In March 2019, the luxury retailer Neiman Marcus opened its first outpost in Manhattan. Spread over three floors and 188,000 square feet, the store was an anchor tenant of the gleaming Hudson Yards development and, the company’s chief executive said, a new kind of “retail theater.” It boasted in-house aestheticians, live cooking and mixology demonstrations, and fitting rooms complete with interactive touch screens.
The executive, Geoffroy van Raemdonck, was about a year into the job and had already hired a slew of new executives, including a chief for the company’s other jewel in New York, Bergdorf Goodman. Each of the hires, he said in a late November interview with The New York Times, has “a passion for transforming our business.”
“They all believe that not only are we going to delight our customers by bringing to them unique and curated experiences, but they really believe that we are traveling a new course for how the retail industry and department store are transforming themselves,” Mr. van Raemdonck said.
On Thursday, all of that came to an abrupt halt when Neiman Marcus became the first major department store group to file for bankruptcy protection during the coronavirus pandemic. It’s a stunning fall that follows the collapse of Barneys New York late last year and comes as shadows gather over chains like Lord & Taylor and J.C. Penney.
The company entered Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court for the Southern District of Texas.
In a letter to customers, Mr. van Raemdonck emphasized that the business was not liquidating and that it planned to reopen stores once it was safe to do so.
“This is simply a process that allows our company to alleviate debt, access additional capital to run the business during these challenging times, and emerge a stronger company with the ability to better serve you and continue our transformation over the long term,” he said.
Covid-19 temporarily forced the closing of all 43 Neiman Marcus stores across the country, as well as the group’s two Bergdorf Goodman stores and Last Call outlets, all but stopping sales and crushing the company’s revenue streams. While that may have been the immediate cause of the company’s troubles, its problems had been building for years. An untenable debt burden accrued as part of two leveraged buyouts by private-equity firms and changing consumer shopping habits combined to render its position precarious even before the virus hit.
The pandemic has been disastrous for the already weakened retail industry. In March, the sales of clothing and accessories fell by more than half. Those numbers are expected to be worse for April, considering that many stores were open for at least some of March. Retailers have furloughed employees, slashed corporate salaries and hoarded cash in a desperate attempt to make it to the end of the shutdown. This week, J. Crew, the mass-market retailer, also filed for bankruptcy protection, as did John Varvatos, the men’s wear brand. There is widespread belief the trend is likely to continue.
Neiman Marcus said it would “continue to assess store closure decisions” for Neiman Marcus, Bergdorf Goodman and Last Call and reopen once it was safe to do so. Ten Neiman Marcus stores are now offering curbside pickup, and some temporary store closings will continue through May 31.
In a statement, the company said it would receive $675 million in financing from creditors to keep running the business, as well as $750 million in exit financing from the same creditors. It hopes to emerge from bankruptcy by “early fall.” The creditors will become majority owners of Neiman Marcus, which expects to eliminate $4 billion in debt.
“It is a change of ownership by which our debt holders are forfeiting $4 billion in debt in exchange for owning the N.M.G. business operations,” Mr. van Raemdonck said in an internal video sent to employees on Thursday.
William Susman, managing director at Threadstone Advisors, said he expected the retailer to use bankruptcy to shed some of its leases and reduce its physical footprint, a situation that could make it more attractive to a potential buyer.
“Neiman Marcus has a bad balance sheet, but it’s still a luxury brand,” Mr. Susman said. “They still have a reason to exist.”
Neiman Marcus was founded in Dallas in 1907, just in time to become a magnet for new oil money. It built its reputation on an unabashed embrace of the trappings of luxury — and the dreams of those who aspired to own them, or experience them for a moment. It became famous for its extravagant Christmas catalog, which over the years offered items like an authentic Guinness pub-in-your-home for $250,000 and a $20 million submarine.
The company’s mastermind was Stanley Marcus, son of one of the founders — Herbert Marcus. (The other founders were Herbert’s sister, Carrie Marcus Neiman, and Carrie’s husband, A.L. Neiman.) Under his guidance, Neiman Marcus became the first department store to hold a weekly fashion show for customers. On the occasion of the Texas Centennial Fair in 1936, the store held a special extravaganza it called “100 Years of Texas Fashions,” and Edna Woolman Chase, the editor of Vogue and a guest, said: “I dreamed all my life of the perfect store for women. Then I saw Neiman Marcus, and my dream had come true.”
It became such an institution that in 1983, Frederick Wiseman made a documentary about it titled, simply, “The Store.” At that point, it was in the midst of a countrywide expansion that culminated in a public stock offering in 1999 by Harcourt General, the book publisher and the store’s then-owner.
Six years later, during private equity’s first, somewhat misguided flirtation with luxury, a leveraged buyout by TPG and Warburg Pincus took it off the market for about $5.1 billion — and its debt problems began. The company weathered the financial crisis and changed hands in 2013, when it was sold to a group led by Ares Management, another private-equity firm, and the Canada Pension Plan Investment Board in a $6 billion deal. Since then, the business has evolved in fits and starts.
Neiman Marcus filed to go public in 2015, which would have helped pay down its debt, but an initial public offering never materialized. Its last public annual report was for the year that ended in July 2018, when its revenue was $4.9 billion and its net interest expense of $307 million exceeded its net profit of $251 million. The company has spent much of the last two years working to restructure a crushing burden of long-term debt that was reported at almost $5 billion a year ago. Last year, it managed to push the bulk of its maturities back to late 2023.
Moody’s said last May that Neiman Marcus’s debt levels had reached “unsustainable levels.”
As it is at most department stores, part of Neiman Marcus’s challenge has been transforming itself for customers who increasingly do their shopping online. Luxury brands like Neiman’s were slow to accept the idea of e-commerce, believing that the in-person experience was crucial to high-ticket sales. In 2014, in a shortcut to digital prowess, it acquired the successful German-based website MyTheresa.com, which had made a name for itself as an early competitor to Net-a-Porter.
But MyTheresa has become a major point of contention for a group of bondholders, who have been arguing since 2018 that Neiman Marcus improperly transferred MyTheresa’s valuable assets to the company’s owners, leaving little to protect holders of the company’s unsecured debt.
MyTheresa.com is not included in the bankruptcy filing.
Though Mr. van Raemdonck said in the video to employees that the bankruptcy did not mean the company would be sold, speculation has begun about a potential acquisition.
Richard Baker, the chief executive of Hudson’s Bay, which owns Saks Fifth Avenue, explored buying Neiman Marcus in 2017. A combined Saks and Neiman Marcus-Bergdorf Goodman would consolidate the few high-end department stores that remain. Saks has also licensed use of the Barneys New York label.
Another name that has been mentioned as a possible buyer of Bergdorf Goodman (though not Neiman Marcus) is the luxury behemoth LVMH Moët Hennessy Louis Vuitton.
Until very recently, Neiman’s felt it was in a good position. When asked about Barneys in November, Mr. van Raemdonck expressed his dismay that the storied brand had fallen, but he emphasized that its challenges stood apart from Neiman’s properties.
“Every single store we have at Neiman Marcus Group, the brand or Bergdorf, they’re all profitable,” he said.
Michael J. de la Merced contributed reporting.
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