As a previous senior executive at the Neiman Marcus Group (though chosen more than a years now) it certainly filled me with sadness when I heard that the iconic luxury seller filed for bankruptcy Though, as I blogged about nearly a year back, this news is hardly surprising.

Another feeling I have is frustration, mostly stemming from the incorrect narratives and false information surrounding what this all means for the more than century old brand name. No, a Chapter 11 bankruptcy is not the very same as a liquidation.

Now on to the larger concerns of what’s truly going on and what it most likely hints for the future.

Do not blame COVID-19 The fact that practically all non-essential retail ground to a halt at the worse possible time for fashion and high-end brand names contributed to the timing of the filing, but the business has been having a hard time under an unsustainable capital structure for many years. Let’s be blunt: When Ares and the Canadian Pension Financial investment Board acquired the company in 2013, they paid a stupidly high price and saddled the business with a crazy amount of debt. An eventual bankruptcy filing was nearly an inevitable conclusion, short of a miracle taking place.

Don’t blame the shift to online shopping either. While growing competition from the likes of Net-a-Porter, Farfetch, TheRealReal and many others, along with its own suppliers’ calling up of direct-to-consumer efforts, makes it difficult for Neiman’s to acquire relative market share, luxury e-commerce remains mostly Amazon evidence. Moreover, Neiman’s started building out its online existence nearly 20 years back and now does almost one third of its company online. Said differently, they have more than held their own and the profitability of the channel is most likely robust.

Department store issues have little to do with Neiman’s problems. It’s easy to toss Neiman Marcus into the mix of the popular, long-standing struggles of mall-based anchor stores. Easy, however mainly incorrect. To start with Neiman Marcus’ sales efficiency and operating earnings margins have been far much better than the Sears, JC Penney, Dillard’s and Macy’s of the world for a long, long time. While the moderate department store sector has actually been shrinking for over 2 decades and closing lots of hundreds of shops, Neiman Marcus has actually largely been able to drive top-line development (albeit very decently) and has actually broadened its full-line store fleet throughout the same duration.

While most of Neiman’s shops are in local shopping malls– though several of the most productive are free-standing, e.g. Bergdorf Goodman, San Francisco, Beverly Hills– they are far more of a destination place and for that reason less reliant on shopping center traffic than the typical anchor.

The core business is very mature, however rather rewarding. Among things that made the $6 billion price so ludicrous was the maturity of Neiman’s core company. At the time of the acquisition it was ending up being progressively clear that there was little runway for lucrative core service development. Couple of, if any, new shop openings were on the horizon, the e-commerce service was becoming well-penetrated (and boosts were typically coming from channel shift, not incremental sales), and efforts to attract younger customers had actually not gotten much traction. A foray into off-price was badly performed, if not misguided. The lever of continuing to raise rates to drive equivalent store sales was striking a wall. Competition (on numerous fronts) was ending up being ever more extreme.

Nonetheless, unlike numerous of the sellers that find themselves edging better to the precipice, Neiman Marcus has a quite excellent sense of their target consumers, a separated worth proposition and have actually primarily performed well versus it.

Substantial shop closings aren’t most likely. Numerous media accounts have actually recommended that Neiman’s would apply for bankruptcy to leave “sky-high” leas. These stories were poorly investigated. It is normal for shopping mall anchor shops to not only pay relatively little lease, however to get developer allowances to help offset the cost of constructing brand-new stores. Accordingly, on average, tenancy costs are well listed below what national specialized stores chains experience. When combined with above average productivity– and comprehending the role that brick & mortar shops play in driving digital sales (and vice versa)– couple of shops are likely to be a cash negative on a move forward basis.

It might hold true that, comparable to what Nordstrom JWN just recently revealed, offered the near-term uncertainly about customers determination to shop in physical shops normally, and to spend on high priced non-essential items more especially, Neiman’s will more strongly prune shops to focus limited capital and management attention on places with the very best long-term potential customers. Either way, pursuing a Nordstrom Local-like technique need to be thought about to maintain (and grow) more consumers from possibly abandoned trade locations.

While the pandemic’s perseverance and possible renewal makes the near-term outlook for all of retail extremely unpredictable, even in a more positive rebound situation it is still the case that conventional multi-line high-end department shops have too much physical area chasing too little costs. Saks Fifth Opportunity and Neiman Marcus have many overlapping places in the exact same exact malls, many of which likewise have luxury suppliers running their own brand specific stores.

Given some of the points made above, I have actually discovered myself stating that in the future the US only needs 1.5 luxury department shops. There are other places where the two contending stores– especially in this “new typical”– will be battling over too small a luxury pie. Rationalizing a combined store portfolio would not just get rid of duplicative overhead expenses, but taking one shop out of a challenging trade area will enable the remaining store to make an exceptional return.

While numerous things can go awry in personal bankruptcy procedures, I anticipate Neiman Marcus to emerge from insolvency relatively quickly, as a smaller, leaner and more concentrated seller with limited development capacity, but a strong ability to throw off ample money to support a much more reasonable quantity of utilize. Or a minimum of that’s my hope.

A variation of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here

My new book– Exceptional Retail: How to Win & Keep Consumers in the Age of Digital Disturbance— is offered practically all over books are offered in hardcover, eBook and audiobook.

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