Rundown: Neiman Marcus's store closure drama, Forever 21's financial woes and 7-Eleven's attempt to dodge a takeover

0:03Hello, everyone, and welcome back to the Modern Retail Rundown. I'm executive editor Anna Hensel. Our normal co-host Gabby Barco is at Expo West this week where she is probably trying some new plant-based jerky. So I am here this week with reporter Julia Waldo. Julia, welcome back. Thank you, Anna. Happy to be here. Plant-based jerky sounds really good right now. Yeah, I do love trying any weird and random snacks. So I am jealous of Gabby. I'm sure she'll have a lot to say when she's back. And she has some coverage of the event already on modernretail.co, so definitely check it out. But here is what we're covering on this week's episode.

0:47So we will be looking at the drama surrounding Neiman Marcus's decision to close its downtown Dallas store, why Forever 21 appears to be once again headed for bankruptcy, and the battle that's brewing in the convenience store space as 7-Eleven's parent company has been trying to ward off a takeover bid by Circle K's owners. So first of all, let's talk about what's going on with Neiman Marcus and its flagship store in Dallas. I am excited to have you on, Julia, since you've covered this a bit and you focus on apparel. So for those who aren't familiar, what has been going on with Neiman Marcus? Yeah, there's a lot to unpack here.

1:28So basically, Neiman Marcus came under the ownership of Saks Global at the end of December. And this new company, Saks Global, it's basically, you know, Saks Avenue, Bergdorf Goodman, Neiman Marcus, etc. Saks Global last month said that it had decided to close the Neiman Marcus flagship store that had been in downtown Dallas since the early 1900s. They said they are going to be closing that on March 31st, so end of this month. And Saks Global said that the decision was basically due to a dispute with the landlord over a piece of land under the store. Apparently, it's kind of complicated, but the land under the Saks Fifth Avenue store had a bunch of different owners.

2:14And this one parcel of land, there was a problem with it. So basically, this news that Saks Global came out and said upset a lot of longtime Dallas residents and Neiman Marcus fans. They really rallied together to try to find some way to save the store. So a bunch of city leaders in Dallas formed a consortium. They called for this meeting between the landlord of that particular strip and Saks Global representatives. On their own, the city leaders also managed to get that strip of land donated to the city of Dallas. that led at least one local media outlet to proclaim that the store was saved which excited a lot of people but earlier this week Saks Global said actually hold on it said it's not changing its mind and it actually slammed the consortium it had this statement that it put out which I'll read quote the Dallas consortium's ongoing tactic of using the press to pressure us into changing our strategy in Dallas is highly unproductive.

3:13Even after our corrections to their previous false statements, they continue to go to the press, making inaccurate claims. Our decision to close the Neiman Marcus downtown Dallas store is final, and we are moving on as such. So they said, this is what's happening, whether you like it or not. And that's how it is. Yeah, this was a fascinating saga to follow. We had Slack chats about potentially how to cover this. I have a few thoughts here. First of all, I think this just goes to show, you know, there's a multitude of factors into why this store ultimately closed. And I think sometimes companies will give the broadest possible line or like the line that, I don't know, pins it on some factor that's outside of their control.

3:59So basically, it was an issue, a dispute with the landlord, there's nothing we can do about it. And then this consortium in Dallas rallied to try to solve that. And then that did not fix the issue. And I think that that indicates that there were probably multiple things going on here. And I also think it just goes to show, this was a really interesting dispute that played out. I think that especially with these big flagship department stores that have a long history in maybe like second or third tier cities, there's just a lot of strong feelings around it, which you reported on that there are people, you know, have memories of like going to Nima Marcus as a child and then maybe like growing up to work there.

4:42And so this was an interesting saga to play out because I think even as we see more of these big flagship stores close, which makes sense for economic reasons, there's a lot of feelings involved here. Yeah. I don't know. What else do you, what else do you think about this saga? It's been interesting to follow this. When I wrote about this initially, I had talked to Steve Dennis, who was Neiman Marcus SVP from about 2004 to 2008. And he, you know, he came to Dallas to work for Neiman Marcus. And he was telling me that when people found out that he worked for Neiman Marcus, they were so excited.

