Case 2

A number of luxury retail brands have filed for bankruptcy since the COVID-19 pandemic began, but their financial troubles are far from new. Luxury and mass-market retail brands have suffered revenue losses over the past several years due to a rise in online shopping, too much merchandise, too little marketing, unrealistic pricing, and an inability to keep up with changing consumer trends.

Retail brands should be either needed or wantedsometimes bothto persist as a company, and they have to find their place on the spectrum of style and price. Even before the novel coronavirus, it was believed that J. Crew, the first major retailer to file for bankruptcy during the pandemic, had begun pricing itself out of business.

Luxury brands previously made money by selling the overall experience of shopping, using in-house aestheticians, lavish fitting rooms, and even mixology demonstrations. While this narrowed the customer base, brands such as Neiman Marcus turned a profit until consumer behavior changed and more people turned to online or value shopping.

In March, clothing and accessory sales fell by more than half. With most of the United States on lockdown, some brands tried to entice buyers with online sales, but record unemployment and financial losses meant that few were actually buying. In April, clothing sales dropped by another 78.8%.

The coronavirus and subsequent stay-at-home orders didnt cause the decline in luxury retail, but they did expedite the process. It was also a clear sign to many luxury retailers that all sales are digital, even if a customer ultimately ends up buying the product in-store. Neiman Marcus believed its company was selling customers unique and curated experiences, but it failed to adapt to online shopping experiences, all but halting its business and causing the company to file for bankruptcy during the national lockdown. Other national and international retail brands that have filed for bankruptcy since the pandemic began include True Religion, British retailer Debenhams, Canada-based retailer ALDO, Japanese retailer Renown, John Varvatos, J. Hilburn, and licensee company Centric Brands.

In the United States, under Chapter 11 protection, companies hope to avoid liquidation, but if these retailers cant appeal to customers in a post-quarantine world, they may not survive. Neiman Marcus says all 43 stores will open in full when pandemic restrictions are lifted; online retailer The Modist, however, permanently logged off, and other companies, including Bldwn, Elizabeth Suzann, and Jeffrey shut down completely.

The past few years have seen a rise in consumers looking for brands that match their own values and ethics, a trend likely to increase as consumers become frustrated with disingenuous commercials selling them things they dont need or cant afford in the middle of a pandemic. Some experts believe this will be the end for both luxury retailers and the high-production, fast-fashion model, while smaller, more sustainable supply chains may emerge.

Discussion Questions

1. How do you think the pandemic has altered long-term consumer shopping habits? Do you think the drop in luxury sales is temporary?
2. Did J. Crew and Neiman Marcus make the right decision to claim bankruptcy? What do you think their next steps should be?
3. What do you think the downward slope of luxury brands indicates about the larger retail industry? What can businesses learn from J. Crew and Neiman Marcus?