
Neiman Marcus files for bankruptcy - hhs
https://www.reuters.com/article/us-neimanmarcus-bankruptcy/luxury-department-store-chain-neiman-marcus-files-for-bankruptcy-idUSKBN22J2AJ
======
andyv
One of Frederick Wiseman's wonderful documentaries is "The Store", which is
about Neiman Marcus sometime in the 80's. Currently streaming on Kanopy.

One sequence showed the CEO giving a pep talk to his buyers, whose
relationship with their suppliers was always strained at best. He told a joke
about a buyer who called his supplier that went something like:

Buyer: "Hello, is Fred Jones there?"

Receptionist: "I'm sorry, Mr. Jones passed away last month"

Buyer: "Oh, sorry to hear that, goodbye."

Ten minutes later:

Buyer: "Hello, is Fred Jones there?"

Receptionist: "I told you, he died last month"

Buyer: "Oh, oh, yes. Goodbye."

Ten minutes later:

Buyer: "Hello, is Fred Jones there?"

Receptionist: "He's dead, why do you keep calling here?"

Buyer: "I just like hearing you say it"

~~~
dpeck
That is so spot on. I've occasionally played the role of solutions
engineer/sales engineer/whatever as part of two different companies selling
consumer electronics products to big box stores and that is 100% right.

The supplier/buyer relationships are very "frenemy" even in the best of times.

~~~
Tronno
> The supplier/buyer relationships are very "frenemy" even in the best of
> times.

Why?

------
lkrubner
Everyone talks about the "Amazon effect" but the changing distribution of
income is also worth considering:

" _Retail is suffering because the middle classes have lost $1,355 trillion in
income since 1970_ "

[http://www.smashcompany.com/business/retail-is-suffering-
bec...](http://www.smashcompany.com/business/retail-is-suffering-because-the-
middle-classes-have-lost-1-355-trillion-in-income-since-1970?source=Snapzu)

~~~
apsec112
That is quite the abuse of statistics! US GDP (edit: inflation-adjusted) was
$5 trillion in 1970, and $19 trillion in 2019. The income percentage of the
middle three quintiles went down from 53% to 45%, but 45% of $19 trillion is
still much, much more than 53% of $5 trillion. Income for this group did not
shrink, it just grew more slowly than other groups. The income was "lost"
relative to a hypothetical world in which the economy was the same size as in
2019 but the middle quintiles had a larger income fraction, not the actual
world in 1970 or any other past year.

~~~
economicslol
Speaking of abuse of statistics, lumping the bottom 20-40% with the top 60-80%
of wage earners is extremely deceptive. It's well known that income growth is
wildly different for those groups. Inflation adjusted wages for the median
worker only increased by 9% from 1973 to 2014.

~~~
stanfordkid
True. But how much did the productive output of the average American increase?
Can we really expect things to "always increase" \-- including wages? To me
this seems like an absurd idea.

The end goal should be improving the median quality of life, through improving
the efficiency of factors of production -- lower cost of goods... not through
the expectation that the wages should arbitrarily grow linearly with GDP.

~~~
owenmarshall
> But how much did the productive output of the average American increase?

Around one hundred percent. [https://data.oecd.org/lprdty/gdp-per-hour-
worked.htm](https://data.oecd.org/lprdty/gdp-per-hour-worked.htm)

~~~
Aunche
They probably meant median productive output. Sam Walton and Bezos made their
supply chains 100% more efficient. It’s not as if warehouse workers suddenly
were able to lift 100% more weight.

~~~
taurath
Standardized pallets and forklifts can make them lift a hell of a lot more
weight

~~~
Aunche
The people who load pallets are moving just as many boxes as they used to.
Sure they play a part in the productivity, but I don't see how it's unfair if
they make the same amount for the same work.

~~~
taurath
Where do crane operators stand in this? Where does the productivity come from?

------
sp332
First guess: private equity?

 _Neiman Marcus, laden with debt after a private equity takeover,_

Yup.

~~~
johntiger1
Wow, why don't people wise up to this PE trick? Seems like creditors would
learn their lesson after so many examples...

~~~
devchix
Please explain? Why is there the association that private equity creates
corporate debt?

~~~
topkai22
Private equity companies exist to purchase existing companies from their
current owners and then run them better/extract more value from them. The
canonical example of this is purchasing a public company by acquiring all
outstanding shares.

This is often a fantastically expensive enterprise that requires that the new
owners raise tons of money. The new owners do this by structuring a deal where
the company will take out a ton of debt (basically its entire market
capitalization of the company, plus a premium) to purchase the outstanding
shares. This is known as a leveraged buyout (LBO).

So if a public company has $100M in outstanding shares and zero debt before
they go private, by going private the private company will now have $100M of
debt (rough numbers, illustrative but not necessarily realistic). That's why
going private often results in dramatic sell offs and cost cutting- the new
company needs to get the debt load down, and fast.

Definitely read Barbarians at the Gates, it's a great book and explains a lot
about private equity from a dramatic case in the 80s.

