Published by The Financial Times on 7 May 2020

That combination of rare goods and exceptional service is what made department stores — a concept imported from Europe in the mid-1800s — a hallmark of sophisticated urban life. The names adorned on the stores — B Altman, Stern's, Marshall Field's, Lord & Taylor — were known in households across the country. And, for a time, these department stores came to dominate retail in America.

Even as shoppers began to turn to the internet, Warburg Pincus and TPG — who ultimately won the 2005 bid for Neimans — were willing to bet that the newly well-to-do would continue to turn to the merchandisers they had long trusted. In 2013, sharing a similar vision, buyout group Ares Management and the Canada Pension Plan Investment Board bought Neiman for $6bn.

Now Neiman Marcus, which carries $4.8bn of debt and missed an interest payment to its lenders, is on the brink of bankruptcy. Other department stores are likely to follow. People briefed on the matter expect the company, which operates 43 namesake stores, 22 off-price locations and two Bergdorf Goodman flagships in New York, to file for protection from its creditors and landlords in the coming days. It comes less than a year after its New York rival Barneys did the same, a move that ultimately ended in liquidation.

If there was ever an event to test the mettle of retail chieftains across the US, the coronavirus pandemic has been it. Malls have shut. Consumer spending has flatlined, with sales at department stores down a staggering 23 per cent in March from a year prior, the largest decline since at least 1994, according to data from the Census Bureau. And all the while rent and interest payments have been accruing.

How did we get here? The coronavirus is not entirely to blame for the problems presently facing Neiman Marcus and JCPenney; both were already suffering from bloated debt levels that left them little able to respond to the sweeping changes in American retail over the past two decades, including the rise of ecommerce and the migration of young people from the suburbs to cities after the financial crisis.

Full article below

Full article: Debt and hubris, the demise of the US department store