“Needless Markup” feels the Pain……in a big way


From today’s Wall Street Journal:

Neiman lays

off 375

Reeling from the sharp drop in sales of luxury goods, upscale retailer Neiman Marcus Group Inc. is laying off 375 people, representing 3% of its work force.

The Dallas-based retailer, which operates 40 Neiman Marcus stores and New York luxury emporium Bergdorf Goodman, also said in a regulatory filing Tuesday that it will make interest payments for some senior notes due in 2015 by issuing more debt instead of paying cash — exercising a “payment-in-kind” option to cover interest payments due from Jan. 15 through April 14.

Burt Tansky, CEO of Neiman Marcus, said at an industry conference Monday that the market for luxury goods has changed dramatically in the last several months and the company doesn’t know how it will shake out eventually.

“The affluent customer, unfortunately, doesn’t need anything. They can — and are — shopping in their closets and bragging about it to me,” Mr. Tansky said. “We are bracing ourselves for 2009 and 2010,” noting that “none of us knows what the customer will want going forward. We are in a transition period.”

His comments echo those of other luxury-goods retailers.

The layoffs — across all divisions of Neiman Marcus, including Bergdorf Goodman, catalog and Internet divisions — illustrate how the current recession is dealing severe blows to some of the strongest names in the luxury goods industry. Last week, Neiman Marcus reported a 31.2% plunge in December sales at stores open at least a year, excluding its catalog and online division. Its catalog and Internet unit had a 9.2% drop in sales in the five weeks ended Jan. 3. Neiman Marcus’ current corporate family rating and probability of default rating stand at “B1,” four notches into noninvestment-grade status.

Only a year ago, there was speculation that Neiman Marcus’ private-equity owners were considering an IPO of the luxury department store chain. Neiman Marcus Group was bought by Texas Pacific Group and Warburg Pincus LLC for $5.1 billion in 2005, amid a prolonged spending spree by wealthy shoppers.

In the new environment, “We’re trying to focus on those vendors that are the most important, where we are almost guaranteed of getting sales. The marginal guys are going,” said Mr. Tanksy, a 14-year veteran of the retailer who became its CEO in 2001 after running its Bergdorf Goodman and Neiman Marcus Stores units.

Ginger Reeder, a spokeswoman for Neiman Marcus group, said openings of Neiman Marcus stores in Sarasota, Fla., and Princeton, N.J. would be delayed. “That’s partly because of mall delays,” she added.

In a filing with the U.S. Securities and Exchange Commission, Neiman Marcus cited a “dislocation in the financial markets” for electing to use the payment-in-kind option.

Write to Vanessa O’Connell at vanessa.o’connell@wsj.com


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