And while the company is overhauling its stores, a process that will cost it many millions of dollars, it is not spending enough on advertising to introduce its new product lines, such as Joe Fresh. Retail analysts agree that the concept is something that really could launch the chain into a whole new customer base. In what would be a dire sign for any retailer, sources said J.C. Penney's vendors are tightening lines of available credit, requiring more cash to get new inventory in its stores. According to Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm, CIT Group Inc.'s trade finance unit has already increased its charges for vendors shipping to J.C. Penney. CIT sets the standard for factors, Davidowitz noted, so when the company increases its charges in response to risk, others follow suit. CIT declined to comment. Normally, a retailer would ask for vendors to send it more merchandise on credit to free up cash flow, Karabus said. But the reverse is happening at J.C. Penney, reducing free cash flow even further. Vendors tightening lines of credit is the first step in a slide to bankruptcy, noted one source. Then there is the Martha Stewart Living debacle. Somehow, J.C. Penney executives thought that if they made a deal with the lifestyle doyenne to have her own store-within-a-store for her housewares merchandise, that wouldn't infringe on her exclusive agreement with Macy's Inc. Macy's disagreed and promptly sued J.C. Penney and Martha Stewart Living Omnimedia Inc. The parties are in court-ordered mediation, but J.C. Penney can't sell Martha Stewart products until at least the April 8 deadline the New York state court judge set for the end of the mediation process. And J.C. Penney could still lose that battle if a settlement isn't reached. Because the Martha Stewart in-store concept has already been built in J.C. Penney locations, losing her brand could result in Johnson quickly losing his C-suite office, one source said. But even if Martha Stewart stays and Joe Fresh catches, cash is still going out the door faster than the retailer's coupon sales items. And J.C. Penney carries a heavy debt load -- nearly $3 billion.