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ANALYSIS: The ‘80s and ‘90s Are Going Bankrupt

June 25, 2020, 7:56 PM

Perhaps it is cabin fever finally catching up with me, or perhaps it is all the ‘80s and ‘90s sitcoms I have binged while under stay-at-home orders. But as I scrolled through the Bloomberg Terminal’s bankruptcy dashboard recently, I began to feel an odd mixture of nostalgia and wonder at just how much times have changed since I was a teen, plotting out all the things I would buy once I had my own money.

The symbols of luxury, decadence, and achievement of my formative years are heavily represented in recent bankruptcy filings: Neiman Marcus, John Varvatos Enterprises, True Religion (for the second time in under four years), Dean & Deluca, and Earth Fare all have filed Chapter 11 since February—with rumors of Brooks Brothers and Sur la Table to follow. Although they are not all proper luxury brands as that term is understood, they all represent a certain level of success and retail at price points beyond the realm of regular consumption for the average American family.

Shifting Generational Values

One reason my childhood icons of success are now struggling to survive might be that the mores and status symbols they sell are simply out of vogue. While we watched and admired such luxury as youngsters, those extravagances just do not resonate with many of us now. Priorities and symbols of achievement have shifted, and younger generations do not embrace the same symbols that their parents did. Boomer status symbols are falling out of fashion almost as quickly as oversized shoulder pads.

The Great Recession hit just when the thirty- and forty-somethings of today were just starting their careers, or desperately trying to. The generation immediately following them watched their parents lose their jobs and their meticulously appointed homes filled with designer clothing and high-end home goods. Lessons were learned, and the lure of high-end brands waned. Over the past decade, couples have opted to put more honeymoon excursions than $300 gravy boats on their registries.

‘Graying’ Customer Base

Another reason for Neiman’s and Brooks Brothers’ failure to thrive is that their customer base is aging and running out of disposable income. The generation that would have been in their prime working and spending years (30s and 40s) and popularizing many of these luxury brands during my youth is now going broke at a faster rate than their preceding and succeeding cohorts. In a 2018 paper, Graying of U.S. Bankruptcy, several law and sociology professors analyzed data from the Consumer Bankruptcy Project. According to the paper, over the past three decades, filing rates for seniors has steadily increased. Surprisingly, the filing rates for those aged 18 to 44 has steadily decreased.

Some might speculate that demographics—aging baby boomers, an overall increase in seniors—is to blame. But in 1991, seniors 65 and older accounted for 17% of the American adult population, and that rose to only 19.3% by 2015. By contrast, bankruptcy filing rates for that age group more than doubled during that same time frame. With traditional luxury brands unable to cultivate a new customer base sufficient to sustain their business, and their existing customers going broke at record rates, it is not surprising that these brands find themselves struggling today.

Don’t Blame the Virus

It is a given that online shopping trends and the novel coronavirus have had some role to play in these brands’ troubles, but their problems run deeper than a recent decline in demand. These struggling companies are as overleveraged as their traditional customer bases. Upon filing bankruptcy, Neiman Marcus Group LTD LLC had more than $5.2 billion in liabilities. True Religion Apparel Inc. reports that it has more than $138 million in liabilities with only $16 million in assets, and the gourmet chain Dean & Deluca Inc. lists $314 million in liabilities and only $3.3 million in assets. The chain had even started shuttering restaurants in 2019, before coronavirus. The coronavirus might have been the straw that broke the camel’s back, but these poor animals were in need of care long before the pandemic.

There is no readily accessible data to determine whether senior debtors bought these brands, but there is anecdotal evidence suggesting that America’s priorities and purchasing preferences are changing. Values, and the emblems of success, have shifted away from physical displays of wealth to experiences. The generations who prized those emblems are losing purchasing power. As a result, high-end retailers might be the next trend in bankruptcies, as pandemic and recession urge Americans to further evaluate their discretionary spending.

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