5:22Everybody had a memory to share, getting to that emotional aspect of what you just talked about, that he heard people say, oh, I used to, you know, come with my family to have, you know, dinner at the restaurant. on oh I got my first job there oh I used to go there you know to get an outfit for um you know special occasion and things like that that everybody seems so tied uh to Neiman Marcus in some way and the city of Dallas too just really seems to have its identity wrapped up in Neiman Marcus um you know Neiman Marcus came to Dallas in 1907 and just really kind of put Dallas on the map from what I understand you know from talking to sources as you know a place where you could find high fashion outside of New York and Paris.

6:03Yeah. And so we should clarify, is this the end of Neiman Marcus in Dallas? That's a great question. No. Neiman Marcus, you know, has been in Dallas for, you know, over a hundred years. And even though this downtown flagship store is going away, Neiman Marcus isn't leaving Dallas and it's not leaving the South. So in fact, Saks Global is actually going to be pouring a hundred million dollars, a huge amount of money into renovating a store that's a few miles away from the Dallas downtown location. This other store is in North Park Center, which is this mall. It has stores, you know, like Apple, Anthropologie, Glossier, Kiehl's kind of all over the map.

6:41And I know you talked earlier about, you know, department stores closing flagship locations and kind of one-off areas. And so, you know, it's possible that maybe Saks Global believes that Neiman Marcus's future lies in malls rather than standalone stores. You have people coming to the malls. They're already there, so you can count on that foot traffic. So it'll be interesting to see kind of what pans out there after that renovation happens. Yeah, yeah, absolutely. I think that department stores aren't going away entirely. They're just changing. And Saks Global has a lot on the line here with how it manages Neiman Marcus going forward.

7:18I think because to your point, it does have such a historic reputation still in Dallas and in the South. Saks is already having issues of its own. It's behind on vendor payments by some 18 months. And a lot of eyes will be on it going forward to see how it handles Neiman Marcus, which it paid $2.7 billion for in December, which is a pretty big number. But let's dig into another apparel retailer next. Let's talk about what is going on with Forever 21 as rumors of bankruptcy swirl, which is deja vu for me as I covered its bankruptcy in 2019, which we'll get into later. Time is a flat circle. So Julia, what is going on with Forever 21?

8:07Yeah, it's a sad saga because I was a big Forever 21 shopper in high school. That's where I would go with my friends. And the fact that its future is a little bit up in the air now makes me personally sad, but basically what's happening is that the U.S. operator of Forever 21 plans to close down about 200 stores in the country. And it's also closing its downtown Los Angeles headquarters. As part of this, it's laying off nearly 700 people in California and Pennsylvania, according to Warren notices. And basically a spokesperson for Catalyst Brands, which is, you know, the company that owns operations for Forever 21 in the U.S., along with a bunch of other companies, they told Retail Dive that the company, quote, continues to explore strategic options while also looking at ways to reduce costs across our operations and optimize our store footprint.

9:01So things are a little bit in flux for Forever 21. But this also comes about a month after the Wall Street Journal reported that Forever 21 was considering filing for bankruptcy. As you mentioned, it had done that before. It did that in 2019. And according to the Wall Street Journal, Forever 21 folks had meetings with the restructuring advisor RBG to kind of assess their options and figure out the best way forward there. But it's interesting. I mean, we've kind of seen this brand come a long way from its heyday. Yeah. So what I remember back in 2019 when it first filed for bankruptcy is I believe that Forever 21 had a lot of large footprint stores, even relative to other companies.

9:50So that was kind of one of the issues. I think as we can get into more later, fast fashion obviously is not dead. In fact, there is a lot of demand for fast fashion right now, but it's just Forever 21 is a retailer still that is very reliant on brick and mortar, and I think just didn't right size its portfolio correctly. So I think that that was one of the hopes with the bankruptcy is that it could kind of right size its portfolio, but clearly that wasn't enough. And there were probably, probably are some other issues going on here. Yeah. So to back up a bit, even before that 2019 bankruptcy. Tell me a little bit more about the history of Forever 21.

