Neiman Marcus, the 113-year-old pioneer of luxury retail, is the first department store to file for bankruptcy amid the COVID-19 pandemic that has retailers buckling under widespread store closures. JCPenney and Lord & Taylor may be next.

The retailer filed for Chapter 11 restructuring in the U.S. Bankruptcy Court for the Southern District of Texas. In a statement, the company said it received $675 million in financing from creditors to keep running the business, as well as $750 million it hopes will help it get out of bankruptcy by early fall. The creditors will become majority owners of the company, and Neiman Marcus expects to eliminate $4 billion in debt.

Geoffroy van Raemdonck, Chairman and Chief Executive Officer of Neiman Marcus Group said, “Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth. We have grown our unrivaled luxury customer base, expanded our industry-leading customer relationships, achieved higher omnichannel penetration, and made meaningful strides in our transformation to become the preeminent luxury customer platform. However, like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business.”

“My team and I appreciate the partnership and the steadfast support of all our stakeholders and the Board of Directors through this process. The binding agreement from our creditors gives us additional liquidity to operate the business during the pandemic and the financial flexibility to accelerate our transformation. We will emerge a far stronger company. In a world that is changing, we are uniquely positioned to give our brand partners access to our loyal luxury customers like no other company. We will deliver that through the strength of our associate relationships and digital solutions,” continued Mr. van Raemdonck.

RSA and Chapter 11 Proceedings Details:

• Certain of the company’s largest creditors have committed to fulfill $675 million in DIP financing during the Chapter 11 proceedings.
• These creditors have also committed to fulfill a $750 million exit financing package that would fully refinance the DIP financing and provide additional liquidity for the business.
• Upon emergence, the company’s planned capital structure is anticipated to be long-dated with no near-term maturities and to eliminate approximately $4 billion of its existing debt.
• The transaction is supported by the company’s existing shareholders and, pursuant to the agreement, the creditors participating in the RSA will become the majority owners of the company.
• Prior to the commencement of the Chapter 11 proceedings, new boards of managers were established at two debtor entities, Mariposa Intermediate Holdings LLC and Neiman Marcus Group LTD LLC, to lead the debtors through the restructuring process. Each board of managers is chaired by Mr. van Raemdonck and includes at least one independent manager.
• The company expects to emerge from the process in early fall 2020.
• Mytheresa is not a part of the Chapter 11 proceedings and will continue to operate independently.

COVID-19 Business Update – Neiman Marcus Group also provided an update on the following actions to efficiently manage its business through the COVID-19 pandemic:

• Temporary closures of some Neiman Marcus, Bergdorf Goodman, and Last Call stores have been extended through May 31 to protect the health and safety of customers and associates.
• The company continues to leverage the strength of its e-commerce platforms, continuing to serve customers remotely and digitally through its associates and style advisors, as well as on the Neiman Marcus and Bergdorf Goodman websites and apps.
• Furloughs or temporary salary reductions have been put into effect for a large portion of associates through at least May 31 with the potential to either extend or shorten based on COVID-19 developments.
• A total of 10 stores nationwide are now open for curbside pickup—all Texas Neiman Marcus stores, as well as Tampa, Las Vegas, and Tysons Corner stores.
• On May 4, the Atlanta and NorthPark Neiman Marcus stores became available to customers by private appointment.
• The company will continue to assess store closure decisions and will reopen stores as it is safe to do so based on the status of the pandemic.
• The Chapter 11 process will not impact the timing of store reopenings.

In a letter to customers, Mr. van Raemdonck said the company was not liquidating and would come out of bankruptcy “a stronger company with the ability to better serve you and continue our transformation over the long term.”

What the Experts Are Saying:

There is still speculation among industry insiders that Saks Fifth Avenue’s owner Hudson’s Bay Co. could emerge as a potential buyer to satisfy a long-standing desire to add Neiman Marcus to its portfolio. Cost savings and having more leverage with suppliers are two reasons a merger could make sense.

“Department stores have been struggling for a long time,” Craig Johnson, President of Customer Growth Partners, a retail consultancy, told CBS News. “Now, it’s a bloodbath. How many will survive is unclear.”

“If you look at true high-end luxury retail in the US, the market … [has] been pretty flat for a while,” Steve Dennis, a retail consultant and former Senior Vice President of Strategy at Neiman Marcus who left the company in 2008, told Business of Fashion. “With Neiman, Saks and even Barneys, there was a distorted reliance on older customers and as they retire—or literally die—they haven’t been replaced by younger customers.”

“The reason they’re in trouble is because the private equity guys paid a stupid price, presuming it would grow, which was fundamentally erroneous and then they put a ridiculous amount of debt on top of it,” Dennis said.

“The big issue with the stores is that so many of them have so much of the same products that they start to look alike,” retail consultant Robert Burke told Business of Fashion. “But there is a reason for department stores to exist, if they … can offer newness.”

“Neiman Marcus has always kept a very loyal customer, and they’ve been good at catering to that loyal customer,” Burke said. “But they haven’t brought in many new customers, and that’s what freshness is for.”

“Bergdorf Goodman does make a lot of sense for LVMH,” Elsa Berry, founder of luxury M&A advisory firm Vendôme Global Partners, said to Business of Fashion. “It’s luxury, it’s prestigious, and it has a long history … LVMH just spent significant time and funds to reinvent and reopen [department store] La Samaritaine in Paris.”

The retailer “faces a significant uphill battle in the coming months to find its way out of bankruptcy,” Kalinda Ukanwa, Assistant Professor of Marketing at the University of Southern California’s Marshall School of Business, told CNN. “This is likely just the beginning of retail bankruptcies in the coming months, especially for luxury retailers and those that don’t have a strong online presence or infrastructure, like Neiman.”

“The pandemic recession is causing consumers to retract from luxury products and accelerating consumers’ shift towards online retail,” said Ukanwa.