~~~
devchix
Thanks for that. But why is the company now worse off than before? A company
can be funded with equity or debt (different terms and obligations, I
understand) but if a company converts 100% of its outstanding shares to debt,
why does anything change? I assume this is what happens when a company takes
itself private to escape the grind of quarterly earning, short-term growth,
tyranny of Wall Street analysts, etc. If I could run a company better/extract
more value from it, say, by decreasing expense, increasing revenue, and
therefore profits, I'd write myself a big check quarterly and continue running
the company. Something else extractive and zero-sum (I gain but the company
loses) is going on and I don't know what that is.

~~~
topkai22
Becuase the risk of investment is now structured differently with leverage.
Let's pretend we live in world where companies are always worth 10x earnings +
assets. Our pretend company $100M makes $5M in earnings and has $50M in assets
(cash, real estate, etc..)

To take the company private, the lenders require an interest of 10% and 10%
principal

Some PE company (or the CEO, whatever) thinks they can make this work, so they
come up with $10M of principal, take the lenders money and buy the company.
The first thing they do is sell as many of those underlying assets as they can
to pay down the debt. You now have a company that has $5M a year in earnings
before debt, $10M in assets (the principal, serviving as the required reserve
for the lenders), and $50M in debt, with a debt service of ~$5M a year (so
really 0 earnings).

If the the PE company does a great job managign the company and the economy is
good, so they double earnings to $10M, then the company is now worth $50M
($10M in income x 10 + assets - debt) and the PE company made a 5x return
already (FYI- I know I'm abusing my financial math, fake numbers, but its
illustrative).

Now lets assume they were wrong and a global pandemic breaks out, and the
companies start losign money to the tune of $1M a year. If the company had
stayed publicly owned, they might have to cut their dividend and burn through
reserves, maybe sell off some assets, but other than that all their employees
and the majority of their assets are probably fine. The company's market cap
is a lot less, but shareholders don't go to zero eithier.

The world where the company went private in an LBO? That $10M cushion runs out
in less than 2 years. They are bankrupt. They might get a few more chances to
restructure debt and such, but eventually the lenders give up and liquidate
the company a la Toys R Us. The employees get fired and local landlords lose
tenants. Pension funds disappear. It's not fun.

~~~
jazzkingrt
This was helpful to me. How does the PE company fare in the bankruptcy
scenario? Have they put up collateral or are somehow on the hook to the
lenders?

It's my understanding that the bankruptcy applies only to the purchased
subsidiary, so the PE firm only stands to lose the principal they put in at
the start.

If so, it sounds like the PE firm gets all the upside, but is less exposed to
the downside. So they are incentivized to rachet up the risk.

~~~
whatok
> This was helpful to me. How does the PE company fare in the bankruptcy
> scenario? Have they put up collateral or are somehow on the hook to the
> lenders?

All deals are different. You're probably not going to have any collateral put
up by the actual PE firm in most cases.

> It's my understanding that the bankruptcy applies only to the purchased
> subsidiary, so the PE firm only stands to lose the principal they put in at
> the start.

In most cases this is true. Depending on how aggressive the firm has been and
how long they've been involved, they might have already dividended out their
principal.

> If so, it sounds like the PE firm gets all the upside, but is less exposed
> to the downside. So they are incentivized to rachet up the risk.

This is a correct but simplified conclusion. They're incentivized but there's
usually a set of checks and balances in the form of banks providing financing
and investors willing to finance deals. This system of checks and balances
typically erodes as the business cycle/bull market rides on.

The binding constraint in most of these deals is how much leverage you're able
to get away with.

------
bruceb
I think even without Covid, its harder to tell what is luxury in apparel.
There have been a couple articles on this.

There used to be a clear difference between the look of clothes at different
retailers but not as much anymore.

Walk through Neiman Marcus, Nordstrom, Macy's, H&M, and they start to blend
together.

Doesnt mean no difference but maybe not enough to always charge a premium.

~~~
karatestomp
They all seem to have decided on a "market expansion at the expense of brand
dilution" strategy. Ditto most of the formerly-consistently-good clothing
brands. I'm not really sure which stores/brands replace the ones that have
done this, these days.

