Reuters reported today that Dallas-based Neiman Marcus is talking to bondholders and lenders about financing that would help the debt-laden company continue operating while under bankruptcy protection, but Dallas without Neiman Marcus? Not likely, experts say.
The Neiman Marcus Group, which consists of Neiman Marcus, Bergdorf Goodman, Last Call, Horchow, and Mytheresa, has struggled since a $6 billion leveraged buyout by private equity firm Ares Management Corp and Canada Pension Plan Investment Board in 2013.
Last year Neiman’s convinced creditors to restructure its $4.3 billion debt and pushed out due dates on its financial obligations to April 15, 2020. “But the deal added to the company’s interest expenses on debt, and did not address its struggling business, which has worsened,” Reuters wrote.
Former Neiman Marcus VP and nationally-noted retail analyst Steve Dennis says the company has been behind the eight ball ever since its 2013 buyout.
“The fundamental issue is that the company was acquired for too much money and had too much debt,” says the former Senior Vice President of Strategy, Business Development, and Marketing and author of Remarkable Retail: How to Win and Keep Customers in the Age of Digital Disruption. “There was no way Neiman Marcus was going to grow into that price, but they kept kicking the can down the road as far as restructuring conversations go.”
A Chapter 11 bankruptcy filing would allow the company to keep its doors open, cut its borrowings, and close weak stores to minimize costs, Bloomberg.com reported.
But liquidating its core assets seems very unlikely, Dennis says.
Could Saks Enter the Picture?
“There’s way too much value in the company to do that,” he says. “The only scenario I see stores closing is if in bankruptcy there’s a merger with Saks Fifth Avenue which has explored for a long time.”
And even then, if Saks Fifth Avenue looked to close stores that were redundant at malls that had both retailers, there are no remaining Saks stores in Dallas.
“So no Dallas stores would likely close,” Dennis says.
If the brick-and-mortar retail industry was already fighting the so-called “retail apocalypse,” could the COVID-19 pandemic be the final straw for North Texas-based retailers? Yes and no, Dennis says.
“For retailers stuck in the middle like JC Penney, COVID-19 could accelerate their collapse,” Dennis says. “But the Neiman Marcus business is quite good. It’s just their capital structure that’s the problem.”
COVID-19 Store Closures and PPE Help
Neiman’s temporarily closed all its stores through the end of April, including 43 stores across the U.S., two Bergdorf Goodman stores in Manhattan, 24 Last Call stores, and two Horchow Finales stores, and furloughed most of its 14,000 employees.
“Neiman Marcus Group was born out of love — love for our customers, love for our associates, and love for our brand partners. There is nothing we care about more than the safety and well-being of our customers and our associates,” said Neiman Marcus Group CEO Geoffroy van Raemdonck, CEO in a statement announcing the temporary closures. “We have a rich history of being responsible members of the communities we serve and must do our part to help stop the spread of COVID-19.”
Neiman’s announced last month they are partnering with JOANN Stores to produce nonsurgical masks, gowns, and scrubs for front-line healthcare providers. Associates at Neiman Marcus Group’s alterations facilities will receive product from JOANN to create these materials.