The spread of COVID-19 and the social distancing measures put in place to slow it have caused retailers worldwide to experience significant losses. Stores that cater to high-budget shoppers aren’t immune. Neiman Marcus, a high-end department store specializing in designer fashion, is among the large, established businesses considering bankruptcy amidst the pandemic. JC Penney is also considering filing bankruptcy, and Gap, Macy’s, and Nordstrom are reported to be struggling financially as well.
On March 17, 2020, Neiman Marcus closed all 43 of its locations due to COVID-19. Most of the company’s 14,000 employees are currently furloughed. The company is discussing loans to maintain operations until the economy recovers, and the possibility of filing bankruptcy to deal with $4.7 billion in debt.
With $4.7 billion in debts as evidence, Neiman Marcus wasn’t doing well before the pandemic. Many retailers, especially those with a focus on brick-and-mortar sales have been struggling alongside Neiman Marcus. Behemoths such as Toys’R’Us, Forever 21, Payless, and Sears have recently sought bankruptcy protections. Neiman Marcus had already restructured its debt last year.
If the company files bankruptcy, it will likely be a Chapter 11. Chapter 11 is most often utilized by larger businesses with significant amounts of debt. It allows the business to keep operating, although major business decisions must be approved by the court. Chapter 11 Bankruptcy isn’t a death sentence for a business. Some companies to successfully recover from a Chapter 11 are Eddie Bauer, General Motors, and Sports Authority.
The other less likely option is a Chapter 7, or a liquidation of the company’s debts. It would be required to cease all operations and sell all of its assets. This would allow other retailers to take over the business at a rock-bottom price. Hudson’s Bay Co., which owns the similar luxury retailer Saks Fifth Avenue, considered purchasing Neiman Marcus in 2017. However, the market has obviously changed drastically since then and there may not be available buyers.
With the rise of fast fashion coming at the expense of brick-and-mortar retailers, Neiman Marcus was already in dire straits before the pandemic. Now, more than likely, the company will be forced to file Chapter 11 bankruptcy. Americans should expect to see a rise in both business and consumer bankruptcy filings after the dust from the pandemic settles.