[EDIT] I _suspect_ part of this is because the cost of actually-good clothes
hasn't dropped like shitty-clothes costs have, because (this is further
speculation on my part) a good bit of the "savings" from internationalization,
by the time it reaches consumers, is actually making many categories of goods
worse and eliminating mid-tier stuff (formerly bottom-tier) outright so the
gulf between lower-end luxury (paying for quality, not name) and plain ol'
low-end has grown, putting pressure on luxury brands to cut prices... but they
can't with their current products, because internationalization hasn't
actually dropped the price of producing _decent_ goods by very much, so
instead they cut quality.

~~~
cik
You'd be surprised. The cost of rubbish clothing has fallen, but then the cost
of very reasonable mid-quality has dramatically fallen. I used to buy Levis,
then Gap for mid range. Now, I get the same quality (and literally the same
factory) jeans from Joe Fresh, for 1/4th to 1/5th of the price.

Suit shirts are the same. An online tailor I've been using for a decade sells
shirts at half the price of Banana Republic (comparing to Canada), but mine
are bespoke, perfectly fitted, and I can make choices from a website. To wit,
I've stopped buying shirts in stores and now just use their service... since
2008. To make matters worse for retailers, his quality has improved at the
price point.

Retail is hard.

~~~
ghaff
As someone who knows very little about the fashion business--though I have had
tailored clothing made--I'm a little surprised that more of a market for
bespoke online ordering hasn't developed. Sure, you'll "never" get to the
level of an in-person tailor with multiple fittings. But one would think that
there would be a fair number of people willing to pay something of a premium
for at least roughly customized clothing. I know that exists for shirts but,
as I recall from when I used to buy more business casual, it was still a very
big premium over buying stuff that fit me reasonably from Lands' End.

~~~
cik
Online tailors have solved that by partnering/paying for local alterations.
They come into town X times per year (4-5?) for those who want the ongoing
bespoke relationship. Then, when your clothes arrive, you can take them to a
tailor to have them altered if necessary - paid for by the tailor, and your
details updated, paid for by the tailor.

------
Merrill
“It’s Collapsing Violently”: Coronavirus Is Creating a Fast Fashion Nightmare

[https://www.gq.com/story/coronavirus-fast-fashion-dana-
thoma...](https://www.gq.com/story/coronavirus-fast-fashion-dana-thomas)

~~~
devchix
The idea of "fast fashion" is noxious! All those faddish things worn for a
season then to take up space in landfills. I don't think I've found affordable
clothes made to last anymore (a good quality wool sweater, maybe?) I can't
remember when was the last time I was at the mall, or what was the last thing
I _really_ _really_ like to buy to wear.

~~~
Reedx
Indeed, fast fashion is one of the most wasteful and polluting industries.
It's weird how it gets a pass on that.

As for clothing and shoes that last, Patagonia is pretty good.

------
b1gtuna
I'm not glad these stores are doing bad, but I just never understood how a
pair of sneakers can cost $700 - $900 when I can buy a decent laptop with that
kind of money.

~~~
karatestomp
Conspicuous consumption. The price is the point. It’s a signaling thing. In
the case of something like sneakers with a big brand logo on them, it’s likely
someone “low” trying to signal to their peers that they’ve made it (whether
they have or not). See: Fussell’s _Class_ , or _The Official Preppy Handbook_
for signaling rules specific to the upper-middle and upper classes (very
expensive sneakers with swooshes: big no. Somewhat expensive tennis shoes with
wear patterns from serving: yes)

~~~
b1gtuna
Haha I will try to find a copy. Anecdotally, the goods I saw were far from
conspicuous. They all looked straight out of some music videos (heard of the
"Ugly" shoes?).

~~~
karatestomp
As long as the intended audience recognizes them, they’re doing their job.

There is also a significant subculture or sneaker collectors who buy them like
someone might a rare run of “collectible” action figures, where rareness is
all that matters over the value of the item _per se_. Some crazy-seeming
sneaker prices are just companies catering to that market. Of course there’s
overlap and symbiosis with the signaling crowd, too.

------
paypalcust83
I can almost hear it: _Where oh where will I buy a fluorescent fuchsia sports
coat for $8000 now?_

Amazon and similar are no good for luxury goods because of the lack of service
that luxury shoppers expect. Perhaps they need to shift to an online-first
model with video-conferenced personal shoppers who can browse store-like
inventory while serving qualified shoppers who can concurrently navigate their
wardrobe?

Personally, I like Neimy's, but not as a go-to retailer but as a once-every-
twenty-years-buy-something-nice-and-crazy; their service is/was fantastic,
they know their products/fashion, and their employees aren't/weren't like
standard American retail salespeople. Ordinarily, I go to Salvation Army and
Goodwill for outer clothing only, and eBay for new-but-discontinued b-stock or
liquidated inventory of other clothing that I can no longer find.

