Neiman Marcus will file for chapter 11—a sign that legacy department stores can no longer rely on their physical presence to stay in business.

WHAT HAPPENED: Neiman Marcus is on the verge of a Chapter 11 bankruptcy filing along with Lord & Taylor and JCPenney as the vast majority of their stores remain closed due to COVID-19.

WHY IT MATTERS

  • With brick-and-mortar stores still closed across the U.S., clothing-focused retailers don’t have time to rebalance their business model. Regardless of their attempts to modernize in-store experiences, clothing retailers overly dependent on their physical stores to stay afloat can’t survive in the post-COVID world. Macy’s, for example, said that it lost the majority of its sales after closing its stores for two weeks. While digitally-native clothing retailers like Net-a-Porter—which had to shut down its fulfillment centers—are also struggling right now, they don’t have to worry about keeping hundreds of stores open and stocked to stay in business. But this will allow them to bounce back faster than their offline counterparts.
  • Department store bankruptcies will surface the mall’s deep-rooted problems, which will lead to hundreds of vacancies. Forever 21’s bankruptcy earlier this year resulted in hundreds of store closures, leaving malls scrambling to find a solution to save the traffic associated with the brand’s customers. If malls lose their anchor tenants, they face co-tenancy issues (other businesses demanding lower rent if department stores leave) and need to fill the space as soon as possible in a number of traditional and nontraditional ways.