Neiman Marcus files for bankruptcy
reuters.com
reuters.com
One sequence showed the CEO giving a pep talk to his buyers, whose relationship with their suppliers was always strained at best. He told a joke about a buyer who called his supplier that went something like:
Buyer: "Hello, is Fred Jones there?"
Receptionist: "I'm sorry, Mr. Jones passed away last month"
Buyer: "Oh, sorry to hear that, goodbye."
Ten minutes later:
Buyer: "Hello, is Fred Jones there?"
Receptionist: "I told you, he died last month"
Buyer: "Oh, oh, yes. Goodbye."
Ten minutes later:
Buyer: "Hello, is Fred Jones there?"
Receptionist: "He's dead, why do you keep calling here?"
Buyer: "I just like hearing you say it"
The supplier/buyer relationships are very "frenemy" even in the best of times.
Why?
"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...
Besides, this article is about a luxury retailer, not the kind of place middle-class Americans go to.
Just because it squeezed Neiman Marcus, doesn't mean other stores could afford it.
Of course, everything has changed now. Will landlords have to lower their rents in response? Maybe.
Keep in mind how the concept of an "anchor tenant" works.
For instance, Sears had leases that were as long as 99 years long, with rates that were as low as one dollar per year. (No joke: https://www.denverpost.com/2019/09/26/kmart-monaco-evans-den...)
The way that the retail model was structured, back in the 70s and the 80s, was that the anchor would bring buyers into the area, and the landlord would make the lion's share of their income off of the stores around it, such as restaurants, jewelry stores, movie theaters, etc.
If all that makes sense, you can see that a lot of these landlords would actually be thrilled to see these department stores go away, because then they could re-purpose the space into something that generates more money.
Fry's Electronics, Sears, Macy's... they're all an example of this.
I used to work for Sears corporate. Sears got some incredibly good deals on leases. They were known to sign leases that are 99 years long:
https://www.thedenverchannel.com/news/front-range/denver/cou...
This creates a "tug-of-war" between the company that owns the building, and the company that is leasing it.
For instance, in the article posted above, Sears was paying $33,333 a month for their lease.
If the lease is 99 years long, and if the owner of the property can lease it to someone else for $50,000 a month, that creates a problem for the owner.
Basically the owner is in a pickle: they want to lease it to someone else, but as long as Sears is paying the lease, they can't.
So this creates a tremendous incentive for the property owner to buy out the lease holder. It also incentivizes Sears to let the property fall into disrepair. For instance, in the article I posted above, you can see that the community was eager to see something done about that derelict boarded up building.
Here's some math:
1) Sears is paying $33,333 a month on a 99 year lease
2) The property's market value is $50,000 a month
3) There's 50 years / 600 months left on the lease
If you do the math, that lease that Sears has might be worth ten million dollars or more.
Again, pure speculation on my part, but I personally believe that a lot of companies are getting wise to this scheme.
If you've ever gone to your local mall, and wondered why Sears and Roebuck is still open when there are four customers... well now you know.
The point of NM et al. was that they currated what you could not obtain yourself (outside of a private buyer's agent and/or flight to NYC).
With the internet... suddenly manufacturers could efficiently sell direct to consumer. Or at worse, via something like Huckberry that has far lower overhead.
The value proposition of brick and mortar curration evaporated, and the only thing that kept them going was generational intertia and loyalty. And the problem with an aging customer base is eventually they age... terminally.
Financial games and leverage may have exacerbated things, but you can only shrink for so long.
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 Valentino is now closer to $5,000. Inflation says that Valentino should be about $1,200. I suspect that even at $1,200 most students couldn't stretch for it today.
So, is Neiman-Marcus to blame for going further upscale given that they probably can't make any money in the middle anymore?
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.
I'm not disagreeing with anything you said on making a good impression but that doesn't change anything on the fact that Neiman Marcus has never been for middle class shoppers. A one-off purchase does not make a customer base.
You made one purchase at N-M 25 years ago, and from that single experience, you're generalizing the entire merchandising strategy of the brand ever since then?
