Kmart Corp's Asia suppliers cut shipments and insisted on guaranteed payment for goods last year, limiting their potential losses from its bankruptcy, because they suspected the US retailer was in financial trouble.
Tsann Kuen Enterprise Co (燦坤實業), a Taiwan maker of small home appliances stopped sending its products to Kmart six months ago. USI Holdings Ltd, one of Hong Kong's largest garment makers, said it expected problems after Kmart tried to drop payment guarantees.
Asian companies make much of the world's inexpensive clothing, toys and other consumer products sold by Kmart, which has more than 2,100 stores in all 50 US states.
PHOTO: AP
"We've been keeping an eye on their situation and stopped shipments at the end of last year," said Tsann Kuen Vice President Catherine Tien (
Kmart filed for Chapter 11 bankruptcy protection yesterday, making it the US retail industry's biggest failure. Kmart lost money for three quarters and failed to boost holiday sales, leaving the company strapped for cash, analysts said.
Tsann Kuen learned of Kmart's problems from media reports about a year ago, and started reducing shipments of its irons, toasters and other appliance to the chain. The company increased sales to Wal-Mart Stores Inc, the largest retailer.
Edmund Lee, finance manager at USI, said Kmart asked to shift payment to an open account, which isn't guaranteed, from a bank-backed letter of credit in the middle of last year. USI refused and cut projected sales to Kmart this year by a third.
"Filing for Chapter 11 is a really good idea," Lee said.
"If they know they're short of cash, it's better they find ways to get liquidity rather than dragging the problem on."
Tsann Kuen's shares fell 2 percent to NT$50 yesterday. USI shares last changed hands on Jan. 15, and were untraded at HK$0.76.
Other suppliers may lose money. In Taiwan, Nien Hsing Textile Co (
Nien Hsing, which makes fabric and garments, is insured for 90 percent of the US$2.6 million it's owed by Kmart, said Assistant Vice President Andy Tsai.
Nien Hsing wrote off NT$422 million (US$12 million) last year after Bugle Boy, a denim garment maker, went bankrupt and defaulted on payments.
The write-off prompted the company to adopt tighter credit measures, Tsai said.
Nien Made said it may recoup 30 percent of US$428,000 owed by Kmart, which it expects to retain as a customer. The company set aside NT$7.5 million last year for the possible default and will set aside an equal amount this year.
"We received news about troubles at Kmart sometime in December and already postponed some deliveries," said Nien Made Assistant Vice President Michael Nien.
Nien Hsing shares fell 2.2 percent to NT$22.10 yesterday. Nien Made shares dropped 3.1 percent to NT$43.30.
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