Neiman Marcus files for bankruptcy

Neiman said in a statement that it has reached a restructuring agreement with its creditors that will allow it to “significantly reduce debt and position the business for long-term growth.” Neiman did not announce any store closings on Thursday.
The company’s history dates back 113 years to its first store in Dallas, which is still its home base. The company also operates the Bergdorf Goodman and Last call chains, as well as a separate online outlet, which is not included in the bankruptcy filing, according to the company.

The company had 69 stores across the three brands last year, including a massive new store in the new upscale Hudson Yards development in New York. But in March, Neiman announced plans to permanently close a “majority” of its 22 Last Call stores.

A bankruptcy filing does not necessarily mean that a company will go bankrupt. Many companies use bankruptcy to get rid of debt and other debt they cannot afford while closing unprofitable operations and sites.

But this is a unique time for a retail bankruptcy filing. Many stores have been closed by quarantines and stay-at-home orders, and many potential shoppers are worried about venturing into open stores. Which does survive the even more difficult bankruptcy process. Many retailers have gone bankrupt with the intention of staying in business, but failed to do so.

Long-standing problems before the coronavirus crisis

Neiman’s problems go back long before the crisis began.

In addition to the trend against traditional department stores, its fate was most likely sealed in 2013 when Ares Management and the Canada Pension Plan Investment Board paid out $6 billion in a takeover by loan, privatizing the company.

Many retailers that have gone out of business in recent years were first bought up by private equity firms who privatized them and took on unaffordable debt, including toys r us, Sports Authority, Payless shoe source and Gymborea.
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“The big problem with Neiman’s is that the [private equity] the guys paid too much and ran up too much debt,” said Steve Dennis, retail consultant and former Neiman executive.

Neiman was forced to abandon plans to go public again in January 2017 due to a weak market for its shares. He announced that he was put up for sale later that year but never found a buyer.
Neiman had nearly $5 billion in debt on its balance sheet a year ago, the latest public record to disclose the figure. Neiman would have missed a payment of the deposit last week, signaling that the company was in danger.

And beyond ownership structure and debt, Neiman has faced challenges similar to those of other department stores: Consumers have more options than ever to shop for clothes.

“Neiman’s has struggled for a long time to acquire new, younger customers,” Dennis said. “There is too much space in luxury department stores chasing a stagnant segment.”

The retailer “faces an uphill battle in the coming months to emerge from bankruptcy,” Ukanwa said. “This is likely just the beginning of retailer bankruptcies in the coming months, especially for luxury retailers and those that don’t have a strong online presence or infrastructure, like Neiman.”

Nieman seemed to be heading in the right direction until the crisis hit. According to Debtwire, which tracks the finances of struggling companies, privately held Neiman posted improved adjusted earnings before interest and taxes in the quarter that ended in January, the period that included the holiday shopping season. . While sales at stores open for at least a year fell 1.6% from a year earlier, its cash and available borrowings increased to $439 million, up 24% from a year earlier. just three months earlier.

But that was the condition of the retailer with a strong US economywith unemployment to a 50-year low and rising incomes and consumer confidence. Those conditions seem like a distant memory today, with record numbers of American workers asking unemployment benefits after being forced out of work by the virus.

Bad news for retail

Neiman’s bankruptcy filing is a sign of the strain the pandemic has put on retailers. UBS analysts said last month that “retail store closures are set to accelerate in a post-COVID-19 world” and that the gap between well-positioned retailers and struggling chains will widen in reason for the epidemic.

More and more consumers are shopping online rather than going to the mall, a trend that has hurt department stores. The sector has also been affected by the growth of big-box discounters such as walmart (WMT), Target (TGT) and Costco (COST)that offer shoppers not only lower prices, but also a selection of items not found in department stores, such as groceries.
Another old fashioned retailer, JCPenney (PCJ)announced on April 15 that it missed a debt payment due that day and weigh his options during the 30-day grace period before being found in default on his loan.
J.Crew asked bankruptcy Monday.
Retail sales at clothing and accessories stores fell 50% in March. Like other retailers, Neiman announced on March 17 that it was close stores and laid off its approximately 14,000 employees during the crisis.

“The pandemic recession is driving consumers away from luxury goods and accelerating their transition to online retail,” said Kalinda Ukanwa, assistant professor of marketing at the University of Southern California’s Marshall School of Business. .


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