And your premise is false anyway. The 1 and only Valentino suit currently available at neimanmarcus.com costs $1173, which is less than $1200:
https://www.neimanmarcus.com/search.jsp?aq=valenti&dq=valent...
They had a black t-shirt with some rhinestones (presumably) on it for $5000. It was probably from some famous designer, but still .. $5000 for a t-shirt that had been gone over with a BeDazzler?
I mean that's it in its entirety right? Otherwise by similar reduction, a Picasso is just some acrylic on canvas.
But what percentage of the general public can spot a Nieman Marcus buy from a thrift-store find?
If Miuccia Prada herself sewed together a tshirt and painstakingly put on the rhinestones with much thought, then no one would be questioning the price.
The end goal should be improving the median quality of life, through improving the efficiency of factors of production -- lower cost of goods... not through the expectation that the wages should arbitrarily grow linearly with GDP.
Around one hundred percent. https://data.oecd.org/lprdty/gdp-per-hour-worked.htm
But it's not just warehouses: efficiency changes have been top to bottom throughout the world. Things like Six Sigma, lean manufacturing, the Toyota Production System ... these have been massive drivers of efficiency nearly everywhere.
I worked manufacturing IT and was able to watch the assembly process. It's frankly amazing and us programmers have lots to learn. The worker that bolts widget A to widget B doesn't just have a box of bolts and a wrench. She pre-places the bolts in a pokayoke tray and places test templates against A and B. Are they misdrilled? Push a button on her console and they are diverted off the line for rework. Good? Templates off, place the assemblies in a work tray that can hold them in exactly one - the correct - configuration, pokayoke tray goes on and nuts screwed to bolts.
The count of nuts and bolts in her station are measured based on flow in/flow out and a runner brings and places more just in time to prevent her station from running out but not before they accumulate at her station. The environment and process is designed to absolutely minimize operator motion, with a supervisor monitoring and filling out time observation sheets to look for wasted effort and opportunities to change.
When I talked with some plant supervisors it was incredible: they were able to point to a manufacturing station and say "this worker takes twelve seconds to execute these five motions", and you could pull out a stopwatch and that was exactly what you would see.
Another way of saying that it grew more slowly than other groups is that it shrank.
edit: not being sarcastic, I just really admire effective communication (to whoever downvoted me </3)
Another way of phrasing it: child 1 used to be the tallest. The other children grew and now 1 is the shortest. The objective height of 1 may have increased, but relative stature declined.
The figure to think about is purchasing power. How much stuff can you buy with your money, whatever the numerical quantity of that money is. Purchasing power has been roughly flat for the past 40 years for the middle class [1]. The economy is growing, but almost all of that growth is captured by the upper class.
Things that the middle class mostly spend their money on, healthcare, education, housing - has all been getting disproportionately more expensive too. So it's not just that the effective earnings aren't increasing, it's also that the things middle class families spend on are getting more expensive.
It's complicated to think about, but that's partly why you shouldn't trust pithy analogies that try to make stagnant income for the middle class seem acceptable. As the saying goes - for every hard problem there's an answer that's simple, elegant, and wrong. "Everyone is getting richer, just at different rates, like your children grow at different rates" is one such answer. In reality, your upper class child is gigantic, fat, and eating more while the other children haven't developed in years.
1 - https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
This seems like a propaganda term to endow the more aptly named 'working class' with a more prestigious title. In any case, the point holds: your argument about inflation is so clear precisely because you can explain it against the backdrop of the height analogy. It is a really neat way to explain the situation, even if it mostly explains why OP is wrong.
This is the purchasing power of the currency over time. Here is a calculator for that: https://www.measuringworth.com/calculators/uscompare/ and here: https://www.officialdata.org/us/inflation
This gets called inflation. (People do argue about what inflation is and what they argue for depends on their economic ideology – there's the inflation of prices in a currency and the inflation of a currency itself through pumping more of it into the system, so-called quantitative easing)
https://en.wikipedia.org/wiki/Inflation
Put simple, height is measured using a fixed or absolute measure (inches or centimetres or whatever) – a $ in 1970 is not the same $ in 2020, it's relative – but we know this intuitively anyway because when we look at old prices (for most things) they are way less.
