Homeplus suppliers on brink of collapse as unpaid bills pile up

Cash crunch deepens as suppliers struggle to survive

Payments frozen for months, forcing staff cuts and emergency loans

Korea Federation of SMEs urges survival of suppliers blameless for Homeplus crisis

"We are on the verge of shutting down."

Vivicense, a small underwear supplier to Homeplus, is fighting for its survival. Since the retailer began delaying payments earlier this year, the company's headcount has fallen from nine employees to three. Homeplus accounts for 80 percent of Vivicense's total sales, and the amount the company has yet to receive from the retailer stands at 500 million to 600 million won (about $391,000) — a sum large enough to threaten the existence of a small business.

As Homeplus's court receivership proceedings drag on, anxiety is mounting among its suppliers. Small and medium-sized enterprises that depend heavily on Homeplus are particularly exposed: when payment settlements are delayed, they must cover operating costs and wages out of their own pockets. Industry insiders warn that prolonged settlement delays could deepen the financial distress of partner companies and trigger a chain of defaults.

'Close to death': Homeplus suppliers pushed to the edge

Kim Jong-pil, chief executive of Vivicense, said the company is "on the verge of closing" and that he has been patching the gap with bank refinancing loans. "The interest rates are high, so it's not easy to manage," he said. OEM partner companies tied to Vivicense are also struggling. Unable to dispose of goods already manufactured, they have continued supplying products — but with Homeplus delaying settlements, these firms are not receiving payment either.

"It's a chain reaction, so there's chaos everywhere," Kim said. "Because the products were made specifically for Homeplus, there's a limit to selling them elsewhere." Kim has been keeping the company afloat with his own money. "I've been taking out personal loans to pay my employees' salaries," he said.

Another supplier, which provides socks and other goods to Homeplus, faces a similar situation. Homeplus accounts for about 20 percent of that company's sales, which has allowed it to hold on for now, but it has been running at a loss in recent months. The amount it has yet to receive from Homeplus is close to 1 billion won. "Sales are a problem, but the bigger issue is that cash isn't moving — the money is tied up, so we have nothing to pay our factory in China," a company official said. "A lot of businesses are stuck in the same situation right now."

The company ultimately halted its Homeplus deliveries in May but is now grappling with how to handle its remaining inventory. An official described the situation as going beyond serious — "close to death," in his words. "The inventory alone is worth around 700 million to 800 million won," he said. "We're completely in the red, and there are companies around us that have already gone bankrupt because Homeplus hasn't settled their payments."

Shelves at a Homeplus store in Seoul are stocked with the retailer's private-brand products on May 8. [Yonhap]

Average unpaid balance owed to SME suppliers reaches 774 million won

According to the Korea Federation of Small and Medium-sized Enterprises (KBIZ), the average amount owed to small and medium-sized business owners who supplied goods to Homeplus but have not been paid on time reached 774 million won.

KBIZ surveyed 150 small and medium-sized Homeplus suppliers experiencing payment delays. The results showed that 40.7 percent of respondents had outstanding balances of 500 million won or more — with 16.7 percent owed between 500 million and 1 billion won, and 24.0 percent owed 1 billion won or more.

Some 98.0 percent of respondents said their payments had been delayed by more than 60 days from the date of delivery, meaning in effect that nearly all surveyed companies have been unable to recover their payments for months. The most commonly cited hardship was difficulty paying for raw materials and subcontracting fees, cited by 85.3 percent of respondents.

"The prolonged settlement delays at Homeplus, now stretching on for months, have pushed these suppliers into an unexpected liquidity crisis," said Kim Hee-joong, head of KBIZ's economic policy division. "Since these companies bear absolutely no responsibility for Homeplus's management crisis, their survival must be the top priority."

boo@heraldcorp.com