The scourge of Covid-19 has claimed yet another high-profile business victim.
The famed Neiman Marcus Group filed for bankruptcy protection on Thursday, marking one of the highest-profile collapses yet among retailers forced to temporarily close stores in response to the pandemic, CGTN.com reported.
The US luxury department store chain filed for bankruptcy in a federal court in Houston, and said it had reached agreement with creditors for US$675 million of debtor-in-possession financing to aid operations while it attempts to reorganize.
The Dallas-based retailer plans to cede control to creditors in exchange for eliminating US$4 billion in debt, the report said. Its debt currently totals about US$5 billion, CGTN.com reported.
The company expects to emerge from Chapter 11 proceedings in early fall with a US$750 million package from creditors that provided its initial bankruptcy loan.
Neiman Marcus, laden with debt after a private equity takeover, reached a deal with creditors for more financial breathing room last year that avoided a bankruptcy filing but succumbed in recent weeks to government orders that closed businesses deemed non-essential to slow the spread of the novel coronavirus, CGTN.come reported.
The pandemic is inflicting widespread financial pain on retailers forced to temporarily close stores. J. Crew Group filed for bankruptcy protection on Monday.
J.C. Penney is contemplating a bankruptcy filing of its own as a way to rework its unsustainable finances and Nordstrom recently moved to borrow against some of its real estate, CGTN.com reported.
In a letter to customers, CEO Geoffroy Van Raemdonck stressed that Neiman Marcus had no plans to liquidate, CBS News reported. He said the retailer would continue to honor gift cards and credits as well as accept product returns.
Service on the company’s websites also will not be interrupted. The company said it is evaluating locations, but did not specify if it would close any stores, CBS News reported.
Van Raemdonck said the company and other retailers are “facing unprecedented disruption caused by the Covid-19 pandemic, which has placed inexorable pressure on our business.”
Covid-19 temporarily forced the closing of all 43 Neiman Marcus stores across the country, as well as the group’s two Bergdorf Goodman stores and Last Call outlets, all but stopping sales and crushing the company’s revenue streams, The New York Times reported.
While that may have been the immediate cause of the company’s troubles, its problems had been building for years.
An untenable debt burden accrued as part of two leveraged buyouts by private-equity firms and changing consumer shopping habits combined to render its position precarious even before the virus hit, The New York Times reported.
In addition to lenders, the company owes money to vendors such as Chanel, Gucci and Yves Saint Laurent, according to court records, CGTN.com reported.
Founded in 1907 when the Marcus and Neiman families opened their first store in Dallas, the retailer expanded across the US to become a fashion mainstay for celebrities and other wealthy customers seeking expensive handbags, clothing and the like.
Like other brick-and-mortar department stores, Neiman Marcus struggled to compete with discount retail chains and a consumer shift to online shopping.
“Department stores have been struggling for a long time,” Craig Johnson, president of Customer Growth Partners, told CBS News. “Now, it’s a bloodbath. How many will survive is unclear.”