What matters is that U.S. middle-income share of aggregate income fell from 62% to 43% – is this not the usual measurement? This is what people mean by "the middle class is shrinking". It doesn't matter if the average middle-income has increased, what matters in this context is the overall purchasing power of the middle class.
Even adjusted for so-called inflation you have to wonder does your 2018 $ go as far as your 1970 $ ? How would we measure that? How about we look at household debt? According to this site “In 1983, the top 5 percent had 80 cents of debt for every dollar of income, while the remaining 95 percent had 60 cents for every dollar. By 2007, after decades in which an increasing share of income flowed to the top, the situation had reversed. The top 5 percent had 65 cents of debt for every dollar of income, while the remaining 95 percent had $1.40 in debt for every dollar. The situation remains skewed today.” https://tcf.org/content/commentary/graph-household-debt-and-... – this suggests that a $ dollar does not go as far today and that today maintain a middle-income lifestyle the average family has to go deeper into debt.
( You'll note that according to the New York Fed total household debt has ballooned from a fraction of a trillion to over fourteen trillion from the '60s to the 2010's https://www.newyorkfed.org/medialibrary/media/research/staff... )
2: It's interesting to look at debt, but net worth gives a more complete picture as larger assets can offset larger debts. On this front things we're looking pretty rosy for the median US household up until 2007, when the Great Recession roughly halved household net worth and hasn't seen a recovery since: https://www.financialsamurai.com/the-median-net-worth-of-us-... - the "good news" is that things aren't worse than where they were in the 60's in inflation-adjusted terms. The terrible news is the truly astonishing racial gaps in household median net worth: https://www.taxpolicycenter.org/fiscal-fact/median-value-wea...
I still think it's odd to argue that the middle class on aggregate are doing better when clearly they are not.
[0] https://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-s...
Neiman Marcus, laden with debt after a private equity takeover,
Yup.
They are other banks, and probably all the suppliers who give to NM on credit and who won't get paid.
Chapter 11 is by default bad news for creditors, it means they will get less than the agreed-to value of whatever.
Depending on their status (e.g. if their debt is secured by a lien), it's totally possible that some classes of creditors could be reinstated with the same claims under the reorganization plan (assuming it gets confirmed by the court). Even if a secured class doesn't get the same value and votes against the plan, they're still entitled to a handful of protections under the Bankruptcy Code (§ 1129(b)(2)(A)). Less so for unsecured creditors and shareholders.
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.
Banks infrequently get "hung" with loans and these usually are just bad deals that somehow got through. There are more hung loans now on deals that might have been okay under normal economic circumstances but are not feasible right now.
Edit: Or is this one of the outliers and most of the other times all the participants make money?
For instance, 24 hour fitness is on the verge of failing, and it's owned by a pension fund in Canada.
https://www.24hourfitness.com/company/press_room/press_relea...
"24 Hour Fitness USA, Inc. announced that AEA Investors, a leader in the private equity industry; Ontario Teachers’ Pension Plan, Canada's largest single-profession pension plan – and one of the world’s largest; and Fitness Capital Partners, a fund organized by Dean Bradley Osborne and Global Leisure Partners have completed their acquisition of the Company from Forstmann Little & Co."
Also, if the only financing a business can access is basically consumer credit card rates, they probably weren't a going concern.
I suspect it is similar here. They make the loan then sell it to someone else.
> Further down the corporate structure, Maplin Electronics Group (Holdings) Ltd. mainly seems to exist to drain Maplin Electronics Ltd. of profits. On the books of Maplin Electronics Group (Holdings) Ltd. is an intercompany loan to Maplin Electronics Ltd. at an interest rate of 10%. The interest charge on this loan was sufficient to ensure that Maplin Electronics Ltd. made a statutory loss in both 2016 and 2017. Meanwhile, the direct owner of Maplin Electronics Ltd, Maplin Electronics (Holdings) Ltd., appears to exist only as a vehicle to hold a £31m revolving credit facility from Lloyds Bank. All of these intermediate companies are effectively guaranteed by MEL TopCo. All of them are now therefore insolvent.