10:37Yeah. So Forever 21, big brand among millennials. It launched in the 1980s in Los Angeles as Fashion 21, so a slightly different name. And it just really took off. It made$700 ,000 in revenue its first year. And it did that by selling sweaters, dresses, tops, other trendy fashions to, you know, California teenagers at, you know, really low prices, kind of like the early start of what we now talk about as fast fashion. And, you know, at its peak, Forever 21 operated more than 800 stores and brought in billions of dollars in sales. According to the LA Times, actually, its revenue peaked in 2015 at$4.4 billion.

11:18So, you know, pretty impressive. As you mentioned, yes, they definitely put a lot of stake in their brick and mortar presence. and you know it seemed like forever 21 was doing really well for a period of time but it's kind of stumbled in the past decade a lot of that has had to do with you know these other fast fashion players that have come onto the market when forever 21 was in its heyday kind of its biggest competitors were like h &m and zara and such now we have so many different players yeah sheen we have timu um you know i know you and i have both reported on on this But yeah, like the landscape is just so competitive now.

11:58And I think also as part of that, like Forever 21 has been under a lot of pressure to really stay up to date with trends. And, you know, that's that's difficult in an age where, you know, a lot of people are getting ideas for fashion from TikTok and social media. I think what we've talked about at Modern Retail is that fast fashion is getting even faster. It's like, how do you keep up with the Shein and Timu's of the world? I will say, I mean, I haven't looked at Forever 21's website in a while, but I feel like I don't really know what they stand for. You know, I think with Azara, for instance, you still have some people who go there for like cheaper basics or just like, I don't know, you need something for a wedding quick.

12:45You could go to Azara. I don't know what Forever 21 stands for. And like, what is the reason you go to Forever 21 today? Right. It's a good question. It's actually funny. When I was home, you know, for the holidays, I was going through, you know, some old gift certificates that I had in my parents' house. and I found a Forever 21 one. And I was like, what do I do with this? Because I don't know, I asked my roommate like, oh, would your like Gen Z cousin want this? And she was like, I don't really know. Like it's kind of unsure, I think who their like ideal customer is right now. That is a very funny anecdote.

13:21But so what do you think is next for Forever 21? So, I mean, I feel like we won't really know the answer to this until the brand actually like files for bankruptcy or gets a new owner, undergo some sort of operations shift. But it has already changed hands in the last five years. I know we talked about, you know, when it declared bankruptcy in 2019. And then the following year was actually bought out of bankruptcy by the mall owners, Simon Property Group and Brookfield Corporation. And then also the brand licensing firm, Authentic Brands Group, they got in on that deal too. But, you know, in order to stay in business, Forever 21, you know, likely needs, you know, cash to make this work.

14:02Credit Safe sent over some data to us about, you know, Forever 21's history of payments. And that data actually shows that their outstanding bills in the last 12 months were often 60 days late, which is, you know, a long time. You know, I've been talking to, you know, some sources about this and basically, you know, analysts and other folks tell me that, you know, in order to succeed brand, the brand will really need to kind of update its assortment to stay fresh, you know, what we just talked about. And also just really use social media better. It seems like Shein and Timun, a lot of these other fast fashion players are really big on social media.

14:39And so I think, you know, it sounds like if Forever 21 can, you know, step it up in that area, that might help them. Yeah, that all makes sense. I think competition for customers' dollars is very tight, especially in apparel, which is a more discretionary category. So apparel brands today, especially fast fashion ones, have to just work extra hard to stay relevant and make sales. And Forever 21's woes show that operating in this environment isn't easy. But for our last segment, let's switch sectors. We are going to be talking about the convenience store sector. So there's a looming battle here going on, and it involves 7-Eleven's parent company.

