Neiman Marcus was once famed for the fantasy gifts in its Christmas Book catalog — a $100,000 chicken coop inspired by Versailles, custom guitars designed by Texas music legends and his and hers Rolls-Royces.
But its luxurious selections and attentive customer service weren’t able to overcome its massive debt and the coronavirus shutdowns.
After more than a century in business, Neiman Marcus Group Inc. filed for bankruptcy Thursday. Creditors will take control of the department store chain, putting up $675 million to get through the court process and $750 million in exit financing, the company said. It expects to emerge later this year with about $4 billion cut from the $5.5 billion in debt it listed in its filing.
Chief Executive Officer Geoffroy van Raemdonck said that, before the health crisis, the ritzy retailer was “making solid progress on our journey to long-term profitable and sustainable growth.” It had grown its customer base and improved its online operation. “However, like most businesses today, we are facing unprecedented disruption caused by the Covid-19 pandemic, which has placed inexorable pressures on our business.”
The chain closed all 43 of its stores and furloughed most of its 14,000 employees in March. Neiman Marcus, with its hefty rent payments, appeared to be suffering more than most U.S. retailers that have been closed during the quarantine period. The company was projected to lose $3 billion in sales in April.
Neiman Marcus faced its share of problems even before the pandemic. Department stores have suffered from falling foot traffic as consumers flock to online stores.
As it starts to reopen stores, Neiman Marcus’ high-end focus may be an extra burden. The shutdowns are “particularly bad for luxury,” according to a report from Bain & Co, which expects the personal luxury goods market to contract 20% to 35% worldwide this year on weaker demand for pricey handbags and high heels.
Born in Texas
Neiman Marcus was founded amidst a financial crisis. Siblings Herbert Marcus and Carrie M. Neiman, along with Carrie’s husband Abraham L. Neiman, opened its doors in Dallas in 1907, a month before a bank run and subsequent panic throughout the U.S. caused so much financial turmoil that it spurred the government to create the Federal Reserve.
The store focused on women’s fashion, especially outerwear and millinery, and its pricey and high-quality items helped it stand out from the city’s two large department stores, Sanger and Harris. The retailer gained a following from the elite who benefited from the oil boom in Texas. In the following decades, it remained a regional player, opening stores in Houston and Fort Worth.
In the late 1960s, the company was bought by retailer Carter Hawley Hale. Under the leadership of Herbert's eldest son, Stanley Marcus, it merged with a California-based retailer Broadway-Hale Stores and the outlet was then able to expand nationally. Stores popped up in Atlanta, St. Louis and Bal Harbour, Florida, which is now one of the nation’s best performing malls. It added Bergdorf Goodman to its portfolio in 1972.
The company started to struggle in the early 2000s. It had about three dozen stores with a handful more planned. It purchased majority stakes in luxury brands like cosmetics business Laura Mercier and handbag seller Kate Spade. In 2005, private equity firms Warburg Pincus and TPG Capital, formerly Texas Pacific Group, bought Neiman Marcus for $5.1 billion.
Eight years later, Neiman Marcus was sold again for $6 billion to Ares Management and the Canada Pension Plan Investment Board in a leveraged buyout that left the business laden with billions in debt.
‘Project Rolex’
To battle back against the lure of online shopping e-commerce cutting the store’s foot traffic, Neiman Marcus’s management devised a refinancing and recovery plan in 2018 referred to internally as “Project Rolex.” The goal was to reach more than $5 billion in total sales, with $700 million in adjusted earnings, by 2024. Sales in 2018 were $4.9 billion, with a $251 million profit.
The strategy involved first stabilizing the company, then improving operations by boosting customer loyalty and revamping the in-store experience. E-commerce would become more prominent as Neiman Marcus doubled its investment in digital operations. The network of department stores would get new services like coffee shops, bars, beauty salons and florists in order to get shoppers through their doors.
The biggest bet came in the form of a large new flagship in New York, its first in the city, which opened in March of last year. The Neiman Marcus at the shopping mall within Hudson Yards, a major new real estate development on Manhattan’s West Side, would plant the brand’s flag in America’s department store capital. It was a three-floor, 188,000-square-foot answer to rivals like Saks Fifth Avenue and Bloomingdale’s. Neiman had long been restricted from opening a store in Manhattan due to a lease agreement involving Bergdorf Goodman.
As the Hudson Yards location was opening, the company struck a deal with creditors that put off the due dates on some of its debt to buy time for a turnaround. This year, right before the coronavirus shutdown, van Raemdonck said in an interview that he would inject more money into his Neiman Marcus and Bergdorf Goodman stores by closing the company’s Last Call discount chain that was no longer “core to our business today.”
Still, “the debt burden ultimately proved insurmountable, particularly given near term operating challenges related to the coronavirus pandemic,” said David Silverman, Fitch retail analyst, in an emailed statement.
Other apparel retailers have filed for bankruptcy since the outbreak in the U.S., including preppy apparel retailer J. Crew and high-end jeanmaker True Religion. One of Neiman’s closest peers — luxury department store Barneys — filed for bankruptcy last year and eventually closed stores. A disproportionate number of retail bankruptcies result in liquidation, Silverman noted.
But Neiman Marcus bets that it will still have a place in the post-coronavirus retail landscape.
“In moments of adversity like Covid-19, you realize where you are strongest,” van Raemdonck said in an interview. “We have very few stores, but we are going to be the place where luxury customers go to access luxury products and experiences.”
–With assistance from Katherine Doherty.
This article was provided by Bloomberg News.
