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J.C. Penney seeks to reassure suppliers as it taps credit line

The challenge for J.C. Penney, analysts said, is to restore confidence among its suppliers in order to maintain the flow of goods to stores. The chain suffered about 1$ billion in losses.

Brendan McDermid/Reuters

The challenge for J.C. Penney, analysts said, is to restore confidence among its suppliers in order to maintain the flow of goods to stores. The chain suffered about 1$ billion in losses.

NEW YORK — As J.C. Penney Co. burns through its cash after a disastrous turnaround plan and taps almost half of its credit line, the flailing department store chain doesn’t only have to calm its investors. It has to restore confidence among its several hundred suppliers whose constant flow of merchandise must continue if the retailer is to survive.

Penney announced Monday that it would draw $850 million from its $1.85 billion revolving credit line to pay for replenishing inventory, particularly for its overhauled home area. Some analysts say the move shows that the Plano, Texas-based company is burning through cash faster than expected. Penney is also looking for alternative sources of funding.

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It comes at a critical time. Penney is wrapping up back-to-school orders and is starting to order goods for the critical holiday shopping season. Normally, retailers order goods well in advance but don’t pay for them until about 30 to 60 days until after goods are shipped.

If vendors start demanding to be paid in advance, stores face a cash crunch when they order goods for busy shopping periods.

‘‘Maintaining a seamless flow of merchandise is critical,’’ said Marshal Cohen, chief retail industry analyst with market research firm The NPD Group. If shoppers see empty shelves, they’ll go somewhere else, he says.

The concerns about the future of Penney are mounting a week after Penney fired its CEO, Ron Johnson, after 17 months on the job and rehired his predecessor, Mike Ullman. Johnson spearheaded a costly turnaround plan that included getting rid of most discounts, bringing in hip brands and transforming the stores into collections of mini-boutiques.

The changes turned off shoppers, resulting in a nearly billion-dollar loss and a 25 percent drop in revenue to $12.98 billion for the fiscal year ended Feb. 2.

Cohen and others point to a string of retailers, including Circuit City and Linens ‘n Things, that were forced into bankruptcy in part because nervous suppliers delayed shipments of goods or stopped them altogether.

Analysts believe Ullman, who is known to have strong relationship with suppliers, will have a calming influence among them. In the stores, he’s expected to bring back discounts and coupons and will be assessing other parts of Johnson’s legacy.

Allen Schwartz, president of A.B.S. by Allen Schwartz, a supplier of dresses and sportswear for Penney, says he is more relieved now that Ullman is back.

‘‘I feel more comfortable,’’ he said.

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