> ... When Rutland Partners acquired Maplin in 2014 it funded the purchase with debt. That debt was loaded in its entirety on to the books of MEL Topco, in the form of £15m of bank loans at Libor + 7.5% and £72m of shareholders' loan notes at 15%.
This is often a fantastically expensive enterprise that requires that the new owners raise tons of money. The new owners do this by structuring a deal where the company will take out a ton of debt (basically its entire market capitalization of the company, plus a premium) to purchase the outstanding shares. This is known as a leveraged buyout (LBO).
So if a public company has $100M in outstanding shares and zero debt before they go private, by going private the private company will now have $100M of debt (rough numbers, illustrative but not necessarily realistic). That's why going private often results in dramatic sell offs and cost cutting- the new company needs to get the debt load down, and fast.
Definitely read Barbarians at the Gates, it's a great book and explains a lot about private equity from a dramatic case in the 80s.
If you can. If you can't and your cash flow either stays flat or declines, you now have more debt to service. The more debt you have, the less leeway you have to execute on your plan. That's assuming you don't screw anything up in the business without considering any macroeconomic factors.
All debt deals have covenants and covenant protection is at an all-time low right now; investors have decided that it is worth giving up this protection for whatever the potential investment happens to be. Covenants on the amount of leverage a company can take on are common but there's no universal formula for calculating leverage. It is not atypical to have multi-page definitions of how a company calculates EBITDA. Some firms are known for being very aggressive with this and are also very aggressive with issuing dividends shortly upon the close of a transaction. Aggressive dividend policies help PE derisk transactions substantially. The more money you are able to take out of the company (and sometimes able to issue debt to do so), the more you derisk your initial investment.
I could go on for days about whether any of this is good or bad, blah blah but as far as your observation that this seems to happen with all PE deals, PE is a multi-trillion dollar industry. Just think about how the world would look if that happened with all PE-backed companies.
There are other models for PE and going private- sometimes companies don't use nearly so much leverage and are effecitvely bought as part of portfolio, sometimes you see very rich individuals take their companies that they used to own private again, sometimes they do use tons of leverage but buy and run the companies mostly as is, just growing the company in place and paying down debt from cashflow.
PE's and LBOs aren't necessarily bad things at all and the economy as a whole is better for having them exist. The problem is that the risk/reward profile tends to exaberate inequality. The PE/LBO firm is already rich individuals who may make our lose millions on a bet on the company. The control their own risk and decide. The workers and communities who also have a stake in the company? They have very limited upside and the downside is that they lose their jobs and anchor institutions in their communities, and they have very little control over whether or not to accept the risk.
(The collapse of MG Rover is complicated and the directors very narrowly avoided prosecution)
They take over a business with existing good will and loot it, using that good will to delay the collapse until they've extracted all the money and left others holding the bag, usually creditors (especially tradeline partners like suppliers, or landlords) and employees.
Ref: https://www.experian.com/assets/decision-analytics/white-pap...
Like any form of leverage, it magnifies both the upside and downside risks.
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 they come up with $10M of principal, take the lenders money and buy the company. The first thing they do is sell as many of those underlying assets as they can to pay down the debt. You now have a company that has $5M a year in earnings before debt, $10M in assets (the principal, serviving as the required reserve for the lenders), and $50M in debt, with a debt service of ~$5M a year (so really 0 earnings).
If the the PE company does a great job managign the company and the economy is good, so they double earnings to $10M, then the company is now worth $50M ($10M in income x 10 + assets - debt) and the PE company made a 5x return already (FYI- I know I'm abusing my financial math, fake numbers, but its illustrative).
Now lets assume they were wrong and a global pandemic breaks out, and the companies start losign money to the tune of $1M a year. If the company had stayed publicly owned, they might have to cut their dividend and burn through reserves, maybe sell off some assets, but other than that all their employees and the majority of their assets are probably fine. The company's market cap is a lot less, but shareholders don't go to zero eithier.
The world where the company went private in an LBO? That $10M cushion runs out in less than 2 years. They are bankrupt. They might get a few more chances to restructure debt and such, but eventually the lenders give up and liquidate the company a la Toys R Us. The employees get fired and local landlords lose tenants. Pension funds disappear. It's not fun.