15:22So 7-Eleven's parent company, which is Japan's 7 and I Holdings, is trying to ward off a takeover bid they have for now, at least, I think. Julia, what was the news this week? So 7 and I Holdings named a new president and CEO this week who laid out a bunch of growth plans. This person is a familiar face to people in, you know, in the convenience store world. The new CEO of Seven and I Holdings is someone named Stephen Dacus, who is its board chairman. So already has, you know, internal knowledge of the company, but he also has some external knowledge that could be helpful. He's the former head of Walmart Japan, and he would actually be Seven and I Holdings' first non-Japanese CEO.

16:05So could bring, you know, some outside insights there. But basically at a high level, Dacus laid out a bunch of plans to help spur growth. He said the company essentially plans to sell off some of its non-convenient store assets to Bain Capital for around$5.4 billion. Also in the works is possibly going public. He said the company is planning an IPO for its U.S. operations by the end of 2026, so end of next year. Yeah, I thought this was just an interesting piece of news because convenience stores are something we're all very familiar with. We've all likely been to a 7-Eleven at some point. And it's a big business, but it's a very sprawling one.

16:50And so I could see, you know, these are businesses that have tens of thousands of stores. I can see how it can be very easy for things to stagnate in one area or, you know, things to stall. So we can get into this more. But why does why is Seven and I holdings? Why do they seem to be naming a new CEO now? Why do they seem to be doing all of this now? Yeah, that's a good question. So last year, the company turned down a takeover bid from a Canadian company called Alimentation Couche-Tard. Did I say that correctly? You know, I am not a native French speaker, but for the purposes of this segment, we're just going to shorten it to ACT.

17:30Okay, let's do ACT. So they turned out a takeover bid from ACT. And ACT is the owner of Circle K. And Seven and I Holdings has about, you know, 86 ,000 stores across Asia. And ACT only has about 17 ,000 stores. So, you know, much smaller. And the takeover bids seem to be spurred by, you know, the factors that spur a lot of other takeover bids. Some analysts and investors think that 7-Eleven hasn't fully leveraged its growth potential. And in particular, many of them have actually wanted the company to spin off its U.S. business for a while. But ultimately, there was concern about whether or not the deal would get regulatory approval.

18:13So now 7-Eleven's parent company is focused on what it can do on its own to really try to kickstart that growth. Yeah, kind of the high level that I had read about just what's going on with 7NIA Holdings is it seems like in particular profit growth maybe hasn't been as much as investors and analysts hope, which makes sense because I mean, I just feel like it's a business where margins are very tight. And if you are a business that has 86 ,000 stores, there's going to be people from the sidelines who are like, all right, are there other areas you can invest in or other areas you can sell off to spur growth?

18:53But yeah, 7-Eleven is a fascinating business, I think, especially also because it has kind of a different standing in Japan versus the US. In Japan, it's replaced a lot of mom and pop shops. It's like a place you go for unique snacks. Just again, from my high level understanding and people I've talked to. What else is important to know about the state of 7-Eleven's business, Julia? Yeah. Well, in Japan in particular, as you just said, 7-Eleven remains really strong. About 22 million people visit its locations every day. Yeah, that's pretty crazy. Amazing. Yeah. Wow. Okay. And yeah, I mean, some people, you know, as we just talked about, believe that 7-Eleven hasn't really fully tapped the potential of its U.S.

19:39business. And, you know, overall, 7-Eleven and I Holdings has set a goal to roughly double its annual sales to about$200 billion by 2030. So that's a lofty goal. That's a big goal. Yeah. Yeah. I mostly associate 7-Eleven with 7-Eleven day of July 11th. I forgot about that. Maybe they need to pour more marketing into that to get to that$200 billion in sales. I feel like that would help. You know, like that's a lot of slushies. Yeah. Yeah. But this will be very interesting. I think the thing I would note is that this is a sprawling business. So any efforts to right the ship at 7-Eleven, it's going to take some time.

20:24We'll continue to track it here at Modern Retail. But that's it from us this week. Julia, thank you so much for joining this week. Thank you for having me. Please follow us on social at Modern Retail for more coverage. On Thursdays, you can listen to the Modern Retail interview show. And please come back on Saturdays for more rundowns.