Of course, “Who’s Minding the Store” is the title of a 1974 book by the late Stanley Marcus, president and eventual chairman of Neiman Marcus, in which he shows us how a real merchant is created and operates. At that time, Neiman Marcus was unique. While consciously relevant to a certain niche of customers, he had the admiration of those who couldn’t afford NM as well.
I remember reading the book as a buyer for Abraham & Straus (A&S) of the late Federated Department stores and being thoroughly inspired and awestruck. This was a merchant prince whose shoes I could dream about but never really hope to fill.
Recently, we were informed of Neiman Marcus’ Chapter 11 filing. What happened to the Neiman Marcus magic? Clearly, there had not been an overnight meteor strike; this decline had happened over a number of years.
In filing for Chapter 11 bankruptcy, Neiman Marcus joined a list of other well-known names, such as J.Crew, Sears and JC Penney, in the same financial boat. But why? The headline in a recent article in CNN Business online read, “Four Famous Stores That Might Not Survive Because of Coronavirus.”
Wait — because of coronavirus? The way I see it, this headline implies that, had not the COVID-19 pandemic occurred, those stores would have survived. I believe that this is not the case for Sears, JC Penney or J.Crew (let’s talk about Neiman Marcus later). The coronavirus might be the kill shot that hastened a death that was already well on its way, not the cause.
Mark Cohen, director of retail studies at Columbia, who worked at A&S back in the day, was quoted in the article: “The retailers who were wandering around aimlessly pre-pandemic are going to be substantially less likely to muddle through than they were before.” I think that is a great and appropriate choice of words; “wandering around aimlessly” implies a loss of direction or orientation, and there’s the rub.
So what will be our cause of death for these stores? Let’s start with what we should rule out: the coronavirus. Rather, one common theme running through all of these failures is debt. In a store whose sales are declining, the more they decline, the harder it is to suffer the debt burden. All of these cases also have debt as the result of a leveraged or other type of buyout by some institution that buys companies not to run them but to sell them at a profit. While they are waiting, the company has to pay the debtors a huge sum of money so they don’t lose if they can’t sell. Maybe when you have a business that you desperately wish to survive, you will do anything, even if it is totally stupid financially.
In my view, the second cause of death is irrelevance. Since retail is not a zero-sum game, the implication is that, if these companies became irrelevant, that would be because their customers had other choices that were more relevant to their lives and/or purchasing behavior. So, looking at Sears, JC Penney and J.Crew, which were on the top of the retail world not so long ago, how could this happen? (Let’s not just blame Amazon; that’s too easy an excuse.)
You would think that iconic brands, like any of the three above, would be able to parlay their brand into the merchandise and customer experience that people wanted. Could they not have reinvented themselves?
Fast forward to May 2020 and Chapter 11, and my question is: what happened in the intervening years? To use Mark Cohen’s well-chosen words again, have they been “wandering around aimlessly” for 12 years?
Once they saw that their moat was being breached and that other retail entities were thriving at their expense (Walmart, Target, Costco, BJ’s, etc.), was there no course of action for them? Further, when the online world became more important, could they have not attempted to reinvent themselves both physically and digitally? It seems there were some efforts missed or opportunities lost. Maybe the appropriate term is “living in a bubble of denial?”
Could it be that some CEOs had a fear of radical change because it would point the finger at them for failure, thus endangering their jobs, shares and options? The failure to evolve and remain relevant to a changing world and changing customer, as well as protecting their moats from others who were more interesting and attractive to former customers, is a direct cause of their slow deaths. If CEOs had recognized and attempted to deal with the causes of erosion when they first began, the degree and cost of reinventing or updating themselves would have been lower and less difficult.
To this I would have to add a third possible cause of death: arrogance. Falsely comforting themselves with what they were (and are) may have prevented them from seeing clearly what they will be or should be.
What about Neiman Marcus? Will it survive Chapter 11 or join the former great retailers graveyard? It depends on whether the debt they have escaped by Chapter 11 will make the cost of existence untenable and if the company has a willingness to humbly reinvent itself to be relevant to the current market.
I wonder what Stanley Marcus would think, were he alive today. I bet he would have said, “Find products for your customers, not customers for your products.” For me, the bottom line is that the coronavirus is neither a reason nor an excuse for the death of an institution which was already in serious decline.
Michael Serwetz has worked in global retail, sourcing and marketing. He is the co-founder of Lotus & Michael, a consultant and a teacher at the Fashion Institute of Technology, New York University and Baruch College.
