Sears Should Be A Warning Sign To Suppliers, Says Cramer

Sears Holdings Corp SHLD plunged more than 12 percent Wednesday after the company cautioned it now has "substantial doubt" over its ability to continue operating.

CNBC's Jim Cramer was quick to point out Sears' new warning was "known to them" last month when it announced new cost-cutting initiatives. He said investors who bought Sears' stock after its February announcement under the assumption the company is now "out of the woods" have now found out the company is "deeply in the woods" and buying the stock was a mistake.

Cramer did acknowledge Sears wasn't misleading investors last month, but this new announcement is more important for investors to digest than any other prior announcement and update.

Suppliers Should Be concerned

Cramer suggested there is a bigger takeaway that's perhaps flying under the radar. Specifically, suppliers who do business with Sears have reason to be concerned moving forward.

Cramer said suppliers should be concerned they may not get paid for the products shipped to Sears' stores. In fact, he even suggested all it takes for a supplier to be wiped is just one client that doesn't pay for the products.

"So that's what you have to be concerned about," Cramer concluded.

Cramer Is On To Something

Concerns among Sears' vendors isn't necessarily new as reports dating back to 2014 suggested insurers and banks had no choice but to raise the cost of guaranteeing payment to vendors.

In addition, Debtwire reported in late 2016 that some of Sears' vendors have been locked out of the credit insurance market for two years and suppliers are demanding the company to pay for supplies in advance.

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Image Credit: By Mike Kalasnik from Fort Mill, USA, [CC BY-SA 2.0], via Wikimedia Commons