Neiman Marcus files for bankruptcy • Hacker News Board

Re: Neiman Marcus files for bankruptcy

#61

Post by _bxg1 » Thu, May 07, 2020, 6:26 PM UTC

adventured wrote: post #42

_bxg1 wrote: post #16

Earlier quoted context omitted.

There's also been a huge trend reversal on "conspicuous consumption". Even the wealthy now do their wealth-signaling through minimalism, instead of flash and excess. Self-proclaimed "luxury brands" have a dwindling market.

> Self-proclaimed "luxury brands" have a dwindling market. There's no evidence that supports that as a comprehensive statement. It very much varies from brand to brand and situation to situation. The king of luxury, Bernard Arnault (LVMH), recently became one of the richest people on the planet (current net worth of $76 billion) because luxury has been massively expansive over the past decade. His wealth increased fo…

> So what situations are causing this? China for one.

I think this is a key point. I was really just talking about America, where many people have rebounded from that sort of thing after embracing it 20-30 years ago. For China, traditional signals of wealth are still new and novel. People aren't sick of it yet.

Re: Neiman Marcus files for bankruptcy

#62

Post by govg » Thu, May 07, 2020, 6:27 PM UTC

onlyrealcuzzo wrote: post #13

contemporary343 wrote: post #7

Earlier quoted context omitted.

Same with J Crew.. real value creators these PE people are

PE does create value! They take over companies that are in a liquidity crisis. They bring buckets of cash with them that gets the company out of the liquidity crisis. Suddenly, the value of the company increases dramatically because creditors can't take advantage of it anymore. PE doesn't takeover companies they think can make it. Regular investors would do that. They take over companies that everyone knows are doome…

This is laughably false. Different PE firms (and funds within them) have different strategies, some firms may indeed by the aggressive kind that you specify, but a lot of them also help the firms growth by providing capital and management guidance. There are different stages in a company's lifecycle at which a PE firm can enter and different outcomes. A lot of PE is in doing the complete opposite of what you suggest; the focus is on improving the business and increasing cash flow while removing any obvious inefficiencies.

Re: Neiman Marcus files for bankruptcy

#63

Post by whatok » Thu, May 07, 2020, 6:30 PM UTC

rwmj wrote: post #33

pjc50 wrote: post #19

Earlier quoted context omitted.

The "creditors" are usually another shell company of the PE firm, and the interest rates are absurd (I looked into the collapse of Maplin and it was something like 20%). It's basically an accounting trick to remove profits from the victim company in its declining years without having to pay tax on them.

I assume someone must lend the money (as it's not created from nothing). How does it work?

Private equity firms raise funds (usually have a 10yr investment horizon) and use these funds to serve as the equity tranche for a buyout that the remainder is financed with debt. Banks (or other investment firms sometimes nowadays) will provide financing for these buyouts and that financing is later refinanced with syndicated financing through loans or bonds.

There are a decent amount of banks that were in the middle of this process, covid hit, and they are now stuck with those loans on their books.

Re: Neiman Marcus files for bankruptcy

#64

Post by alexpetralia » Thu, May 07, 2020, 6:31 PM UTC

onlyrealcuzzo wrote: post #13

contemporary343 wrote: post #7

Earlier quoted context omitted.

Same with J Crew.. real value creators these PE people are

PE does create value! They take over companies that are in a liquidity crisis. They bring buckets of cash with them that gets the company out of the liquidity crisis. Suddenly, the value of the company increases dramatically because creditors can't take advantage of it anymore. PE doesn't takeover companies they think can make it. Regular investors would do that. They take over companies that everyone knows are doome…

Yes, they also use leverage to magnify their outcomes. Since they are equity, their downside is capped (it is a call option essentially, which means they should maximize volatility to increase the option's value). You maximize volatility with financial leverage (debt). This is more profitable when rates are near-zero.

Engaging in risky bets is not "unique" to private equity - this is true of any equityholder (take a look at VC). It is also typically why bondholders include covenants restricting particularly high-risk actions voted upon by equityholders. However creditors have no leverage nowadays because they need to stick their money somewhere (hello high-yield debt) and Treasuries do not provide a reasonable return.

