Dive Brief:

• Neiman Marcus might be scaling back the square footage of the flagship store under construction in Manhattan’s West Side, the New York Post reports. A Neiman Marcus spokesperson would not comment on the Post's account, but sent a statement to Retail Dive saying, "We are on track for an expansive three level flagship at Hudson Yards," and added, "Frankly this is a non-story."  

• Plans for a three-story, 250,000-square-foot store could shrink by as much as 70,000 square feet, unnamed sources told the Post, though another source said the adjustments will be closer to 10,000 square feet. A Neiman Marcus spokesperson told Retail Dive that the store was originally announced as 250,000 square feet in gross terms, and the retailer clarified two years ago that Neiman would occupy 215,000 leasable square feet. 

• The struggling department store retailer is an anchor tenant of developer Related Companies’ massive Hudson Yards mixed-use development there. Retail Dive’s request to Related Companies for more information wasn’t immediately returned.

Dive Insight:

Neiman Marcus emerged as a major tenant of the $25 billion project three years ago, but the luxury retailer has since faltered badly in an increasingly challenged department store sector.

While interested in supporting their tenant, Related Cos. executives reportedly have been concerned about the company’s debt. In May reports surfaced that the upscale real estate developer may invest in Neiman Marcus — or even acquire the struggling department store — in order to salvage it as an anchor tenant.

Neiman Marcus’s debt is emerging as a stumbling block when it comes to investor interest. Canadian department store company Hudson's Bay, with about $2.4 billion in debt of its own, was reportedly in talks to take over Neiman Marcus while hoping to avoid taking on Neiman Marcus' full $4.9 billion debt load. Those discussions eventually broke down.

Neil Saunders, managing director of GlobalData Retail, last year warned that Neiman Marcus's debt load is a problem. "In our view, such a debt burden is completely unsustainable for a company of Neiman Marcus’ scale," Saunders said in a note emailed to Retail Dive in December. "This acts as a major barrier to the company being sold and makes an IPO far less attractive. It also guarantees that without a significant rise in sales, the company will remain loss making."

But the department store retailer's troubles only go back about two years, Philip Emma, analyst at Debtwire, told Retail Dive — a sign that it's not too late for the business to be turned around. "The Neiman Marcus name still has value. It has deteriorated, but it’s still substantial," Emma said. "There’s a revenue stream to buy at a discount — that’s an intriguing possibility. In a low growth environment for retail, the ability to add sales cheaply could be viewed as compelling." 

A developer-initiated investment in a struggling retailer has recent precedent. Last year a consortium of mall landlords including mall owner Simon Property Group swooped in at the last minute with $243 million to take over teen apparel retailer Aeropostale, which was facing complete liquidation in bankruptcy.

But such an investment has to be a strategic, long term move and carefully considered, according to Simon Property Group CEO David Simon, who also recently told analysts that the consortium will continue to invest in the teen apparel company to ensure its success.

While Simon said he sees department stores as "a great opportunity" for mall operations, the company is being choosy about when it comes to the aid of an ailing retailer. In an April conference call, he pointed to a closing J.C. Penney store in a Philadelphia-area mall as an example, according to a transcript from Seeking Alpha. "We could have saved that deal, we decided absolutely unequivocally not," Simon said. "We're going to make that a mixed-use development, won't be apparel-oriented."