Neiman Marcus Sees Luxury Customers Returning After Bankruptcy
Neiman Marcus Sees Luxury Customers Returning After Bankruptcy
(Bloomberg) -- Neiman Marcus Group doesn’t see itself as a department store, and after its bankruptcy restructuring, its chief executive officer says its balance sheet won’t look like a department store’s either.
The luxury retailer listed debt obligations of about $5.5 billion in its Chapter 11 filing on Thursday. The company’s debt ballooned after a 2013 leveraged buyout by its current private equity owners. Its bankruptcy plan would slash that amount by around $4 billion, leaving room for future investments.
After a court-supervised restructuring, the company “won’t have the balance sheet of a department store and won’t look like a department store,” CEO Geoffroy Van Raemdonck said in an interview. The company plans to emerge from the process in early fall.
With 40 stores across the U.S. and two Bergdorf Goodman stores in Manhattan, Neiman Marcus’ footprint is small than that of a typical retail chain. It also has about two dozen Last Call locations and a Mytheresa in Germany. The latter is a brick-and-mortar version of its fast-growing Mytheresa online merchant, which is not included in the bankruptcy.
Neiman Marcus is proposing to swap debt for equity, which would make creditors majority owners of the company, Van Raemdonck said. Debt holders who support the plan agreed to put up $675 million to get Neiman Marcus through the court process. They’ll also provide $750 million in exit financing for future financial support.
“It’s not very often one gets additional liquidity in the middle of a health crisis,” Raemdonck said. The company began discussions with stakeholders after stores were forced to close temporarily and it became clear the business was not generating enough cash to support operations and debt payments.
The Dallas-based company filed its pre-negotiated plan with support from holders of 77% of its term loans, over 99% of the second liens, and more than 69% of the third lien notes to equitize their debt and backstop the bankruptcy loan and exit financing, according to filings.
Luxury Partners
Neiman Marcus takes pride on its relationship with luxury brands, Van Raemdock said. Many of them are listed as unsecured creditors in the bankruptcy, including Gucci, Dolce & Gabbana and Burberry.
“In a moment of crisis, the business needed to show to its partners and brand partners that it is stable and has a committed group behind it,” Van Raemdonck said.
With nonessential retail forced to close stores amid the pandemic, other retailers have also experienced hardship. Pressure on the industry, particularly for department stores and apparel chains, is especially acute because the industry has suffered years of shopper defections to online merchants.
Van Raemdonck said Neiman Marcus is adjusting its strategy in light of the pandemic. It’s focused on increasing online sales as well as its new styling associate program, which pairs customers with a personal shopping assistant who helps them make purchases without visiting a store.
The program generated around $60 million of sales in the last week of March and the full month of April, according to Van Raemdonck. Neiman Marcus’ online sales represent 30% of total revenue, and were up double digits last month compared to the same period a year ago, he said.
Store Reopenings
The company is opening its stores in accordance with state guidelines, with most locations staying closed through at least May 31. It has opened 10 stores with curbside pickup in areas that have relaxed restrictions. Its stores Atlanta and NorthPark, Dallas, are available to customers by private appointment.
After the pandemic is over and stay-at-home policies are lifted, Van Raemdonck said he is hopeful the company’s core luxury customers will return.
“In moments of adversity like Covid-19, you realize where you are strongest,” Van Raemdonck said. “We have very few stores, but we are going to be the place where luxury customers go to access luxury products and experiences.”
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