Tuesday, March 14, 2017

Retail's Other Problem

On-line shopping has hurt retailers.  In 2016, ecommerce sales were estimated at $1.9 trillion, and are expected to double to over $4 trillion by 2020.  In shopping malls, anchor tenants are closing and the surrounding retailers are impacted by fewer shoppers.  I am reading this morning that Neiman Marcus is looking to sell itself because of a sales slump.  Its same store sales fell 6.8% for the quarter ending January 28.  Neiman Marcus has a bigger problem than declining sales, and this line from the Bloomberg article linked to above tells it all:
The company has about $4.9 billion of debt outstanding, some of it tied to its $6 billion acquisition in 2013 led by Ares Management LLC and the Canada Pension Plan Investment Board. They bought the chain from TPG Capital and Warburg Pincus LLC, which acquired Neiman Marcus for about $5 billion in a 2005 leveraged buyout.
Neiman Marcus is over 80% leveraged, and that is based on its 2013 purchase price.  It has $4.9 billion of debt outstanding and S&P recently said Neiman Marcus' debt is unsustainable.  The private equity firms that acquired trophy retailers with extreme debt levels give firms like Neiman Marcus little room to operate in a slump.  Neiman Marcus' capital issue is now more pressing than its sales decline, and its likely taking more of management time than thinking of creative ways to attract new customers.  The Bloomberg article says that one Neiman Marcus bond issue is trading at $.49 on the dollar, a price that says the market expects default.   Private equity firms have ruined many retailers, restraining management and growth because of demands to service debt.

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