Luxury Retailer Neiman Marcus Files For Bankruptcy, A Victim Of Debt And Coronavirus

Luxury Retailer Neiman Marcus Files For Bankruptcy, A Victim Of Debt And Coronavirus

Neiman Marcus
The department store industry is slammed by coronavirus. Neiman Marcus is the first major chain to file for bankruptcy protection during the pandemic. Shoppers walk by a Neiman Marcus Last Call department store in Miami, Nov. 25, 2016. (AP Photo/Alan Diaz, File)

The department store industry is expected to be one of the most impacted by the coronavirus, with Neiman Marcus on Thursday becoming the first major group to file for bankruptcy protection during the pandemic.

The industry was already deeply in debt when the virus hit, with dwindling cash and facing upheaval as brands increasingly sell direct to shoppers online. Many department stores have large store bases that were uneconomical before the pandemic threatened to change the way Americans shop, New York Times reported.

The health crisis exacerbated the 112-year-old luxury department store chain’s problems. It was $4 billion in debt and was forced to furlough most of its 14,000 workers and close its 43 Neiman Marcus stores.

More than 60 percent of U.S. retailers have temporarily shut their doors since March. Americans are no longer interested in doing all their shopping under one roof, AP reported.

“Department stores have been struggling for a long time,” said Craig Johnson, president of retail consultancy Customer Growth Partners. “Now, it’s a blood bath. How many will survive is unclear.”

Neiman Marcus became famous for its extravagant Christmas catalog, which offered items over the years such as an Aston Martin custom-designed by 007 Daniel Craig for $700,007, or a ticket to experience Fashion Week like an industry insider for $250,000.

The bankruptcy deal will hand Nieman’s business over to its creditors, CNBC reported. Neiman Marcus said it has secured $675 million in financing from its creditors to fund operations through bankruptcy and commitment for another $750 million to provide added liquidity once it exits bankruptcy. The creditors will become majority owners in the business once it emerges from bankruptcy — expected in the fall of 2020.

Earlier this week, mass-market clothing company J. Crew filed for bankruptcy and men’s wear brand John Varvatos also declared Chapter 11.

“It’s a stunning fall that follows the collapse of Barneys New York late last year and comes as shadows gather over chains like Lord & Taylor and J.C. Penney,” New York Times reported.

William Susman, managing director at Threadstone Advisors, told NYT he expects the Neiman Marcus to use bankruptcy to shed some of its leases and reduce its physical footprint, which could make it more attractive to a potential buyer.

“Neiman Marcus has a bad balance sheet, but it’s still a luxury brand,” Susman said. “They still have a reason to exist.”

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Like other retailers in the 2000s, Neiman Marcus caught the eye of private equity firms looking to tap into what was once considered steady retail cash flow. It sold to private equity firms TPG Capital and Warburg Pincus for $5.1 billion in 2005. Its current owners — Ares Management and the Canada Pension Plan Investment Board — bought Neiman Marcus eight years later in 2013.

“But debt from those investments limited its ability to invest in its e-commerce business, weakening its footing as luxury (online) players like Yoox Net-A-Porter grew in strength,” CNBC reported.

Neiman Marcus has long been considered a likely merger partner for Saks, which would allow the two to stop competing for the same upscale customers. But the debt load carried by both got in the way.