Using debt is not unique to private equity. When rates are low - arguably artificially - it makes sense to binge on debt and volatility.

Re: Neiman Marcus files for bankruptcy

#65

Post by soup10 » Thu, May 07, 2020, 6:33 PM UTC

devchix wrote: post #36

johntiger1 wrote: post #5

Earlier quoted context omitted.

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

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

Because one of the principles of private equity is to load up a company with debt while growing the bottom line and then offloading it. When it works the banks profit, the company grows and everyone is happy, when it doesn't work they are vultures that made a bad situation worse.

Instead of painful downsizing and adjusting to actual market demand they will keep things floating until it turns around or the company is so far gone that nobody will lend to them anymore.

Re: Neiman Marcus files for bankruptcy

#66

Post by whatok » Thu, May 07, 2020, 6:35 PM UTC

soup10 wrote: post #65

devchix wrote: post #36

Earlier quoted context omitted.

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

Because one of the principles of private equity is to load up a company with debt while growing the bottom line and then offloading it. When it works the banks profit, the company grows and everyone is happy, when it doesn't work they are vultures that made a bad situation worse. Instead of painful downsizing and adjusting to actual market demand they will keep things floating until it turns around or the company is…

As with anything in life with leverage, debt-financed buyouts magnify the upside as well as the downside.

Re: Neiman Marcus files for bankruptcy

#67

Post by b1gtuna » Thu, May 07, 2020, 6:41 PM UTC

hhs wrote: post #31

b1gtuna wrote: post #26

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.

Those sneakers are likely a Veblen good.

Right, but I think EVERY sneaker is a Veblen good. A pair of $20 sneakers want to look like a $100 one and $100 sneakers want to look like $300 ones..

Re: Neiman Marcus files for bankruptcy

#68

Post by greedo » Thu, May 07, 2020, 6:41 PM UTC

ghaff wrote: post #9

karatestomp wrote: post #4

Earlier quoted context omitted.

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)…

Yeah. It's not just department stores--which I have less direct experience with. A lot of the old line "mail order" outfits like LL Bean, J Crew, Lands' End, etc. (as well as many of the at least semi-premium outdoor clothing/gear/etc. brands) are much more of a both quality and customer service crapshoot than they once were. At the risk of painting with an overly broad brush, when everything is made in the same, mos…

I used to be an Eddie Bauer guy. Shirts, shoes, shorts, jeans, coats, you name it. Spent a good chunk of change at their mall store where you could try stuff on. Overtime, the fabrics got thinner on shirts and jeans. They stopped stocking my size in store. Stuff started wearing out quicker. I tried to order online, but the order fulfillment was hit and miss. Too bad for them...

Re: Neiman Marcus files for bankruptcy

#69

Post by Loughla » Thu, May 07, 2020, 6:44 PM UTC

colechristensen wrote: post #53

_bxg1 wrote: post #16

Earlier quoted context omitted.

There's also been a huge trend reversal on "conspicuous consumption". Even the wealthy now do their wealth-signaling through minimalism, instead of flash and excess. Self-proclaimed "luxury brands" have a dwindling market.

I went in a Neiman Marcus a few months ago and was struck by how much they seemed to be selling "luxury". Like luxury apartments or Las Vegas facades, it all seemed like shoddy but shiny. I was asking people who their target consumer is and there really wasn't an answer. I didn't recognize any but a few of the brands and most of them seemed like they'd been invented for a thirty second scene in a TV show.

>I went in a Neiman Marcus [. . .] I was asking people who their target consumer is [. . .]

This strikes me as hilarious for some reason. I'm not trying to be difficult, but did you honestly think anyone working on the salesfloor of the store to know what their target consumer was? That is a corporate strategy. In the store, their target is whoever comes in the door. They don't set style, they don't buy trends or fashions, they just put it on a shelf.

Re: Neiman Marcus files for bankruptcy

#70

Post by b1gtuna » Thu, May 07, 2020, 6:47 PM UTC

karatestomp wrote: post #35

b1gtuna wrote: post #26

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.

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.…

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?).