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Neiman Marcus files for bankruptcy

reuters.com

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Re: Neiman Marcus files for bankruptcy

#181

Post by lazerpants »

asdff wrote: post #116
_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.

It's on the upswing among the youth. I'm seeing a lot more plain black hoodies with BALENCIAGA screen printed across the front. Gucci and versace have seen a resurgence, even their rubber slides which are probably less comfortable than a $15 pair are coveted and featured in music videos. Dressing nicely to some might mean a gaudy branded t shirt under a blazer, percieved by the wearer as passable for nice attire due…

To be fair, the materials and labor used by high end brands (at least the ones you mentioned) are different from cheap brands. Most of the labor is Italian or Portuguese, and those workers get a paid month off every year in addition to benefits, even if they aren't highly paid. Likewise, the materials they use are generally higher quality and are sourced more carefully. High end brands also do a shitload of QC.

I'm not a fan of $100 t-shirts but there is absolutely a difference including much fairer practices in how the garment is manufactured.

Re: Neiman Marcus files for bankruptcy

#182

Post by topkai22 »

devchix wrote: post #140
topkai22 wrote: post #109

Earlier quoted context omitted.

Becuase the risk of investment is now structured differently with leverage. Let's pretend we live in world where companies are always worth 10x earnings + assets. Our pretend company $100M makes $5M in earnings and has $50M in assets (cash, real estate, etc..) To take the company private, the lenders require an interest of 10% and 10% principal Some PE company (or the CEO, whatever) thinks they can make this work, so…

Thank you, I understand better now with the numbers worked out. Although in this example, outcome is dependent on circumstance and LBOs are not covers for malfeasance the way they're frequently talked about.

I think the reason LBOs are so hated is difference in utility between the capitalists and the community. The capitalists (PE, management, and lenders) are putting a boatload of money at risk to make an even larger boatload of money, and are empowered to take that risk. If the bet doesn't work out? They'll lose money (but probably have lots left over) and maybe their jobs if goes bad.

The community (workers, local suppliers, and governments) are seeing their jobs, livelihoods, and institutions put at risk, and they likely are seeing no reward for success. They are not empowered to decline the increase in risk, even though they certainly have a stake in the future of the company.

Re: Neiman Marcus files for bankruptcy

#183

Post by whatok »

jazzkingrt wrote: post #160
topkai22 wrote: post #109

Earlier quoted context omitted.

Becuase the risk of investment is now structured differently with leverage. Let's pretend we live in world where companies are always worth 10x earnings + assets. Our pretend company $100M makes $5M in earnings and has $50M in assets (cash, real estate, etc..) To take the company private, the lenders require an interest of 10% and 10% principal Some PE company (or the CEO, whatever) thinks they can make this work, so…

This was helpful to me. How does the PE company fare in the bankruptcy scenario? Have they put up collateral or are somehow on the hook to the lenders? It's my understanding that the bankruptcy applies only to the purchased subsidiary, so the PE firm only stands to lose the principal they put in at the start. If so, it sounds like the PE firm gets all the upside, but is less exposed to the downside. So they are incen…

> This was helpful to me. How does the PE company fare in the bankruptcy scenario? Have they put up collateral or are somehow on the hook to the lenders?

All deals are different. You're probably not going to have any collateral put up by the actual PE firm in most cases.

> It's my understanding that the bankruptcy applies only to the purchased subsidiary, so the PE firm only stands to lose the principal they put in at the start.

In most cases this is true. Depending on how aggressive the firm has been and how long they've been involved, they might have already dividended out their principal.

> If so, it sounds like the PE firm gets all the upside, but is less exposed to the downside. So they are incentivized to rachet up the risk.

This is a correct but simplified conclusion. They're incentivized but there's usually a set of checks and balances in the form of banks providing financing and investors willing to finance deals. This system of checks and balances typically erodes as the business cycle/bull market rides on.

The binding constraint in most of these deals is how much leverage you're able to get away with.

Re: Neiman Marcus files for bankruptcy

#184

Post by bsder »

whatok wrote: post #179
bsder wrote: post #176

Earlier quoted context omitted.

That wasn't always true. When I started interviewing out of grad school, I REALLY stretched to go buy a nice suit from Neiman-Marcus, a Valentino at $700 in 1995. The suit was gorgeous and the tailor at N-M did a beautiful job adjusting it to me. I could be considered, barely, middle-class--certainly the lower end at best. The suit absolutely paid for itself many times over--that's a different set of stories. That Va…

All I've taken away from this is Valentino is more expensive in 2020 than it should be. By nature of you even being physically close enough to a Neiman Marcus in 1995, chances are you were of higher income than the rest of the country. They're still located in mostly more wealthy areas of the country.

