NEW YORK (AP) -- Neiman Marcus has filed for Chapter 11 bankruptcy protection, the first department store chain and second major retailer to be toppled by the coronavirus pandemic.
The move by the 112-year-old storied luxury department store chain was announced Thursday and follows the bankruptcy filing by J.Crew on Monday. Experts believe there will be more to come even as businesses start to reopen in parts of the country like Texas and Florida.
"Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth," said Neiman Marcus Group CEO Geoffroy van Raemdonck in a statement. "However, like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business."
The filing comes as the global luxury goods sector is heading for a stunning collapse of up to 35% this year due to coronavirus lockdowns, according to Claudia D'Arpizio, a partner at Bain & Company. The forecast represents a much steeper decline than the single-digit drop recorded after the 2008 recession. D'Arpizio said it would take two to three years to return to 2019 global sales of around 281 billion euros ($303 billion).
Dallas-based Neiman Marcus, which operates 43 stores, said it expects to emerge from bankruptcy by this coming fall. A company spokeswoman said no mass closings are planned.
Like other non-essential retailers, Neiman Marcus temporarily closed its stores in mid-March. About 10 stores have been reopened for curbside pickup as some states have relaxed lockdown orders.
In order to keep operating during the restructuring, Neiman Marcus says it has secured $675 million in financing from creditors holding over two-thirds of the company's debt. Neiman Marcus said that the restructuring will eliminate $4 billion of its roughly $5 billion in debt.
The filing arrived after the department store had failed to make a payment to a key bondholder as its stores went dark to help contain the spread of the virus. It was a big blow to Ares Management and the Canada Pension Plan Investment Board, which bought Neiman Marcus in 2013 for $6 billion.
More than 60% of U.S. retailers have temporarily shuttered since March, but department stores were already in a weakened state long before then. Americans are no longer interested in doing all their shopping under one roof, instead picking and choosing items like shoes or tops. When they do buy clothes, they head to T.J. Maxx and online retailers.
"Department stores have been struggling for a long time," said Craig Johnson, president of Customer Growth Partners, a retail consultancy. "Now, it's a blood bath. How many will survive is unclear."
J.C. Penney, which had been trying to claw its way back after a disastrous reinvention plan in 2013, recently elected not to make a $12 million debt payment. That is setting it on the path of a potential bankruptcy.
Macy's, the nation's largest department store, confirmed it was looking to raise debt to add more liquidity to its balance sheet. Macy's CEO Jeff Gennette said on a conference call that it will be emerging from the pandemic as a "smaller company" and may accelerate store closures. It opened nearly 70 stores on Monday and is looking to open its entire fleet of nearly 800 stores, which also include Blue Mercury and Bloomingdale's, in the next six to eight weeks.
Even upscale Nordstrom, considered healthy, recently warned that it doesn't know when it will be able to reopen its physical stores and that prolonged closures could cause it to become financially "distressed."
U.S. retail sales went through an unprecedented collapse in March, plummeting 8.7% as the viral outbreak forced an almost complete lockdown of businesses nationwide, according to the Commerce Department's report. The deterioration of sales far outpaced the previous record decline of 3.9% that took place during the depths of the Great Recession in November 2008.
Clothing store sales plummeted 50.5% in March and has been worsening since then. Discretionary spending by shoppers is expected to fall 40% - 50% in the first-half 2020, according to Fitch Ratings. And department stores lead a group of consumer companies that have seen their odds of defaulting spike over the past month, according to S&P Global Market Intelligence.
To preserve cash, a slew of retailers have furloughed hundreds of thousands of workers. They've cut executive pay, suspended cash dividends and stock buybacks or repurchases to preserve cash. They're drawing down their credit lines to make sure they have a bigger pile of cash on hand. And they're cancelling or halting production for fall orders at a time when they should be planning for the holiday shopping season.
Department stores currently account for over 250 million square feet at U.S. malls, or approximately 30% of total mall square footage, according to a recent report by Green Street Advisors. Even before the pandemic, Green Street had projected that roughly half of all department stores that anchor malls would close over the next five years. Now, it expect the closures to happen by the end of next year.
Filing for bankruptcy reorganization is particularly tricky during this time. As part of the restructuring process, retailers have to predict a 13-week cash flow projection, but retailers can't do that when they're not sure when stores will reopen, according to Paul Steven Singerman, co-chair of Berger Singerman, which specializes in large and complex restructuring and insolvency. Given so much uncertainty, retailers looking to restructure will have problems getting financing from lenders.
"Many of the retail cases will end up in liquidation," he added.
Neiman Marcus had taken steps to revive sales. Last year, it acquired a minority stake in Fashionphile LLC, an online seller of preowned accessories. The department store chain also opened its first store in Manhattan a year ago, including a lounge area where online shoppers could enlist the help of fashion stylists.
Early in March, Neiman Marcus said it was closing more than half of its remaining 22 Last Call stores, which sold designer brands at big discounts. The company had said the moves were designed to free up resources to better focus on high-end customers.
Raemdonck told The Associated Press in a recent interview that 40% of the company's sales are coming from customers who spend on average $50,000 a year.