Neiman Marcus recently filed for bankruptcy, but Covid-19 wasn’t the sole reason so much as the accelerant. What killed Neiman? Here are a few points, hopefully this helps all the people who are interested in buying stocks when they dip by learning from the ones that don’t perform well. We have to study the failures as much as the winners.
1. The industry has been on a decline for a while. They call it “retail apocalypse.” This is caused by my e-commerce companies killing them, too many malls, the disappearance of the American middle class, and poor overall management.
2. TOO MUCH DEBT!! I can’t over-stress this, but Nieman has $4B in debt and pays $300M per year in interest payments. They couldn’t make the payments in April and defaulted on them. A lot of people have asked us why we wouldn’t buy GNC which is trading so low and also struggling, and I pointed to retail apocalypse and debt for them as well.
3. Neiman has been around for over 100 years, but no company can run with zero revenue, billions in debt and other costs. Covid-19 closed stores for months, revenue plummeted, but bills were still due.
What’s interesting is many e-commerce companies without physical stores, lease payments, and billions in debt are still doing well. People are buying items, but mostly online.
So what’s next after bankruptcy for my 2nd favorite retailer? They can liquidate assets to pay off lenders. They can sell off certain assets or brands. They can give the business to the lenders like a bank forecloses on a home. They can also get acquired by the owners of Saks, and form one dominant luxury retailer. But please dig into these companies before you guys buy “cheap” stocks from companies you use. Because tech, e-commerce, IoT and digital companies are eating “old-world” companies. What do you guys think they should do? What other reasons you think they for bankruptcy? #kemetinstitute