Is This the Week That Neiman Marcus Files Bankruptcy?

It has not, in big old capital letters, been a good time for retail these last several weeks. With storefronts shuttered, and online-only now pretty much the only game in town for at least the next 12 days, the old-style mall-facing retailer has been hit harder than a Fiat at a demolition derby. In fact, it's gotten so bad that new reports have emerged suggesting that this could be the week that Neiman Marcus gives up the ghost and files for bankruptcy.

Giving Up the Struggle

The word came in from the ever-popular “people familiar with the matter,” declaring a very high potential that this is the week that Neiman Marcus buckles and files for bankruptcy.  The reports suggest that Neiman Marcus is currently in talks with creditors to get itself one last loan to sustain some of its operations while it files for bankruptcy, and has also put many of its 14,000 employees on furlough until reopening a physical store for anything much more than groceries is even possible.

A clear sign of this outcome came when Neiman Marcus reportedly skipped debt payments last week, including one that was sufficiently structured to essentially require a default within days. While a straight-up bankruptcy could be merely days away, there are reports that the timing may not be quite so cut-and-dried; we could be looking at a few weeks rather than a few days.

Massive Debt Plus Ruined Sales Equals Bankruptcy?

Neiman Marcus was carrying around $4.8 billion in debt, noted word from Standard & Poor's, a combination of the remnants of a $6 billion leveraged buyout back in 2013 and some new debt since. The company has spent the last several years trying to avoid such a fate, including setting up a restructuring deal with its current creditors to buy it more time.

Worse, Neiman Marcus isn't exactly on good terms with its creditors right now; previous reports suggested that creditors were still stinging over their treatment back during an earlier restructuring deal that cost investors access to Neiman Marcus' online-only luxury imprint MyTheresa. While Neiman Marcus insists that its actions were all above-board, creditors are less than certain.

Thus, Neiman Marcus walked into a retail firestorm wearing SPF 20, financially speaking; a massive outstanding debt load is a manageable problem when there's an income coming in, but it's a catastrophe when the income is pared back substantially as it has been for many retailers in this ongoing crisis.

Standard & Poor's, for its part, delivered a blow to Neiman Marcus' fortunes going forward by noting last week that the company's likelihood of a turnaround was “...increasingly low.”  It also lowered the company's credit rating into the “junk” territory and referred to its capital structure as “unsustainable.” Standard & Poor's motive for such an assessment? Everything we've listed so far already: the combination of a coronavirus-weakened economy and a recession likely to follow.

They're Not Alone in this Boat

The coronavirus pandemic has been a disaster for both retail and retail stocks for the last couple of months now. When it started out as a minor problem, mainly focused on China, things managed to stay reasonably robust. But when it migrated outward and started hitting other countries, “reasonably robust” turned into “mostly closed.” There are even some reports that suggest this could be the death knell for the large department store; we've already seen Sears collapse under its own weight recently, and JCPenney (NYSE: JCP) seemed potentially in line to follow after word emerged about possible bankruptcy there. Macy's (NYSE: M) wasn't looking all that great either, with word about a potential retail purge from the S&P 500 shaping up.

With several mall-facing retailers like Foot Locker (NYSE:FL) and the Children's Place (NASDAQ: PLCE) in similar boats, coronavirus might well have driven the last nail into the physical retail coffin. Not all physical retail, of course; those that dealt in necessities alongside their fripperies got a sustaining boost. Walmart (NYSE: WMT) is now hiring another 50,000 workers on top of the 150,000 recently hired to address the pandemic, reports note. Target (NYSE: TGT) has been increasingly attractive in recent months, using its physical storefronts as showrooms and pickup centers for online orders. And if you want to shop there too, well, hey, you're welcome to do so.

Retail is a fundamentally shifting landscape. Those who make efforts to keep up are likely to come out ahead. Those who didn't, meanwhile, are the ones most likely to come out on the wrong side of this mess...if they come out at all.