Out of bankruptcy, Neiman Marcus plans a comeback

An an exclusive post-bankruptcy interview, Neiman Marcus’s chief executive Geoffroy van Raemdonck outlines his plans for the American luxury department store chain.

 

Published September 2020

Neiman Marcus, the luxury department store once known for its lavish holiday catalogues, $25,000 one-of-a-kind evening dresses and $2,000 designer handbags, is hoping to regain its lustre post-bankruptcy. 

After four months of court proceedings, the Dallas-based luxury retailer will have shed the bulk of its $5 billion debt load and gained new owners, including Davidson Kempner Capital Management, Sixth Street Partners and Pacific Investment Management, the largest shareholder controlling three of the company's seven board seats.

 

Investors traded debt for equity, erasing much of the debt Neiman accumulated through two separate leveraged buyouts, in 2005 and 2013. 

“I feel really good,” says Geoffroy van Raemdonck, Neiman Marcus's chief executive since 2018. He will stay on in the role and continue as a member of the company's board. “It's an important moment for the industry, because we generate so much revenue for the thousands of brands that we represent. Not only do we have business continuity, we now have the best balance sheet in the business. The rest of this year will be challenging, but it's a really high 

moment." 

Van Raemdonck contends that the retailer would not have filed for bankruptcy if it were not for the virus, but Neiman Marcus's troubles predate the pandemic. It reported a net loss of $31.2 million in July 2019, compared with a net loss of $19.9 million the year before. While the company generated $4.5 billion in sales in 2019, Neiman Marcus was not on sturdy enough ground to withstand the blow, prompting the bankruptcy as well as the shuttering of its first New York City store, a flashy location at Manhattan's Hudson Yards development, just opened in 2019. 

Now the company wants to put this year behind it and forge ahead. To regain its position as a leading luxury retailer, Neiman Marcus, led by Van Raemdonck, plans to tighten up its retail footprint, perfect digital clienteling for its most valuable customers, reach elusive younger millennial and Gen Z audiences, and keep most of the management team intact while hiring for key roles that will propel the business forward. 

But coming out of bankruptcy is only the first step along a challenging road for Neiman, which is reemerging in a tough market where demand is soft due to Covid-19, and the department store model is under pressure. Its future depends on whether or not it can win back the trust of its brand partners, who have been burned during the process. 

“The company has restructured itself, which is great, but it's going to have to navigate a really difficult six months to a year ahead because of the pandemic environment,” says Neil Saunders, managing director of GlobalData's retail division. 

Rebuilding relationships Major brands like Prada and Gucci are increasingly pulling back on wholesale accounts and focusing on their direct-to-consumer channels. Smaller brands, meanwhile, are looking very carefully at who they want to give inventory to, and the terms on which they sell. 

“Maybe 10 or 20 years ago, if you were an up-and-coming brand and Neiman Marcus or Bloomingdale's picks you up, it would be like you made it. But that's completely changed,” says Jessica Ramirez, retail research analyst at Jane Hali & Associates. 

Specific insights on selling performance will be shared to help brands place better performing products into stores at the right time. In April, the company shared what was selling during the pandemic with brand partners, and the brands were able to react quickly, to get better-placed products in stores by the August delivery, says Van Raemdonck. The retailer plans to continue this practice, as it's also useful for brands thinking about expanding into new product categories, he adds. 

“My view is that you have open communication, and so we are very forthcoming and transparent with our brand partners,” says Van Raemdonck, who adds that the company maintained relationships and business with every one of its 50 top-selling brands throughout the Chapter 11 process, which make up 60 per cent of revenue. 

Observers question whether big brands like Chanel, Dolce & Gabbana and Saint Laurent, which were high on Neiman's creditor list, might be cautious about future partnerships. The brands declined to comment for this story. 

Veronica Beard, the sixth-highest creditor, was owed $4.3 million after shipping an order shortly before Neiman Marcus shortly filed for bankruptcy that went unpaid. The brand was “bruised” by the outcome, says president Stephanie Unwin, and plans to tighten its inventory distribution but continue to work with Neiman Marcus post-bankruptcy. Unwin says their customers are aligned, and that the Neiman brand“ really stand[s] for luxury in this country". 

“Neiman will have to prove that it's back on stable footing and re-establish very strong relationships with brands — even stronger than they have already done – just to instill confidence,” Saunders says. “If some of those brands get 

nervous and decide to reduce their exposure to Neiman, it could be a disaster.” 

Digital customer service Neiman Marcus also needs to rebuild the relationship with its high-spending customers; 40 per cent of the retailer's business is made from customers spending more than $10,000 per year, says Van Raemdonck. At the centre of the strategy to bring these customers back is NM Connect, a digital tool for sales staff to provide high-touch customer service online. Employees will be able to source products, give styling and fit advice and prepare items for pickup in store or home delivery through the portal. 

"We are taking a relationship that exists with a customer in-store and strengthening it digitally,” Van Raemdonck says. Since the technology was fully rolled out in July, nearly 5,000 sales associates have had 1.5 million interactions with customers. This has resulted in $60 million in incremental sales, in addition to the revenue from Neiman Marcus.com, according to the 

company. 

One of the luxury retailer's strengths, which has been key to its survival, is the strong relationships it has developed with its customers, says Gene Spiegelman, vice chairman and a principal of Ripco Real Estate. “Brands go [out of business] because they lose the loyalty and the connection with their customer. That's the fundamental foundation for Neiman Marcus's survival.” 

Success at Neiman Marcus will ultimately come down to retaining its loyal customers as well as acquiring new millennial and Gen Z consumers, which together represent around $350 billion of spending power in the US alone, according to data from McKinsey. 

“That is a lost opportunity now. If Neiman Marcus isn't getting them through their doors or on their website, the future isn't that sustainable,” says Saunders. Capturing this cohort means offering the kind of styles they're interested in, and the experience to go with it, he continues. “Why would I go to Neiman Marcus when I can actually go to the brand store, which is more compelling and easier than going to a department store?” 

Van Raemdonck says that the company is successfully marketing to millennials and Gen Z, which account for 48 per cent of its customer base. “We're very focused on being present for the customer, however and whenever they want,” he says. 

Neiman intends to start by focusing on product fit. But merchandise won't cut it alone as the role of the store is changing. “Stores are still really important. It's where the relationship gets created with the customers. But we recognise that people are engaging more from home, therefore we want to make sure we're able to connect with people on digital devices,” says Van Raemdonck. “Our business model is flexible enough that we can serve you the way you want.” 

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