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.
It feels like economic strip mining to me.
p.s. thank you for the clear explanations
That's the idealistic case, and it does happen. But then there are the counter examples we all know...
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 incentivized to rachet up the risk.
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.
The financial and legal reality is that PE simply loads the target company with the debt used to acquire the company (i.e., PE doesn't actually put up any of its own money), and then pays itself by taking out more debt secured by the acquired company. And then they charge the acquired company a management fee for the privilege of having all of its useful assets being used as collateral for loans the PE company never intends to repay.
For example: https://www.investopedia.com/articles/markets/111015/10-most...
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.
Basically a fund will invest a small amount and convince a bank to give them the money for the rest of the acquisition, which will then be in the form of debt to the company, using the revenue stream and assets of the company as collateral.
The banks get a nice loan out there and the PE firm gets full ownership with a lot of leveraged help from the bank.
There are possibly a bunch of structural benefits such as tax optimization, ie interest payments are tax-deductible etc..
It's viewed negatively because it's generally a form of financial engineering re-arranging deck chairs, not really value-creating, although it is for investors.
A company with a lot of debt can be more exposed and more likely to fail in a downturn.
See: Leveraged Buy Out.
You don't hear about the successful LBOs...because they're extremely rare. The only LBOs that worked out for the acquired companies are for those like Hilton, which occurred right before interest rates dropped, allowing the acquired companies to refinance their debts at lower rates than incurred by the LBO. The recession that occurred right after that LBO also let them fire tens of thousands of workers and shutter hundreds of locations and blame the recession rather than the shitty PE management and pillaging.
Toys R' Us and Neiman Marcus are the prototypical LBOs. Whether or not the LBO succeeds, PE gets rich, everyone else gets screwed.
I can only speculate on what the investor's true motivations is. But there was one episode in particular which was interesting:
1) The investor came in, offered up a few hundred thousand dollars for a 51% stake
2) He immediately had the company upgrade their equipment, purchasing new equipment
3) Eighteen months later, the company was bankrupt
When all the dust settled, the company was re-packaged and sold to another company, the original owners were gone, and the manufacturing was sent overseas.
When the investor was having them buy a bunch of equipment, I was definitely wonder if his prime motivation was to simply have some tangible assets that he could recover once the inevitable bankruptcy occurred.
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 doomed.
The equation is like a curve. The price point starts at 0, shortly after providing liquidity, the price dramatically recovers. But, in the long run, the price will return to 0.
The equation PE is trying to solve, and the risk they take is: Can they make enough money selling assets in the brief inflated period to make up for the inevitable loss at the end of the curve.
They're signing up to hold a bag, and they know it. They're not buying Great American Companies. By nature, no one else would do it, or they wouldn't have been able to do the takeover.
If anything the reverse is true as PE tends to burden companies with so much debt they can’t innovate or downsize to fit changing markets.
PE is all about maintaining the pretense of a turnaround so that liquidation proceeds can go to management (the PE firm) rather than to outstanding obligations or investors/shareholders.
It's the white-collar equivalent of walking out with the coffee machine and an aeron chair -- so, naturally, 100x worse and 100x less illegal.
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.
They plump up the turkey, borrow against it, and spread the losses across the market.
The original lenders benefit as they offload poorly underwritten debt. The owners of the distressed asset benefit because they get something. The people orchestrating the turnaround win via fees, etc.
I'm not arguing what you're saying is untrue as that appears to be what is happening. I'm arguing this behavior is irrational. If investment opportunities decline, investment should decline and sitting on savings should increase.
There used to be a clear difference between the look of clothes at different retailers but not as much anymore.
Walk through Neiman Marcus, Nordstrom, Macy's, H&M, and they start to blend together.
Doesnt mean no difference but maybe not enough to always charge a premium.
[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) a good bit of the "savings" from internationalization, by the time it reaches consumers, is actually making many categories of goods worse and eliminating mid-tier stuff (formerly bottom-tier) outright so the gulf between lower-end luxury (paying for quality, not name) and plain ol' low-end has grown, putting pressure on luxury brands to cut prices... but they can't with their current products, because internationalization hasn't actually dropped the price of producing decent goods by very much, so instead they cut quality.
