In news which should surprise no one, luxury clothing retailer Neiman Marcus announced that it would be withdrawing its plans for an IPO for now. In a transmission sent to the SEC, Neiman Marcus stated that it “has determined that it is not in its best interests to proceed with the initial public offering contemplated by the Registration Statement at this time.” Neiman Marcus did request that the fees it paid for filing with the SEC “be credited for future use,” which indicates that it intends to go public at some point.
Neiman Marcus initially filed to go public back in 2015, but put those plans on hold because the IPO market was shaky in late 2015 and 2016. Does Neiman Marcus’s decision to withdraw indicate that it believes the IPO market will be even worse in 2017?
Not really. Neiman Marcus’s withdrawal says more about its own struggles than it does by the IPO market, which should do well in 2017. These struggles are a further indication of how clothing retailers are struggling to deal with the rise in online shopping and poor holiday sales. Neiman Marcus will need to adapt its business to online shopping and become more profitable if it intends to go public in the future.
Neiman’s Struggles
Neiman’s decision was undoubtedly prompted by reports of poor 2016 holiday sales. According to the Dallas Business Journal, Neiman saw a 3.3 percent decrease in sales over the 2016 fourth quarter compared to the same period last year. Revenue over 2016 also decreased by a similar percentage, falling from $5.1 billion in 2015 to $4.95 billion in 2016. This was accompanied by drops in same-store sales and net income, culminating in a $400 million net loss in 2016.
This decline in sales has largely resulted because of the growing popularity of buying clothes online. Customers can now often order clothes, try them on to see if they fit, and then send them back. Online holiday shopping has become much easier than braving the hordes of Black Friday shoppers.
Even if customers do not choose to order clothes online, they can now easily compare prices between differing upscale retailers. As Business Insider notes, Amazon (NASDAQ:AMZN) now offers barcode scanners which lets customers scan an item in a clothing store and see if a competitor carries that item for a smaller price. And as Amazon looks into expanding into the luxury clothing segment, traditional retailers like Neiman are being challenged from a pricing perspective.
Neiman is trying to adjust to these changed circumstances by offering more exclusive wares and limiting distribution of its products. But this company is a retailer which is not offering anything innovative, is seeing a decline in sales, has substantial debt, and was not profitable in 2016. It is hardly surprising that it decided not to go public, especially as investors will be able to pick and choose their investments in what is expected to be a good 2017 IPO market.
Changes in the Clothing and Retail Industry
The factors which have caused Neiman to struggle and withdraw its IPO have hit the clothing retail industry in general. Macy’s Inc (NYSE:M) and Kohl’s Corporation (NYSE:KSS) recently reported poor holiday sales in 2016, and the former plans to cut 10,000 jobs and close 100 stores. Both of their stocks have naturally fallen as a result, and other clothing and retail brands like Ralph Lauren (NYSE:RL), Dillards Inc (NYSE:DDS), and Target Corporation (NYSE:TGT) saw their stock prices fall as investors grow concerned about the future of retail.
While traditional retailers like Macy’s and Neiman suffered, Amazon benefited from the rise in holiday shopping. The growth of Amazon has in turn affected how consumers shopped in December, as more are waiting until the last minute before just ordering something from Amazon. While customers shopped early in the past to make sure that they could get just what they wanted to give on Christmas, now they are secure in that Amazon will have what they want.
Good news for IPOs, bad news for Retail
Neiman Marcus’s decision to not go public should not affect investors interested in IPOs in general, and 2017 should be a much better IPO market than the disaster that was last year.
However, Neiman Marcus’s struggles, along with poor holiday shopping numbers for clothing retailers in general, are a sign that the retail industry is in serious trouble as it comes to grips with the effect of online shopping. Investors should stay away from companies like Macy’s and Kohl’s for now, and instead look at companies which can offer the best online shopping experience like Amazon.
The retail industry is in a transitional phase and transitions are often painful for old, established businesses. But those companies which can figure out how to improve their online services and integrate their online and offline stores will be in a better place afterwards.
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