What’s next for Neiman Marcus and Bergdorf Goodman

On Thursday, Neiman Marcus filed for Chapter 11 bankruptcy, hoping to chart a new course in a time of significant disruption for fashion retail.

The luxury department store group, which also operates Bergdorf Goodman and e-commerce platform MyTheresa.com, has struggled in recent years with more than $5 billion in debt stemming from leveraged buyouts in 2005 and 2013. the current temporary store closures and widespread economic uncertainty, the company says it expects to emerge from bankruptcy in the fall stronger and more financially stable than when it entered.

The news capped a week of bankruptcy announcements from major fashion retail players, with J.Crew Group Inc. and Aldo Group Inc. are also seeking court protection. Like Neiman, they were already facing financial challenges before Covid-19 hit and the stress became overwhelming.

In order to continue operating through the Chapter 11 process, Neiman secured $675 million in debtor-in-possession financing from its creditors, who will take over the company’s majority stake from private equity firm Ares Management. Corp. and the Canada Pension Plan. Investment Board, which purchased the company in 2013. Creditors will also provide $750 million in exit financing.

“If you’re a Neiman Marcus fan, you should be happy that you have $750 million for this company,” said Jared Ellias, professor of bankruptcy law at the University of California, Hastings. “It’s a very strong vote of confidence that creditors believe this business will survive and have a great future.”

While “everything must go!” sales of former rival Barneys may be fresh on consumers’ minds, Neiman Marcus and Bergdorf Goodman’s bankruptcy plan does not include inventory liquidation or widespread store closings. The company’s MyTheresa.com business is not included in the bankruptcy and will continue to operate.

Neiman Marcus said in March it would close most of its off-price Last Call stores by the first quarter of fiscal 2021 in a bid to focus on selling at full price. For now, it plans to reopen its 43 Neiman Marcus stores and its two Bergdorf Goodman stores once it is safe to do so. Already, as some states begin to ease restrictions, 10 of its stores are currently open for curbside pickup, while two are open to customers by appointment.

The next few months, as uncertain as they are, will be crucial for the group. On the one hand, experts say bankruptcy ultimately shields Neiman Marcus from his biggest headwind: debt. Despite making a profit on more than $4 billion in annual sales, most of the cash went into servicing debt rather than investing for the future, and when the coronavirus pandemic hit , these payments have become unsustainable. Even with that hurdle, Neiman managed to build its digital capabilities so that online sales accounted for more than 30% of its annual revenue at the time of its filing.

Still, it’s unclear how long store closures will continue, whether luxury shoppers will soon return once they reopen, and what kinds of costs retailers will have to incur to adapt to new health and lifestyle issues. hygiene.

“[Neiman is] going to need a little luck because it’s not really in their control,” said Staci Jennifer Riordan, who leads the fashion practice at law firm Nixon Peabody LLP. “It looks like they’ve done everything right: they’ve lined up the funding, they’ve got this great plan, they’ve got great lawyers, they’re going to weed out all the underperformers. [parts of their business]. But no one knows how long this will last and whether buyer behavior will return to normal. »

In a statement, Neiman Marcus CEO Geoffroy van Raemdonck acknowledged the “inexorable pressure” the pandemic is placing on the business, but said: “Prior to Covid-19, the Neiman Marcus Group was making solid progress in our path to long-term profitability and sustainability. growth.”

Even if it manages to get out of debt, it will need to move quickly to survive in today’s highly competitive environment.

“In the past, a lot of these large heritage luxury stores catered to a certain consumer, and it worked for them, but that consumer is older now and maybe they’re not shopping or spending. it not as much as them,” said Alexis DeSalva, senior research analyst at market research firm Mintel.

While Neiman’s existing customers are loyal — about 35% of the group’s revenue comes from Neiman Marcus credit cardholders, according to the filing — it needs to attract new customers in a way that remains loyal to its brand. Here, social media and seamless online/offline shopping integrations will be crucial, DeSalva said, as they provide both the personal touch Bergdorf and Neiman are known for as well as the digital experience shoppers expect. today.

“I think those kinds of evolutions, providing those opportunities to shop when and how you want, is really valuable,” she said. “And that younger consumer may see that option as more valuable than a discount, and then you can kind of improve some of the sales and protect the profits without relying on brand devaluation.”

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