Neiman Marcus filed for bankruptcy protection as the world grapples with the coronavirus pandemic. The move came after J.Crew sought reorganization.
“Like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business,” Geoffroy van Raemdonck, chairman and CEO of Neiman Marcus Group, said in a statement.
The luxury department store chain sought Chapter 11 reorganization in US Bankruptcy Court in Houston. It was able to secure $675 million in financing to carry on with its reorganization.
The major retailer runs 43 Neiman Marcus stores, 22 Last Call stores, and two Bergdorf Goodman stores. These establishments accumulated nearly $5 billion in debt. This also happened due to two leveraged buyouts in less than 10 years.
Neilman Marcus provided clothing to some of the wealthiest personalities in runway brands, such as Alexander McQueen and Chanel.
Stanley Marchus founded the Dallas-based chain in 1907. Its objective was to bring Parisian fashion style to the upper echelons in the US.
The department stores of Neilman Marcus showcase $90,000 fur coats,$30,000 Rolex watches, and $12,000 Tom Ford clutches. The retailer is also popular for its Christmas collection of excessive fantasy gifts. It once included a $7 million yacht.
Consumer behaviors gradually changed with the rise of online shopping and value shopping. The company’s sales and revenue further declined during the pandemic and as competition flooded its luxury consumer base.
The luxury brand firm reported a loss of $31.2 million in July. It recorded a net loss of $19.9 million the previous year.
The retail industry suffered from financial setbacks over the last several weeks. Neiman Marcus stores was among the major retailers that were closed since mid-March. Stay-at-home orders forced stores to close.
Neiman Marcus furloughed almost all of its 14,000 employees March 30. The company said they will remain closed through May 31.
Meanwhile, the retailer expects to recover from bankruptcy in early fall.
“We will emerge a far stronger company,” van Raemdonck said. “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.”
J.Crew also filed for bankruptcy this week. The company will continue operating during reorganization.
However, it says customers should not expect any changes right away. Lenders agreed to convert $1.65 billion of debt into equity, based on the bankruptcy filing.
“This agreement with our lenders represents a critical milestone in the ongoing process to transform our business with the goal of driving long-term, sustainable growth for J.Crew and further enhancing Madewell’s growth momentum,” chief executive Jan Singer said in a statement, referencing its smaller, but more successful, brand.
In its bankruptcy filing, J.Crew’s parent company, Chinos Holdings, stressed that it owes between $1 billion and $10 billion to more than 25,000 creditors. Its estimated assets range from $1 billion to $10 billion.
Liquidation firm Gordon Brothers believes that as many as 25,000 stores could shut entirely this year. Businesses continue to suffer from weeks-long closures and waning demand for shoes, clothing, and other nonessential items.
“There is no question that all types of retailers are going to have to close hundreds of stores that don’t have any kind of future on the other side of this pandemic,” said Mark Cohen, director of retail studies at Columbia Business School.