J. Crew and Neiman Marcus were each facing a host of issues before the coronavirus pandemic forced them to close their stores and eventually file for bankruptcy, including trouble adjusting to the rise of e-commerce and a lack of connection with a new generation of shoppers, the New York Times reported. But they also shared one increasingly common problem for retailers in dire straits: an enormous debt burden — roughly $1.7 billion for J. Crew and almost $5 billion for Neiman Marcus — from leveraged buyouts led by private equity firms. Like many other retailers, J. Crew and Neiman over the past decade paid hundreds of millions of dollars in interest and fees to their new owners, when they needed to spend money to adapt to a shifting retail environment. And when the pandemic wiped out much of their sales, neither had anywhere to go for relief except court. “Much of the difficulty that the retail sector is experiencing has been aggravated by private equity involvement,” said Elisabeth de Fontenay, a professor at the Duke University School of Law who specializes in corporate finance. “To keep up with everybody’s switch to online purchasing, there really needed to be some big capital investments and changes made, and because these companies were so debt strapped when acquired by private equity firms, they didn’t have capital to make these big shifts.” The filings by J. Crew and Neiman Marcus followed a wave of retail bankruptcies in the past few years, and came as numerous chains, including J.C. Penney, teetered on the brink because of the pandemic.
