Neiman Marcus suffers from two additional factors imo - a lot of their retail is in pricy urban real estate markets (Beverly Hills, Palo Alto, Stockton Street, Michigan Ave, Hudson Yards, Tysons, Houston's Galleria, etc.) where rents have escalated in recent years in comparison to cheap Amazon / Walmart style giant warehouses outside of town. Additionally, NM has been owned by PE for years putting financial strain on the company.

Why don't those landlords just lower their rents to meet demand then?

> Why don't those landlords just lower their rents to meet demand then?

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.

Where is Fry's acting as an anchor tenant? All of the stores I've seen were freestanding. Often in light industrial areas, not a whole lot of people are going to Fry's and then stop by at the bus upfitter, cause it's right there and they might as well get a commute vehicle for the whole office.

What I'm about to write is pure speculation on my part. Take it with a grain of salt.

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.

Why doesn't the property owner buy out, win-win?

If you went to any of those places before the pandemic, you wouldn't have seen any empty storefronts.

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.

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.

Cheap clothing has been taken to a whole new level where the quality at some of the mall stores is really terrible and the prices aren't realistic in comparison.

I think the biggest difference has been increased discoverability.

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.