Neiman Marcus Files Bankruptcy, First Major Retail Chain in COVID-19 Crisis

Neiman Marcus Group, owner of the 43-store chain of the same name as well as two Bergdorf Goodman locations and Last Call discount shops, has filed for chapter 11 bankruptcy protection as expected, in the process securing $675 million in loans from creditors.

The filing in its home state of Texas also calls for a long-term plan to eliminate $4 billion of Neiman Marcus’s existing $5 billion in debt, and a $750 million exit financing package to cover the debtor-in-possession loan.

Amid the ongoing COVID-19 shutdown, bankruptcy watches are on as well at mall stalwarts JC Penney, Sears, Macy’s and Brooks Brothers, among others. Chino Holdings, parent of J.Crew and Madewell, filed chapter 11 earlier this week.

All Neiman Marcus, Bergdorf Goodman and Last Call stores have been closed since the end of March due to the pandemic, with most associates on furlough or reduced pay.

Neiman Marcus began offering curbside pickup at 10 stores in Texas, Tampa, Las Vegas and Tysons, VA, while widespread closures are in effect at least through the end of May. Two other stores in Atlanta and Dallas opened on May 4 for curbside pickup by appointment.

“The company will continue to assess store closure decisions and will reopen stores as it is safe to do so based on the status of the pandemic,” Neiman Marcus said in announcing the filing. “The Chapter 11 process will not impact the timing of store re-openings.”

The New York Times suggested that while the current situation was the last straw forcing a bankruptcy filing, Neiman Marcus had already been in dire straits based on its debt load from two leveraged buyouts, and hadn’t responded quickly enough to changing consumer behavior.

Geoffroy van Raemdonck, Chairman and CEO of Neiman Marcus Group, took a more positive stance in a statement announcing the filing and its rationale.

“Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth,” van Raemdonck said. “We have grown our unrivaled luxury customer base, expanded our industry-leading customer relationships, achieved higher omni-channel penetration, and made meaningful strides in our transformation to become the preeminent luxury customer platform. However, like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business.”

Forrester analyst Sucharita Kodali said a Neiman Marcus chapter 11 filing was probably in the cards, just not this soon, primarily due to its debt load.

“Everyone who has been forced to close is challenged,” Kodali said. “They still have to make rent payments and other fixed costs, and not making enough to cover it all. In the case of Neiman, on top of everything else they have debt payments, so the ability to draw down a line of credit at a lower rate is off the table. With high-interest payments and subordinated debt to existing holders, they’re not left as many options when they’re private equity funded.”

Neiman Marcus Group was acquired in 2013 for $6 billion by PE firm Ares Management and the Canada Pension Plan Investment Board.

Marie Driscoll, managing director of luxury and fashion at Coresight Research, said one subtext to the Neiman filing is that luxury brands have sometimes gotten bigger than retailers in the minds of shoppers.

“They became less relevant as the stores themselves are more about transactions than exploration and discovery,” Driscoll said. “Also, luxury shoppers pre-COVID discovered brands online via social media and luxury marketplaces and either purchased there or went to the brand directly, for a brand experience.”

Legacy store systems have also hampered clienteling exchanges with associates, she said, undermining the luxury store experience both online and in person.

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