It's no secret 2020 has been unkind to retailers -- department stores in particular. In May, J.C. Penney (OTC: JCPN.Q) filed for bankruptcy (though a new deal aims to revive it), and in early September, Lord & Taylor announced it would be permanently closing its doors.
So it's encouraging to see another struggling department store emerge from bankruptcy with a much brighter outlook. Neiman Marcus recently announced that its bankruptcy reorganization plan has been approved, paving the way for the retailer to emerge from Chapter 11 with far less debt (about $4 billion less, to be precise) and a lot more liquidity. The company's official bankruptcy exit is set to happen by Sept. 30 and will be fueled by a $750 million term loan from a group led by Credit Suisse (NYSE: CS).
Fueled by the COVID-19 pandemic, earlier in the year, Neiman Marcus shut its 43 store locations, several dozen of its Last Call discount outlets, and its two luxury Bergdorf Goodman stores. Now, as the company plans to reopen, it will have seven fewer full-line stores, but it will also be in a better position to grow back to its original size -- or maybe even exceed it. And that's very good news for real estate investors and Neiman Marcus fans alike.
Investors can't afford more closures
Although in-store sales were on a downswing before the COVID-19 crisis took hold, the pandemic pushed many over the edge, forcing temporary closures and causing consumers to revert to online shopping out of necessity. As such, investors -- those with money tied up in malls, specifically -- have grown increasingly nervous about the prospect of permanent store closures.
Department store closures are especially catastrophic for malls, because these tenants occupy the most space and are known to draw in consumers. Losing a retailer like Neiman Marcus could, in fact, drive already-struggling malls dangerously close to extinction.
Of course, Neiman Marcus may opt to shift its approach to sales by concentrating on its online model. Retail analysts at Moody's Investors Service project online sales will continue to accelerate, surpassing 25% of total sales over the next five years. As such, many retailers will need to adapt and focus on developing a robust e-commerce model.
But the fact that Neiman Marcus is specifically planning to focus its effort on Bergdorf Goodman, its luxury subsidiary, is encouraging. In fact, the high-end nature of Neiman Marcus may make it possible for the company to maintain its mall presence despite the cost savings associated with shifting to an online model.
Many consumers shop at lower-end department stores out of necessity, whereas purchases from a store like Neiman Marcus often are regarded as an indulgence. And acquiring those purchases in an actual store, with a live sales associate, is part of the experience.
The bottom line
Now that Neiman Marcus is emerging from bankruptcy with less debt and a new management team, the hope is that it will slowly but surely regain its footing and remain a viable presence in the world of retail. After all, investors really need it to.