Neiman Marcus, the Retailer to the Rich, Files for Bankruptcy
Squeezed by debt and closed stores, luxury retailer files for chapter 11 during coronavirus pandemic
ATexas oil boom turned a single Neiman Marcus department store in downtown Dallas into one of America’s biggest luxury retailers. A century later, the new coronavirus tipped the heavily indebted company into a bankruptcy court. Neiman Marcus Group Inc. filed Thursday for chapter 11 bankruptcy protection in Texas, becoming the latest large retailer to seek a court restructuring during the pandemic that has closed much of the U.S. economy. J.Crew Group Inc. filed for bankruptcy earlier this week, and on Thursday Canadian shoe retailer ALDO Group Inc. also filed for court protection.
“We had a business that was on track prior to Covid-19,” Neiman Marcus Chief Executive Geoffroy van Raemdonck said in an interview. “Everything was going well in our transformation, but we had massive interest payments. Covid threw everything off track. This is an opportunity to reset our financial structure.”
Other retailers that were struggling before state and local government mandates on social distancing forced businesses to close their doors are teetering, too. J.C. Penney Co. skipped a $17 million interest payment on Thursday, following a $12 million payment that it missed last month, starting the clock on a potential bankruptcy filing. Meanwhile, chains like Macy’s Inc. and Gap Inc. are reopening hundreds of stores this month, hoping shoppers haven’t lost their appetite for new clothes.
“There will be a significant shakeout in the industry from the virus,” said Declan Gargan, associate director of S&P Global Ratings. “Companies that entered the year in a weakened financial position and don’t have a strong value proposition will be in an even weaker position coming out.”
Of the approximately 125 companies in the retail and restaurant sectors that S&P rates, about a third are now rated CCC+ or lower, implying at least a 1-in-2 chance of default.
The 112-year-old Neiman is the latest in a string of American retail chains that have fallen into bankruptcy as e-commerce giants such as Amazon.com Inc. divert dollars and siphon profits. The list is long but includes once-ubiquitous names, such as Sears, Toys “R” Us, RadioShack and, most recently, Barneys New York.
Neiman’s bankruptcy filing, in the Southern District of Texas, Houston Division, seeks to eliminate $4 billion of roughly $5.1 billion in debt. The creditors will become majority owners of the retailer, which has been controlled by private-equity firms. Neiman isn’t planning mass store closings or asset sales as part of the restructuring.
Neiman has secured $675 million debtor-in-possession financing from creditors holding over two-thirds of the company’s debt. The creditors have also committed to $750 million in exit financing that would refinance the DIP and provide additional funding for the business.
Neiman is famous for selling $5,000 evening gowns and $3,000 designer handbags, as well as for producing a holiday catalog filled with exotic gifts. It was a retail pioneer with a status-conferring charge card. It embraced online shopping, and derived one-third of its sales from the web. Last year, it opened its first New York City outpost in the flashy Hudson Yards development.
But behind the glitz, Neiman Marcus struggled under $5.1 billion in debt, the burden of two successive leveraged buyouts. Servicing the debt consumed most of its operating profits in recent years, Mr. van Raemdonck said.
Customers defected to online startups, and luxury brands opened their own boutiques. The whole concept of spending hours in department stores lost its allure for many shoppers, even the wealthiest.
Neiman closed its stores in March and furloughed many of its 14,000 workers, while reducing hours and pay for the rest. Currently, 10 stores are open for curbside pickup, including stores in Texas, and an additional two are open for private appointments.
“The industry is changing,” Mr. van Raemdonck said. “Customers may or may not be comfortable to go to a store.” He added that digital sales increased by double digits in April, compared with a year ago.
The company operates 43 Neiman Marcus stores, two Bergdorf Goodman stores in
Manhattan and 22 Last Call discount stores. It is already in the process of closing more than half of its Last Call locations. The company had over $4 billion in revenue in its most recent fiscal year.
The hope is to emerge in the fall from chapter 11 a stronger company with less debt. But it could attract suitors.
One potential buyer is Saks Fifth Avenue parent Hudson’s Bay Co., according to people familiar with the matter. Saks has tried unsuccessfully to merge with its rival several times during the past decade. Analysts say there are good reasons for the two to combine, including cost savings and wielding more clout with suppliers.
The bankruptcy filing is a blow to private-equity firm Ares Management Corp. and the Canada Pension Plan Investment Board, which bought Neiman Marcus in 2013 for $6 billion including debt. Much of that debt has been trading at deeply distressed levels. More than $1 billion worth of Neiman bonds was trading at 8 cents on the dollar earlier this week, according to data provider FactSet.
The company’s previous owners were private-equity firms TPG and Warburg Pincus LLC, which paid about $5.1 billion for the company in 2005.
Founded in 1907, Neiman Marcus came to epitomize the highest level of luxury retailing, dressing the oil tycoons of Texas and beyond in European finery.
The owners, Herbert Marcus Sr., his sister Carrie Marcus Neiman and her husband A.L. Neiman, almost invested their money elsewhere—in what was then an unknown bottled soft drink called Coca-Cola. “Neiman Marcus was established as a result of the bad judgment of its founders,” joked Mr. Marcus’s son, Stanley Marcus, in his memoir “Minding the Store.”
Neiman was a pioneer in many areas of retailing. It was among the first to hold weekly fashion shows and to offer a loyalty program. It set the standard for customer service. Neiman published its first Christmas Book of gifts in 1915. But the idea of selling lavish gifts didn’t take shape until the 1950s.
At the time, the journalist Edward R. Murrow, looking for ideas for his radio show, asked Stanley Marcus, who was then president of the company, what over-the-top Texans were buying for Christmas. Mr. Marcus pre-empted Mr. Murrow by offering for sale a Black Angus steer that could be ordered on hoof or in steaks—along with a silver-plated serving cart.
Neiman Marcus in the 1970s acquired Bergdorf Goodman, a Manhattan department store that caters to wealthy New Yorkers and tourists.
It once carted over trunk loads of fur coats on Christmas Eve to John Lennon and Yoko Ono’s apartment, according to a 2013 documentary about the store called “Scatter My Ashes at Bergdorf ’s.”
It added the Horchow mail-order catalog, known for its home décor, in the 1980s. By 1999, Neiman Marcus had begun selling online, defying the notion that women would buy thousands of dollars of shoes and clothing without first trying on those items.
In 2014, it bought Mytheresa.com, an online seller of luxury goods based in Germany. Bondholders subsequently sued Neiman for transferring Mytheresa.com to a subsidiary that is out of reach of creditors. The Mytheresa subsidiary isn’t part of the bankruptcy plan and will continue to operate independently.
The company’s longtime chief executive, Karen Katz, retired in 2018. She was succeeded by Mr. van Raemdonck, a Ralph Lauren Corp. executive. He had been trying to shift even more to e-commerce, while adding services such as manicures and spa treatments that were on display at the store opened in New York last year.
But these days, like much of America, that store is dark.