If you consider driving 3+ hours close ... And a "grad student" is generally damn poor (and I was) ...

My point was that Neiman-Marcus had a product (properly fitted business suits) that was actually (probably upper) middle class. And that product, in fact, served its purpose really well.

People still underestimate the effect that an excellent suit has on people's perception of you in business. Being tech, I normally cruise around in really casual wear. However, investor meetings demand something a little more upscale so I'm pulling out my nice suit. I chuckle at the difference in behavior of the people around me (both employees and strangers) when I show up for work in a suit.

Re: Neiman Marcus files for bankruptcy

#185

Post by tfehring »

johntiger1 wrote: post #5
sp332 wrote: post #3

First guess: private equity? Neiman Marcus, laden with debt after a private equity takeover, Yup.

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

No matter how risky it is, there's a price at which it's still profitable (in terms of risk-adjusted expected present value or whatever) to finance it. In this case, based on a sibling comment, that price was a ~8% credit spread - which, if there weren't a global pandemic, the creditors would happily be earning right now.

Re: Neiman Marcus files for bankruptcy

#186

Post by rb808 »

People dress very cheaply now. I'm always amazed from historic photos, it seems the further back you go the more money they spent on appearance.

These days it just looks like no one cares. I'm surprised upmarket stores lasted this long.

Re: Neiman Marcus files for bankruptcy

#187

Post by pstuart »

topkai22 wrote: post #182
devchix wrote: post #140

Earlier quoted context omitted.

Thank you, I understand better now with the numbers worked out. Although in this example, outcome is dependent on circumstance and LBOs are not covers for malfeasance the way they're frequently talked about.

I think the reason LBOs are so hated is difference in utility between the capitalists and the community. The capitalists (PE, management, and lenders) are putting a boatload of money at risk to make an even larger boatload of money, and are empowered to take that risk. If the bet doesn't work out? They'll lose money (but probably have lots left over) and maybe their jobs if goes bad. The community (workers, local sup…

> I think the reason LBOs are so hated

It feels like economic strip mining to me.

p.s. thank you for the clear explanations

Re: Neiman Marcus files for bankruptcy

#188

Post by akdas »

rb808 wrote: post #186

People dress very cheaply now. I'm always amazed from historic photos, it seems the further back you go the more money they spent on appearance. These days it just looks like no one cares. I'm surprised upmarket stores lasted this long.

That's partially because photos used to be rarer. So either the subjects were richer to have access to photos, or the subjects dressed their best when getting their photographs taken.

Re: Neiman Marcus files for bankruptcy

#189

Post by whatok »

topkai22 wrote: post #182
devchix wrote: post #140

Earlier quoted context omitted.

Thank you, I understand better now with the numbers worked out. Although in this example, outcome is dependent on circumstance and LBOs are not covers for malfeasance the way they're frequently talked about.

I think the reason LBOs are so hated is difference in utility between the capitalists and the community. The capitalists (PE, management, and lenders) are putting a boatload of money at risk to make an even larger boatload of money, and are empowered to take that risk. If the bet doesn't work out? They'll lose money (but probably have lots left over) and maybe their jobs if goes bad. The community (workers, local sup…

I think it's more because the examples people are familiar with are cherrypicked "heads I win, tails you lose" examples that have recently been recognizable American brands. Someone linked a list of LBOs elsewhere in here and TXU was at the top of the list. A lot of people lost a lot of money on that deal but you didn't see the kind of press Toys R Us got. I'm guessing a tiny percentage of people here even know what TXU is. Toys was a brand everyone recognized and PE got paid on that even though they went under.

Re: Neiman Marcus files for bankruptcy

#190

Post by ashtonkem »

twblalock wrote: post #144
lkrubner wrote: post #127

Everyone talks about the "Amazon effect" but the changing distribution of income is also worth considering: " Retail is suffering because the middle classes have lost $1,355 trillion in income since 1970 " http://www.smashcompany.com/business/retail-is-suffering-bec...

I don't buy that explanation. A lot of traditional mall and department store retail is suffering, but other kinds of retail is doing great selling to middle-class Americans. Examples include Home Depot, Lowes, Walmart, Target, and Amazon. They are winning because they offer more convenience to customers as a result of their size, selection, and online presence. Besides, this article is about a luxury retailer, not th…

Also changing tastes in clothing have reduced the gap between luxury clothing and cheap clothing by a lot, while home improvement needs remain more or less steady.
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