After it was reported that CIT, the largest lender in the clothing industry, has stopped providing any financial assistance to small and large suppliers selling to JC Penney stores for the time being, JC Penney’s stocks took a nose dive on Wednesday.
The New York Post reported online that CIT made the decision after having met with officials from JC Penney to examine the company’s books. Unnamed sources were quoted.
CIT’s spokesman declined comment, saying they do not comment on specific customers, and JC Penney officials could not be reached by media outlets for immediate comment regarding the situation.
A chief credit officer for Bernard Sands, a credit agency for the clothing industry, allegedly told media outlets that four of CIT’s clothing clients told him that the lender is issuing a hold on approving financial support for the time being. The hold started Tuesday and the orders are for shipments of goods starting later in August and beyond. Since suppliers will be required to keep their own risks for the present time, which may result in JC Penney stores having shelves that are not as full.
JC Penney has been trying to revive itself after a failed transformation by its former CEO Ron Johnson, who was ousted in April after 17 months in his leadership role. The board put former CEO Mike Ullman back at the helm, and he has worked to reintroduce sales and is bringing back key merchandise under store names such as St. John’s Bay.
CIT is a factor, which makes cash advances to the suppliers based on the goods they sell to the merchant. If factors and vendors have concerns about a store’s creditworthiness, the retailer may be forced to pay the suppliers upfront for merchandise. Paying in advance for merchandise can result in tying up cash flow. If suppliers stop shipping goods to the supplier, it could be destructive.
JC Penney is still reeling from recent allegations by a former employee and a current employee, both located in different states, of making price adjustments to convince customers items were on sale. The allegations say that the store would increase the price and then lower it to make it look as though the items were on sale.
Shares of JC Penney stock fell more than 10 percent, which was $1.66. It closed at $14.60 per share for the day but then added an additional 19 cents in aftermarket training to take it back up to $14.79.
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