dorel Sports which via its subsidiary Pacific Cycle with brands like Instep, Ironhorse, Mongoose and Schwinn had to take a big part of the loss.

According to U.S. law, Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts and assets. During this period suppliers can neither change nor cancel contracts that have already been concluded. The aim is to develop a business and payment plan that will help the company to emerge from the crisis.

Price-aggressive e-commerce

Following the merger with competitor Kmart in 2005, Sears Holding Corporation became the third largest U.S. retailer after WalMart and Home Depot. However, the traditional business of Sears slowed down dramatically over the last few years. The main reason is the fierce competition with price-aggressive e-commerce retailers.

A look at the financial results show how the business eroded. In 2012 (fiscal year ends on 3 February) for example, sales were still at US$ 41.57 billion (EUR 36.04 billion). In 2017 it was down to only US$ 22.14 billion (EUR 19.29 billion). Although liabilities were reduced from US$ 17.04 billion (EUR 14.77 billion) in 2012 to US$ 13.25 billion (EUR 11.55 billion) in 2017, market observers expect that Sears’ fiscal results over 2018 will be way below these figures.

Store closings

When Sears asked for insolvency liabilities have been around US$11.3 billion (EUR 9.84 billion) – compared with assets in the amount of around US§ 6.9 billion (EUR 6.01 billion).

First step to save Sears under Chapter 11 is the closure of 142 stores of the all in all 700 Sears and Kmart stores by the end of the year. The closings are in addition to the 46 stores that are expected to close this month already. Which 142 stores are affected until end of 2018 can be found on www.searsholdings.com/media/company-statements. A good part of approximately 70,000 jobs will also fall victim to the branch outage.

The Chapter 11 bankruptcy was filed because to a US$ 134 million (EUR 116.17 million) loan that would have been due on 15 October. Now, Sears has committed US$ 1.875 billion (EUR 1.63 billion) to repaying its existing loans and continuing its business. That’s about US $ 300 million (EUR 260.05 million) more than the company could have raised before submitting its bankruptcy petition.

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