Stock destined for Primark could be left stranded in factories as the value chain’s key logistics partner Ceva Logistics teeters on the brink of bankruptcy.
Ceva, which is thought to be Primark’s primary logistics provider, had its credit rating downgraded by ratings agency Standard & Poor’s (S&P) this month, from B-minus to SD (selective default) after failing to meet scheduled interest payments.
Competitor ratings agency Moody’s has also downgraded its credit rating for Ceva, classifying the business as “default imminent with little prospect for recovery”.
According to risk management firm Company Watch, Ceva has debts totalling $4.3bn (£2.8bn) and earlier this month Ceva announced EBITDA had dropped 21.8% to €251m (£214m), despite sales rising 4.8% to €7.2bn (£6.1bn). S&P said Ceva could file for bankruptcy if it doesn’t receive consent from note-holders for a refinancing plan.
Nick Hood, business risk analyst at financial research firm Company Watch, said the SD rating implied “there is a serious risk the company will fail”.
He added: “All the indicators are that this company is struggling to survive and is suffering a series of major adverse financial events, which may see it filing for bankruptcy.”
If Ceva does collapse into bankruptcy, retailers could be left in the lurch with stock stuck overseas, and Primark would be particularly vulnerable.
“It would be quite devastating to a lot of its retail clients,” said one supply chain insider. “It is a core logistics company across multiple geographies.”
A logistics source told Drapers: “Primark has used Ceva for years and has been very reluctant to talk to anyone else. If Ceva went bust then Primark would be in a pretty difficult position. If there are question marks around Ceva then they have to make sure they have a contingency.”
It is understood that value chain Peacocks also works with Ceva but has contingency plans in place. Another source said some supermarket chains could also be caught up in the fallout.
But Stephen Sidkin, chair of the fashion law group at law firm Fox Williams, said Primark’s exposure could be limited as its short-order approach to product means relatively little stock would be tied up in the supply chain.
However, he added: “There is always a certain amount of product that is held by the logistics company and there will be a question surrounding who owns this product.”
Sidkin added: “It could be very serious if retailers are operating on very short lead times. All it takes is for the sun to shine and they need to have T-shirts on the shopfloor.”
Primark declined to comment, while Ceva did not respond to requests for comment.
The value retailer has this week been caught up in controversy surrounding the collapse of a factory in Bangladesh, which has killed more than 200 people. Primark was among a number of retailers using the premises in Savar, near the country’s capital city Dhaka, which collapsed on Wednesday.