High-end US department-store chain Neiman Marcus entered bankruptcy protection overnight and there are reports that rival Lord & Taylor is planning to follow.
Laden down with debt, Neiman Marcus has entered Chapter 11, after receiving majority support from lenders and creditors to undergo financial restructuring, substantially reducing its debt load and interest obligations. The company will receive a further $675 million in cash from existing lenders to enable it to continue to operate during the Covid-19 crisis.
Chairman and CEO Geoffroy van Raemdonck, said in a statement that prior to the pandemic’s advent, Neiman Marcus was making “solid progress on our journey to long-term profitable and sustainable growth”.
But with most of its Neiman Marcus, Bergdorf Goodman and Last Call stores shuttered for more than a month, decimating cash flow, the company is struggling to meet its obligations.
When Neiman Marcus emerges from Chapter 11 it will be “as a far stronger company,” said van Raemdonck, with no near-term maturities and some $4 billion of its existing debt eliminated.
“In a world that is changing, we are uniquely positioned to give our brand partners access to our loyal luxury customers like no other company. We will deliver that through the strength of our associate relationships and digital solutions,” he said.
Neil Saunders, MD of GlobalData Retail, said given the extent of the company’s debt, Neiman Marcus was “always living on borrowed time” and had no option but to enter Chapter 11.
“In normal circumstances, the debt burden prevented it from turning a profit and restricted its ability to invest and evolve in a time of immense change in retail. The coronavirus crisis has severely exacerbated these problems as sales have dwindled and Neiman Marcus is struggling to pay the interest and capital on what it owes.”
Saunders said the company was in a much better position than most other US department stores. “Its shops are well maintained and are mostly within strong malls, it has a loyal base of shoppers, occupies a distinct niche in the luxury space, and has made some strides into digital. In short, there is a place for Neiman Marcus in the post-coronavirus world.”
Saunders said that while Neiman Marcus probably does not need to shut stores – it has relatively few of them and they are in good malls – with more and more sales migrating online the company may need to reduce the size of some of them.
“There are some shops in the chain that are just too large and which do not attract enough footfall to justify their size. A rightsizing of the store base should be on the cards to optimize productivity.”
Meanwhile, another high-profile US department-store chain, 200-year-old Lord & Taylor, is reportedly planning to enter Chapter 11 to facilitate the sale of all of its inventory when social-distancing measures are lifted and all stores are able to trade again.
Liquidators have been appointed to manage going-out-of-business sales at its remaining 38 stores and once stock is gone, the company will close permanently, according to Reuters.
The company has declined to comment on the reports, however, a spokesperson told Business Insider that the firm is “working through various options at this time”.
Lord & Taylor has already closed its Instagram and Twitter accounts, further signs of it commencing a winding down of operations.
Another US department-store chain, Nordstrom, said this week it would close 16 of its 116-strong store network.
Last month, the Wall Street Journal reported that JC Penney, with about 850 stores across the US, was seeking a loan of between $800 million and $1 billion in order to continue trading through the Covid-19 crisis. The company was already looking to restructure operations and streamline its store network before the pandemic came along.
And Macy’s, with 551 stores, yesterday said it would delay its first-quarter earnings report to July 1, due to the disruption caused by the pandemic.
Earlier this week, fashion retailer J Crew entered Chapter 11, weighed down by $2 billion in debt.