At the risk of painting with an overly broad brush, when everything is made in the same, mostly Far East, factories and has to compete with essentially disposable clothing at some level, it all starts to look more or less the same.
Thanks, Eddie!
The shirt came, and it was synthetic blend of polyester IIRC- the shirt felt like wearing a garbage bag, but much worse was that the fabric was so thin that you could see through it. I had a white shirt with a light logo on it of a tech company, and you could clearly read the logo through the shirt- and even with a plain white tee on you could clearly see where the sleeve ended on the undershirt- this was something I would have expected to see in the bargain bin of a Walmart for less than $10, not for $30 (which was the sale price) from a reputable brand.
What's worse- is they wouldn't even take it back without a fee of $6- I don't live near a Factory store, and a regular Banana Republic wouldn't take it back. I told the CS rep that they should be embarrassed for even selling something of such low quality, and to not take it back is just appalling. She didn't care, and that's the last I have ever ordered from BR online.
TBH, I buy very few clothes these days as I'm mostly either WFH or (normally) traveling--where I'm mostly a very light packer. I'm sure I have tons of perfectly clothes in my closets I haven't worn in years and that's with pruning.
Source: my wife works in textile sourcing
Off the rack is globally commoditized now, so you're paying for a trendy location, labels, personal shoppers, or design IP. If those things don't matter to you...
Suit shirts are the same. An online tailor I've been using for a decade sells shirts at half the price of Banana Republic (comparing to Canada), but mine are bespoke, perfectly fitted, and I can make choices from a website. To wit, I've stopped buying shirts in stores and now just use their service... since 2008. To make matters worse for retailers, his quality has improved at the price point.
Retail is hard.
I even have an Old Navy t-shirt from around 2000 that is far sturdier than any current men’s t-shirts (which are still usually sturdier fabric than women’s), and by that point, they were already the discount sibling to Gap.
Also it's a total crap shoot on manufacturing quality.
But are any of these luxury brands? Nordstrom might be upper-tier retail but it’s hardly luxury.
Someone out there is wearing haute couture hand-sewn by artisans. Your hundred dollar shirt is laughable to that tier. But for the majority of the world, I think Nordstrom would largely count as "luxury"
Granted the difference in quality is definitely not worth the difference in cost (like many luxury goods you'll end up paying 5x in price for what feels like a 1.2x improvement in quality).
I recently replaced 20 or so $10 target shirts with a handful of $60 shirts from Nordstrom (NM sells them too) and they're much more comfortable, hold up better in the wash too.
Thats why people call Neiman Marcus 'needless markup' :D
Go to Vegas and there are whole shopping malls where, to indulge in just a degree of hyperbole, I'd have to look hard to find something I could afford. Or at least would even consider affording.
IIRC, Americans don't really shop at those stores. Their costumers are mainly foreign nouveau rich people.
https://www.mckinsey.com/~/media/mckinsey/industries/retail/...
for the social media photo / story of buying it in $exotic_locale
bonus points if you are confusing things by buying french items in austria, obviously
Also if I were traveling on vacation, ordering online and shipping to my hotel would not be my first choice.
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 four fold over eight years up to the pandemic.
Another person in the same luxury boat as Arnault is Francois Pinault. $31 billion net worth. His wealth also increased four fold in roughly eight years, from $11b to $43b, up to the pandemic. Don't tell these people luxury is dwindling - their outcomes indicate it has boomed.
Ferrari's business has doubled in size and they have a market cap higher than Ford or GM because luxury has done so extraordinarily well over the last decade. Their stock hasn't crashed during the pandemic, unlike most auto stocks. Do you know why? The luxury buyers are not hurting like everyone else is (thus far). Times are good for Ferrari.
So what situations are causing this? China for one. And more broadly, the emergence of greater wealth all around the world, rather than it mostly being contained to the well-established developed nations of the post WW2 era. That global wealth increase is not matched by there being a lot more high-end luxury goods makers like Ferrari or LVMH, so the result is they've spent most of the past decade dealing with more business than they can easily keep up with.
