Neiman Marcus must survive both bankruptcy and COVID-19

Discussion
Photo: Neiman Marcus
May 11, 2020
Tom Ryan

Neiman Marcus’ bankruptcy filing has been directly attributed to exorbitant debt levels. COVID-19 has dealt the famed luxury chain a major blow, but the company has been struggling with revenue challenges long before the onset of the pandemic.

Luxury chains like Neiman Marcus have been hurt by the shift to online selling and more consumer-direct brand purchasing by consumers. The vendors on Neiman Marcus’ unsecured creditors list, including Chanel, Gucci, Dolce & Gabbana and Theory, all have retail footholds in major cities. Luxury department stores also face new online rivals like Net-a-Porter and Moda Operandi as well as more pressure from Amazon.com, fast-fashion chains and off-pricers.

Consumers are also shifting their browsing and status purchases in favor of experiences, especially Millennials.

“The question always was: How can we appeal to a bigger audience?,” Steve Dennis, president, Sageberry Consulting and former Neiman executive, told The Washington Post. “Neiman Marcus has not been able to attract young customers to replace older customers who are literally dying or are aging out of their peak spending years.”

Neiman Marcus must survive both bankruptcy and COVID-19
Photo: Neiman Marcus

With stores closed since mid-March due to COVID-19, an expected promotional climate in the coming months will constrain full-price selling and an economic downturn would derail discretionary purchases. Any ongoing restrictions or hesitancy to travel would significantly curtail tourism sales. Runway shows, fashion weeks and trade shows that drive buzz and trends are on hiatus.

Geoffroy van Raemdonck, who joined Neiman Marcus as CEO a year ago, said the retailer’s four-year “transformation” plan was gaining traction. The plan in large part centers on expanding its digital business that already accounts for a third of sales. The chain is working to enhance personalization by providing associates with digital clienteling tools.

Neiman also planned to focus on full-price sales with the downsizing of its Last Call format.

An in-store priority includes adding “retail theater” with a beauty salon and spa, a kitchen that offers cooking demonstrations, tastings and mixology classes, and fitting rooms complete with interactive touch screens on display at its first Manhattan store at Hudson Yards.

Saks is being mentioned as a potential suitor, but Neiman Marcus is planning to exchange debt for equity in a standalone emergence this fall. Mr. van Raemdonck said in a statement. “We will emerge a far stronger company.”

DISCUSSION QUESTIONS: How will COVID-19 impact the luxury space, and what does that mean for Neiman Marcus’ turnaround chances? Does Neiman Marcus appear to be taking the right steps operationally?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The time of the malls has come to a close and so the large retailers that depended on that walk-through traffic must adapt to that change. "
"The luxury retail segment will be one of the hardest hit by the impact of the pandemic, especially those retailers that have been late to expand their e-commerce presence."
"Neiman’s customers are still there. They may not be younger shoppers but with a smaller group of stores, I think they can find their way."

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11 Comments on "Neiman Marcus must survive both bankruptcy and COVID-19"


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Mark Ryski
BrainTrust

By definition, luxury retailers deliver a higher touch service and the constraints imposed by COVID-19 are greatly impacting their ability to do this. As noted, Neiman Marcus’ financial challenges were well underway before the pandemic, so the pandemic didn’t cause their financial issues — but it didn’t make things any better either.

David Naumann
BrainTrust

The luxury retail segment will be one of the hardest hit by the impact of the pandemic, especially those retailers that have been late to expand their e-commerce presence. Returning to profitability for companies with heavy debt loads will be difficult during a time when most retailers will be offering special promotions and discounts to win back customers and spur spending when many consumers are still unemployed. Neiman Marcus appears to be making some smart moves with expanding e-commerce, personalizing the shopping experience and focusing on “retail theater.” However, they are playing catch-up with many retailers already having achieved these experiences in the past few years.

Neil Saunders
BrainTrust

Like most other parts of retail, the luxury market is and will continue to be in the doldrums for a while. To survive, Neiman Marcus must navigate through this period of muted demand – something that will be made much easier without its high debt load. However, in the longer-term Neiman Marcus needs to work harder to differentiate: many of the luxury brands sell direct and have opened up in good malls. It also needs to attract younger luxury consumers, too many of whom overlook the store. Those, rather than getting through the temporary reduction in demand, are the real challenges.

