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This national retailer is heading for a holiday disaster

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Latest MoneyWatch headlines 01:06

The holiday shopping season is the most important time of the year for retailers, when stores finally go into the black for the year.

But this year it might bring coal for Sears Holdings (SHLD), given the reports that some suppliers have “significantly” reduced their shipments of consumer goods over concerns of a pending bankruptcy filing for the owner of Sears and Kmart stores. Suppliers have become increasingly worried about Sears’ financial strength in recent months, Business Insider reported.

Needless to say, a reduction in inventory as the holidays approach wouldn’t be a winning strategy for a retailer that’s trying to get back on its feet. The company is struggling to right itself after years of dismal operating performance. Its latest results show a loss of almost $400 million and a decline in same-stores sales (sales at stores open a year or more) of 3.3 percent at Kmart and 7 percent at Sears. 

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The largely self-inflicted wounds prompted one analyst earlier this year to predict a “liquidity event” in 2016. 

“There is great concern out there” among suppliers, Marc Wagman, executive vice president of trade credit and political risk at Arthur J. Gallagher & Co., told Business Insider. His firm represents the suppliers to insurers, which protect the suppliers in case of nonpayment.

He added that speculation is mounting that Sears could file for bankruptcy next year.

Sears denied the reports, saying in a statement it has “a strong relationship with our vendors.” It added, “We are absolutely focused on restoring Sears Holdings to profitability. We are an asset-rich enterprise with multiple resources at our disposal.”

Toymaker Jakks Pacific (JAKK) suspended sales to Kmart because of concerns about its operational health, according to a report in The Wall Street Journal last month. That cut is especially worrisome given that toys are big sellers during the holidays. Jakks’ products include Big Wheels, the popular kids’ low-riding bike, and several Disney (DIS) lines, such as dolls and dress-up clothes based on “Frozen” and “Cinderella.”

Sears Chief Financial Officer Jason Hollar wrote in a blog post last month that the company has a long-term relationship with Jakks and many other vendors. Sears Holding has “always paid our vendors for orders we have placed and as part of the normal negotiations between retailers and vendors, there are occasionally disputes over prices, allocations of product and other terms,” he wrote.

The company said it plans to sell a “wide variety of the hottest products in our stores” this holiday season. Both Sears and Kmart will open their doors on Thanksgiving day, at 6 p.m. and 7 p.m., respectively.

Yet one complaint among loyal Kmart shoppers isn’t about inventory, but the stores -- or lack of them. The company has been shutting down Kmart locations, with another round of closings announced in September.

“No Kmart to go to since you’re closing ours. I will not travel 50+ miles,” one shopper wrote on its Facebook page. “Sorry.”

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