The way the buying is structured, retailers cannot complete with flagships of the luxury brands they carry within a certain distance which means that the stored NYC, LA, Boston, SF, Miami which should be the most profitable can't carry the hot items of the seasons if the flagships carry them. Since flagships are not just retail but marketing and demo stores flagships always carry all the hot items.
The mid-tier market outsourced manufacturing to the same factories that at best create wear it a couple of times before it falls apart products while charging 3x-10x of the likes of Zara. That market has been shrinking for years as the likes of Zara, H&M and others cleaned up the lower end and started moving up.
Also the lion's share of luxury growth is coming from outside of the US, namely from Asia which is not accessible to NM.
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.
https://www.prnewswire.com/news-releases/porsche-posts-recor...
https://www.cnbc.com/2020/01/13/lamborghinis-2019-sales-jump...
Anecdotally as well, Hermes does VERY brisk business by where I live (midwest), pre-COVID
Wealth signaling absolutely still happens, but today the facades it tends to orbit around involve words like "minimal", "natural", "open", "honest". Organic groceries, modernist houses, meditation retreats to exotic places, environmentally-friendly vehicles, freedom from clutter and complication. These, sadly, are unattainable for many people. And so of course, brands have co-opted and packaged up that fact to be sold as a set of signals that make people feel good about themselves in comparison to others.
I moved to NYC for after high school, and was incredibly shocked to see people actually wearing Gucci, Louis Vuitton, and not feeling self-conscious but rather better for it. I was likewise shocked to see how expensive the trendy secondhand stores were, again compared to the bay area. It all seemed designed so that, if you saw someone dressed in a certain style of clothing (either "boho-chic" or fancy brands), you could be safely confident they were rich.
I used to be repulsed and holier-than-thou about this kind of thing. But now, when I go back to the valley to visit my parents, I recognize the same things flourishing there, where I naively thought the "humble Californian spirit" wouldn't allow them to take root. It's been kind of sad to see the Santana Row-ification of the south bay take place during my lifetime, but everything moves in cycles, I suppose.
Does this match anyone else's experience? Is there a place where humility has survived as a popularly-held virtue, even in the face of not-atypical wealth/abundance?
I do love the Stanford campus and Palo Alto downtown, but I do think they were marred by the big money. For example, Stanford literally has a luxury fashion mall (probably with a Nieman Marcus store) on campus (and it probably is the most profitable part of the endowment). As for Sunnyvale-Santa Clara-San Jose, they just chose the suburban sprawl development when the money rolled in.
I caught wind of some tech youtube vlog drama this week and I noticed that the newer generations view FAANG like some viewed Wall St. in the 80’s. The sorting hat for riches changes the gnomish wonder years of the Valley for sure. Also, the open air elitism is just plain tawdry now.
I would say San Diego has the closest look and feel to the South Bay when we grew up. Hard tech in the bio and life sciences provides an educational attainment culture and not so much cash chasing.
I also totally agree that it's mostly the newcomers' barefaced pursuit of wealth and becoming "elite", that's driving this shift. People used to want to move to the bay because that's where UNIX geeks and internet enthusiasts went to find like-minded individuals (after Bell's decline) and get funding. Now it's where the aspiring class goes to join the top 10%, and the goods and services cater to it.
Last time I went back (immediately before the whole COVID situation), my SO and I did a road trip from LA to Sacramento, staying mostly with family along the way. We found San Luis Obispo and the various towns between it and Santa Barbara to be varied and delightful (Los Osos, Solvang, Avila & Shell Beach). Cambria also seemed nice, but we blazed through it. The little communities west a north of Santa Cruz, in the mountains also have a special place in my heart. Next time we're back, I'll try to visit SD.
However, I can't help but notice that all of these towns are smaller and much less of a mixing pot than the greater San Jose area, though. I thought one of the coolest parts of my early life was how it was extremely normal to be surrounded by people of diverse socioeconomic and ethnic backgrounds (I went to a public school), and also how normal it was to dream big (social mobility was all around you). Maybe it's a time and place thing, and it doesn't come together very often.
