April 16, 2013

J.C. Penney's faltering starts worries about inventory

The retailer is burning through its cash and could face bigger problems if suppliers withhold goods.

By ANNE D'INNOCENZIO/The Associated Press

NEW YORK - As J.C. Penney burns through its cash after a disastrous turnaround plan and taps almost half of its credit line, the flailing department store chain doesn't only have to calm its investors. It has to restore confidence among its several hundred suppliers whose constant flow of merchandise must continue if the retailer is to survive.

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A customer arrives at a J.C. Penney store in New York. With the company faltering, there are concerns about a steady flow of merchandise.

The Associated Press

Penney announced Monday that it would draw $850 million from its $1.85 billion revolving credit line to pay for replenishing inventory, particularly for its overhauled home area. Some analysts say the move shows that the Plano, Texas-based company is burning through cash faster than expected. Penney is also looking for alternative sources of funding.

It comes at a critical time. Penney is wrapping up back-to-school orders and is starting to order goods for the critical holiday shopping season. Normally, retailers order goods well in advance but don't pay for them until about 30 to 60 days until after goods are shipped. If vendors start demanding to be paid in advance, stores face a cash crunch when they order goods for busy shopping periods.

"Maintaining a seamless flow of merchandise is critical," said Marshal Cohen, chief retail industry analyst with market research firm The NPD Group. If shoppers see empty shelves, they'll go somewhere else, he says.

The concerns about the future of Penney are mounting a week after Penney fired its CEO, Ron Johnson, after 17 months on the job and rehired his predecessor Mike Ullman.

Cohen and others point to a string of retailers, including Circuit City and Linens 'n Things, that were forced into bankruptcy in part because nervous suppliers delayed shipments of goods or stopped them altogether.

 

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