------
_wldu
I hope individuals and businesses start saving again. When I was a kid,
everyone saved money. We spent it too, but we all saved for rainy days. Maybe
that idea will make a come back now. Be prepared. You never know what may
happen.

~~~
karatestomp
I agree, but if they do we're in for a looooong recovery. If we're not
already.

~~~
_wldu
Yes. We should not go over board. Keep spending and supporting local
businesses, but save some too. Say 15% of your earnings. Put it in the bank.

I remember when my wife tried to get a credit card right after we got married.
She could not get one. Back then, there was only Visa and Mastercard. Then
Discover card came out and she was able to get one with a very low limit. She
used that to build her credit over the years. Today, the grand kids get card
offers in the mail several times a month. We need to be somewhere in the
middle and not at either extreme.

------
Stratoscope
One of my few regrets in life is that I never bought the family a Neiman
Marcus Kitchen Computer.

[https://www.google.com/search?q=neiman+marcus+kitchen+comput...](https://www.google.com/search?q=neiman+marcus+kitchen+computer)

------
rb808
People dress very cheaply now. I'm always amazed from historic photos, it
seems the further back you go the more money they spent on appearance.

These days it just looks like no one cares. I'm surprised upmarket stores
lasted this long.

~~~
scollet
Price doesn't reflect quality. Ever pull a good thrift store haul?

~~~
lilsoso
There's a phrase, 'cut and cloth'.

Better materials, the basic ingredients, generally increases the price (cloth
from quality fabric mills, finer wools, nice dyes, shell buttons, leather,
etc...). And the cut matters, to pay for a tailored shirt in England or Italy
will cost you -- that is, the labor, design, and construction.

Sure, a high price tag does not necessarily imply quality -- but let's not be
fools about the matter.

------
musicale
> Neiman Marcus, laden with debt after a private equity takeover...

How unsurprising.

------
gfxgirl
I'd been to the Neiman Marcus in SF maybe.... once a year when in lived in SF.
And a few times in Newport Beach over the last 20 years. I've never seen more
than a few people per floor.

It's not surprising to me they are going under. I don't know who their market
was. It was all very high end. But, seeing almost no one in those giant stores
always seemed like the end was near.

------
alephnan
Interesting how the Barney's bankruptcy did not receive any commentary from
the HackerNews.

As a software engineer with a degree in fashion design as well, I believe both
luxury retail stores are equally notorious

~~~
bdcravens
Probably due to size?

~~~
alephnan
As in market cap? It's 3x more, but Barney's is more legendary in fashion
circles. Could also because there is more brand dilution at Neiman Marcus

~~~
bdcravens
I was referring to the number of stores, which speaks to whether it's a
"common" brand (outside of fashion circles)

------
CodeSheikh
They just opened a huge new store at Hudson Yards in NYC. I’m sure lack of
foreign rich tourists(mainly rich Chinese) during COVID months must have hurt
them big time as well.

------
worik
Inverse pass the parcel: Those who pass it on get the prize, the child that
ends up holding it looses... everything

------
1-6
The definition of luxury has changed. It's now more about value, utility, and
stability. Luxury means owning property in a high-end location, a MacBook Pro,
fast optical networks, clean drinking water, and a reliable car.

~~~
fakedang
MacBook Pros are luxury goods now? What someone, such as myself, doesn't
really like them, and instead prefers Thinkpads, like most of my peers?

~~~
kinkrtyavimoodh
What you like has little to do with luxury, and in many cases is actually
anti-parallel to luxury.

I like my comfortable cotton tank top and my mom's mac and cheese but neither
of them are luxury goods.

In fact since a lot of luxury is actually about signaling, if it's too
comfortable / has high utility, it might actually lose status.

------
every
Definitely a Brave New World. I guess we won't be getting our His and Hers
gold plated, nuclear powered mini-subs this Christmas after all...

~~~
every
Apparently some here are unfamiliar with this holiday tradition:

[https://www.mentalfloss.com/article/89283/stories-
behind-12-...](https://www.mentalfloss.com/article/89283/stories-
behind-12-outrageous-neiman-marcus-holiday-gifts)

~~~
riffic
This one may be more in line with the Hacker News crowd:

[https://www.computerhistory.org/revolution/minicomputers/11/...](https://www.computerhistory.org/revolution/minicomputers/11/362)

------
nerfhammer
Lord & Taylor next

~~~
hoofhearted
Prof G had mentioned that Nordstroms could be in a position to be acquired by
Amazon back when he made the Wholefoods acquisition prediction. I wonder how
their books are fairing these days

------
woofyman
Their nickname: needless markup