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.
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.
Nowadays the trend is to put everything under the mainline brand, which I find kind of deceptive. You really have to check garment quality and price for everything.
That's because nearly all the brands sold at places like NM have outsourced manufacturing to the same 3rd rate factories in Asia and Latin America and are riding on a name and those names these days command less premium than Supreme.
https://www.gq.com/story/coronavirus-fast-fashion-dana-thoma...
As for clothing and shoes that last, Patagonia is pretty good.
Another key difference between fast fashion and expensive clothing is simplification of pattern-making.
LOL, classic WASP literature. I haven't thought of this book since the mid-80s! It's a hilarious read.
But yeah, the book’s full of actually-decent fashion advice as long as you avoid the jokes (you can, in fact, wear polos with a button fastened) and are careful not to fall into affectation (probably avoid Nantucket reds if you’re not part of that set, for example) or it’s easy to accidentally become a walking parody. Fine line, hahaha.
One newly rich Russian shows another a tie he bought a minute ago for 3000 USD. That guy replied, “This is stupid. You had to go to the shop over there. They sell the same tie for 5000 USD”.
There is also a significant subculture or sneaker collectors who buy them like someone might a rare run of “collectible” action figures, where rareness is all that matters over the value of the item per se. Some crazy-seeming sneaker prices are just companies catering to that market. Of course there’s overlap and symbiosis with the signaling crowd, too.
I just never understood how a laptop can cost $700 - $900.
Amazon and similar are no good for luxury goods because of the lack of service that luxury shoppers expect. Perhaps they need to shift to an online-first model with video-conferenced personal shoppers who can browse store-like inventory while serving qualified shoppers who can concurrently navigate their wardrobe?
Personally, I like Neimy's, but not as a go-to retailer but as a once-every-twenty-years-buy-something-nice-and-crazy; their service is/was fantastic, they know their products/fashion, and their employees aren't/weren't like standard American retail salespeople. Ordinarily, I go to Salvation Army and Goodwill for outer clothing only, and eBay for new-but-discontinued b-stock or liquidated inventory of other clothing that I can no longer find.
I remember when my wife tried to get a credit card right after we got married. She could not get one. Back then, there was only Visa and Mastercard. Then Discover card came out and she was able to get one with a very low limit. She used that to build her credit over the years. Today, the grand kids get card offers in the mail several times a month. We need to be somewhere in the middle and not at either extreme.
We need some kind of law where if you take a bailout you give the Fed a controlling interest, you have something like 60 or 90 days to buy that interest back by repaying the bailout. After that other entities have the right to purchase that controlling interest and then they now own you.
In some ways we are seeing a "savings glut", which is why interest rates are so low, but those savings are overwhelmingly from the minority of mega-rich.
If the public start saving en masse, and not in equity but just banking, interest rates will have to go negative, at which point people will really question why they should be doing it.
https://www.google.com/search?q=neiman+marcus+kitchen+comput...
These days it just looks like no one cares. I'm surprised upmarket stores lasted this long.
Better materials, the basic ingredients, generally increases the price (cloth from quality fabric mills, finer wools, nice dyes, shell buttons, leather, etc...). And the cut matters, to pay for a tailored shirt in England or Italy will cost you -- that is, the labor, design, and construction.
Sure, a high price tag does not necessarily imply quality -- but let's not be fools about the matter.
How unsurprising.
It's not surprising to me they are going under. I don't know who their market was. It was all very high end. But, seeing almost no one in those giant stores always seemed like the end was near.
As a software engineer with a degree in fashion design as well, I believe both luxury retail stores are equally notorious
do you really think that people buying Saint Laurent jeans last year are now worried about "fast optical networks, clean drinking water, and a reliable car"?
I like my comfortable cotton tank top and my mom's mac and cheese but neither of them are luxury goods.
In fact since a lot of luxury is actually about signaling, if it's too comfortable / has high utility, it might actually lose status.
https://www.mentalfloss.com/article/89283/stories-behind-12-...
https://www.computerhistory.org/revolution/minicomputers/11/...