The bad news about retail just keeps coming.
Today, Neiman Marcus announced it had filed for Chapter 11 protection, just days after J.Crew also began bankruptcy proceedings.
As the coronavirus pandemic continues to wreak havoc on the U.S. economy, other department stores and chains are reportedly eyeing similar moves, including JCPenney and Gap. Meanwhile, Lord + Taylor is expected to liquidate its 38 locations as soon as the economy reopens.
While most of these companies are aiming to emerge from bankruptcy intact, cost-cutting and store closures are likely as they take steps to rework their finances and balance sheets. And the effects of those actions will be felt across the industry, including by their brand partners.
According to court documents obtained by FN, a number of luxury brands are among Neiman Marcus‘ creditors: It owes more than $6 million to Chanel, $4.35 million to Veronica Beard and $3.16 million to Dolce & Gabbana and $2.71 million to Gucci. Falling shortly behind that, Tapestry Inc.-owned Stuart Weitzman has an unsecured claim of nearly $2.58 million, while Christian Louboutin has an owed balance totaling roughly $2.27 million. Other fashion labels on the lengthy list of creditors include Jimmy Choo, Ferragamo, Manolo Blahnik, Bottega Veneta and Balenciaga.
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But as these retailers adjust and possibly downsize their businesses, not all their vendors will feel it equally.
Sam Poser, an analyst with Susquehanna Financial Group, predicted that brands that were in a tenuous position pre-pandemic will suffer most from these retail failures. “If you’re just an item brand who is omnipresent with ubiquitous stuff, [it’s going to be tough],” he said. “The consumer was already becoming more discerning, so how you survive this in good shape is going to be exceptionally difficult. This just takes it to a whole other level.”
However, he added, the strongest brand performers will likely emerge even stronger. “If there’s demand from the consumer and they’re executing well now online, then the bankruptcies aren’t going to interrupt them,” Poser said.
Amid the COVID-19 outbreak, which has shuttered brick-and-mortar stores for months, the brands and retailers with strong online operations have fared the best, according to experts.
Digitally native label Koio, which sold its luxe sneakers into J.Crew, told FN it did not expect to be impacted heavily by the chain’s bankruptcy because of the strength of its own e-commerce business.
“We’re sad to see many big retailers struggling with the impacts of the global pandemic,” said co-founder Chris Weichert. “While we were working with some of them, [Koio] was built to be a direct-to-consumer business with the large majority of our sales coming from our own channels. In turn, we are not dependent on business coming in from wholesale partners.”
As for how these bankruptcies will affect the industry at large, Beth Goldstein, fashion footwear and accessories analyst at The NPD Group, predicted some retail competitors and brands have something to gain.
“The most likely beneficiaries of JCPenney’s sales would be Walmart and Amazon. And Amazon, Macy’s and DSW have the greatest opportunity to capture Lord + Taylor’s sales,” she said. “But as we tend to see when retailers shut down, some of their volume disappears.”
As for Neiman Marcus, because it operates in the luxury designer space, there would be a gap to fill should its stores close. Explained Goldstein, “Given the growth of the luxury DTC space during the past few years, the brands themselves would likely be able to pick up some of that business.”
However, she added, proximity may be important to some of Neiman’s customers. “They may turn to the nearest luxury retail option, whether that is a department store or a branded store, rather than buying online from one of the other players that isn’t physically in their area,” said Goldstein.