Steve Dennis
BrainTrust
I go into this topic in depth in my recent Forbes post “The Neiman Marcus Bankruptcy: Separating The Myths From The Realities” but I’ll add a few additional points. First, despite the CEO’s claims, Neiman Marcus was not on track going into the pandemic. Very little of any substance had changed in the face of growing headwinds. Moreover, the most recent major expression of the brand (the new store in Hudson Yards) is not only mostly a yawn, but it is (like a good deal of the mall it sits in) devoid of soul. As I have found myself saying often over the last few years, better is not the same as good, much less remarkable. Furthermore, a slightly better version of mediocre is not a winning strategy. Second, luxury will recover slowly and may never be quite the same (at least in North America). Expectations for getting back to 2019 spending must be tempered. Third, while I believe that Neiman Marcus should make it out of the other side of bankruptcy, they will need… Read more »
Joel Goldstein
BrainTrust

The time of the malls has come to a close and so the large retailers that depended on that walk-through traffic must adapt to that change. The democratization of fashion and speed of global shipping has created a lot more slices in the pie where a brand must compete for eyes and attention. Creating an excellent in-store experience is going to be the future of retail, their challenge is to convince people to get off their smartphones and see the value in that experience.

Bob Phibbs
BrainTrust

Neiman’s customers are still there. They may not be younger shoppers but with a smaller group of stores, I think they can find their way. The brands they carry aren’t generally going away.

Brandon Rael
BrainTrust

Neiman Marcus has already taken some of the right steps operationally to position themselves as a relevant, innovation-driven competitor in the changing retail — and especially the department store — landscape. The company already had its own set of financial challenges pre-COVID-19 and, if anything, the pandemic has served as an accellerant of the disruption they were experiencing.

With both discretionary and luxury spending taking a hit over the foreseeable future, as well as the return to our new normal occurring in phases, Neiman Marcus’s return recovery will take time. The bankruptcy announcement enables the company to focus on its restructuring, improving its operations and taking a more digital-first approach to extending its reach to new customers, particularly on social media.

Ralph Jacobson
BrainTrust

This crisis hasn’t only attacked the luxury space. Most non-grocery and non-DIY retailers are threatened. Those stores that were in trouble prior to the crisis will be on life support at best right now.

Bottom line, along with excruciatingly prudent financial management, OPEN ALL STORES NOW. We have not seen any nationwide outbreak occurring because of grocery stores or DIY stores which are packed with people. So why couldn’t relatively-sparsely trafficked apparel, department and other stores open?!

Paula Rosenblum
BrainTrust

The Business of Fashion has devoted many articles to this. Luxury has issues for sure. A season has already been lost, with likely another to follow.

I also worry about long term trading down by consumers.

Craig Sundstrom
Guest

Since one of the main impacts of COVID-19 is to make transactions more difficult (which can be translated into more costly) my intuitive response is luxury will respond better, since an additional transaction cost of, say $100, can readily be absorbed with a price of $20,000, but not $20. On the other hand, luxury is usually more dependent on personal interaction, so there are conflicting forces at work … but I think the “luxury is better positioned” will prevail.

As for Neiman’s. I’ll cut right to the chase: their chances are 353% dependent on avoiding the usual “leverage” stuff. If the new owner doesn’t have the money to buy them, they shouldn’t be allowed to … and IMHO, they shouldn’t try.

Ananda Chakravarty
BrainTrust

The luxury market was heavily hit by COVID-19, in the range of 25-35%. But this doesn’t push out select players as actual growth numbers vary worldwide from +40% to negative percentages, according to an April McKinsey article — meaning some retailers were substantially affected more, even within the same segment and price points.

More important is that luxury customers still have resources, money, and a will to purchase luxury goods. They are the wealthiest of all groups and the limitations of COVID-19 are primarily skewed towards accessibility. This means retailers in this space need to adjust their ways of connecting with customers and offer easier and alternate ways to shop.

Neiman and other luxury retailers will continue to have customers going forward and for most luxury retailers, the high margin products will support the decrease in customers. This is more a slowing of growth than an exit from business.

wpDiscuz
Braintrust
"The time of the malls has come to a close and so the large retailers that depended on that walk-through traffic must adapt to that change. "
"The luxury retail segment will be one of the hardest hit by the impact of the pandemic, especially those retailers that have been late to expand their e-commerce presence."
"Neiman’s customers are still there. They may not be younger shoppers but with a smaller group of stores, I think they can find their way."

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