Neiman Marcus Ranks Chapter 11

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Diving brief:

  • Neiman Marcus Group Thursday filed under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas, Division of Houston, and said it has entered into a restructuring support agreement with “a significant majority of its creditors”, who will become majority owners of the company. The shareholders approved the establishment.

  • The binding agreement affects holders of more than two-thirds of the company’s outstanding debt, according to a company press release. Some creditors committed $675 million in debtor-in-possession financing during the bankruptcy process and a $750 million exit program that would fully refinance the DIP and provide additional liquidity.

  • Once out of bankruptcy, expected in the early fall, the company expects to have no more short-term maturities and to have eliminated some $4 billion of its existing debt. The company Mytheresa, which has been the subject of much controversy in recent years, is not part of the Chapter 11 process and “will continue to operate independently,” the company said.

Overview of the dive:

The COVID-19 pandemic has thrown a snowball into the retail sector that even the healthiest gamers have found difficult to field, and Neiman Marcus is not one of the healthiest players.

In comments via email, GlobalData Retail Managing Director Neil Saunders said that even in normal times, living with so much borrowed money, “Neiman Marcus was still living on borrowed time” and had no problems. no choice but to turn to the bankruptcy court.

In a statement on Thursday, CEO Geoffroy van Raemdonck said the Neiman Marcus Group, which also includes New York’s Bergdorf Goodman, had “made solid progress” towards profitable growth before the disease outbreak. But the retailer has been weighed down by debt accumulated over two private equity rounds and has struggled to operate in a department store segment that itself was besieged for years.

Van Raemdonck touted the company’s luxury position as an advantage, saying his customer base had grown. “We have … made significant progress in our transformation to become the ultimate luxury customer platform.”

But now that clientele seems to be dwindling. After shrinking around 25% in the first quarter, the global luxury market is expected to slow further in the second, which could lead to a contraction of 20% to 35% for the yearaccording to a Bain and Co. report released Thursday.

Advances in e-commerce also mentioned by van Raemdonck could work in his favor, as Bain also expects digital sales to reach 30% of the luxury market by 2025. But Saunders said the retailer “has made good progress in online retail, … it needs to boost this channel much more strongly if it is to both attract new shoppers and stay abreast of changing consumer habits.”

But it is the Chinese luxury consumer who will constitute the backbone of the segment, called upon to account for nearly half of the market by 2025, according to Bain.

For all of these challenges, the $675 million DIP funding that Neiman Marcus has raised “underscores the fact that investors still see a future for the channel,” Saunders said. “We agree with their view that once debt is eliminated or at least reduced, there is a reasonable prospect of survival.”

The Chapter 11 process will not affect when stores will reopen as pandemic restrictions ease, the statement said. This week, doors opened to customers, by appointment only, at one store in Atlanta and Dallas, and curbside pickup is available at 10 stores. Otherwise, the business extends ttemporary closures of certain Neiman Marcus, Bergdorf Goodman and Last Call stores until May 31. Temporary furloughs or pay cuts are in effect “for a large portion of associates through at least May 31 with the option to extend or shorten based on COVID-19 developments,” the company said.

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