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Neiman’s Reality Check

Nearly a week after the Neiman Marcus Group put itself on the selling block, the field of potential buyers appears to be tightening.

NEW YORK — Almost a week after the Neiman Marcus Group put itself on the selling block, the field of potential buyers appears to be tightening.

Excitement over the announcement that the upscale retailer — a prize for any high-end player — is seeking a strategic investor or outright buyer has given way to the reality that the company will command a high selling price. Plus, some analysts see significant growth in the U.S. as a serious challenge. The firm has been valued at between $4 billion and $5 billion.

“Neiman Marcus will be a difficult transaction,” said Walter Loeb, retail consultant at the firm that bears his name. “There are very few people who appreciate the full value of the company. Its standards are unique.”

LVMH Moët Hennessy Louis Vuitton and Galeries Lafayette have been mentioned as possible bidders. In recent days, PPR has also been mentioned, although new chief executive officer François-Henri Pinault denied any interest in making a play for Neiman’s.

“Galeries Lafayette doesn’t seem to make much sense,” said Richard Perks, director of retail research at Mintel, a U.K. consulting firm, of the French retailer. “Neiman Marcus is absolutely premium. Galeries is at the upper end of the mass market. PPR itself is big enough.”

Deborah Weinswig, a retail analyst at Citigroup Global Markets, believes the buyer will be a consortium like Kohlberg Kravis Roberts & Co., Bain Capital and Vornado Realty Trust, which recently purchased Toys ‘R’ Us.

Touk Sinantha, research analyst at Ariel Capital Management LLC, which holds about 5.7 million shares, is looking for growth from Neiman’s and believes a buyer could improve expenses and top-line performance.

“Management is exploring a smaller-sized box,” she said. “They own Kate Spade and Laura Mercier, which they haven’t really focused on too much. There’s potential there.”

Others, however, see Kate Spade and Laura Mercier being sold.

“Neiman executives feel they could pull out a product category or come up with a whole new concept,” said a department store official, noting that the company is already working on several ideas. Neiman’s tried to branch out in 1997 with gift and jewelry stores, but the shops weren’t successful. Weinswig said the timing wasn’t right and Neiman’s could try again. “There’s always room to expand in the home market,” she said.

While U.S. retailers haven’t fared well abroad, Neiman’s, which considered opening stores in London, Paris and Tokyo, could travel to Asia and avoid competing with its resources on their home turf in Europe.

But there’s still work to be done here. “Neiman’s is not getting as much as it could from the existing customer base,” Weinswig explained. “Neiman’s does $550 a square foot in sales. Costco does $800. They want to reach out to customers that spend $3,000 to $10,000 a year and hook them up with personal shoppers to get them to spend more money.”

Katherine Galligan, a retail analyst for Aperion Group LLC, has a more skeptical view. “I don’t consider it a good investment,” she contended. “The company that buys Neiman Marcus would buy it because they really needed it.”

Galligan was hard-pressed to name such a company. She dismissed Federated Department Stores, which recently purchased May Co. for $17 billion, saying it has “too much on its plate to digest.” Saks Fifth Avenue Enterprises is busy launching initiatives to rev up its performance. Meanwhile, Nordstrom is not experienced in Neiman Marcus’ level of luxury, Galligan said.