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Neiman Marcus Keys On Technology as Web Sales Rise

Luxury chain is boosting capital expenditures to capture greater e-commerce sales and strengthen communications with customers.

Luxury shoppers like lavish service, elegant stores and the latest styles. But they like their laptops too and are increasingly spending time and money online.

This story first appeared in the May 31, 2011 issue of WWD.  Subscribe Today.

That message came loud and clear from the Neiman Marcus Group, whose president and chief executive officer Karen Katz told WWD Friday, “As we come out of the recession, and with the change in leadership we’ve had at Neiman Marcus, it’s definitely one of the priorities of our new team to have a higher investment in technology.”

Katz, who took the reins of NMG last October succeeding Burt Tansky, said Neiman’s is boosting capital expenditures to capture greater e-commerce sales and strengthen communications with customers via “fashion insider” blogs and e-mail tips, the company’s Web sites, Facebook and other social media.

She didn’t specifically break out how much is being spent on technology but capital expenditures rose to $24.8 million last quarter and $66 million in the last nine months, versus $14.7 million and $43.1 million in the corresponding year-ago periods. For fiscal 2011, it’s expected on a gross basis to be $105 million to $115 million. Industry-wide, Internet sales are growing faster than other channels, and at NMG accounted for 15.6 percent of overall sales last year.

“Our customer is very engaged in technology,” Katz said. “Our customer is very affluent, extremely well educated and very wired, and she is fully engaging in everything when it comes to technology.”

The number of Neiman’s Facebook friends rose to more than 355,000 from 90,000 in the last 12 months, and 50 percent of NMG’s customers research products online before they come to Neiman’s stores, according to Katz’ statistics.

She talked technology right after NMG reported strong results for its third quarter ended April 30. Abetted by improvements in the stock market and the economy, Neiman’s said net income rose to $46.2 million, two-and-a-half times the $18.5 million registered during the prior-year quarter.

Sales rose 9.9 percent to $983.8 million from $895.2 million a year ago as comparable revenues, including those from e-commerce, were 9.7 percent above last year’s quarter.

Gross profit expanded 14.2 percent to $390.3 million as gross margin grew to 39.7 percent of sales from 38.2 percent.

“We are really selling product across all of our prices, and actually pleased at the nice balance to the business,” Katz said in a conference call with analysts. “We experienced strongest growth from core and most loyal customers. Aspirational customers have an increased willingness to spend. We are seeing success bringing in new customers and reactivating others. We relied less on gift cards during the quarter.” Ladies shoes, designer handbags and men’s are currently the best performing categories.

She said that in Florida, business “really surged” due to an influx of South American customers and dramatic winters in the north driving snowbirds south, as well as “perfect fashion with lots of color and beautiful fabrics.” Katz also cited “extremely strong business at Bergdorf’s,” and an increasing amount of business driven by mobile tools.

The luxury chain has posted 17 consecutive months of positive comp sales and “inventory is in great shape and in balance with current trends,” Katz said. With performance improving after getting hit hard during the recession, and with only one new store opening set, Walnut Creek,Calif., in March 2012, the luxury chain has more money to spend on technology. Among the initiatives:

• Expanding the Pinnacle Park, Texas distribution center by 200,000 square feet, or 27 percent, to accommodate growing online orders.

• “Continuing to move forward” with midday “dash” flash sales, Katz said, and possibly increasing the frequency of fashion shows presented online, including live-streaming some to generate preordering months before the products reach the stores. “We were very encouraged by the numbers that watched,” Katz said.

• Recently completing an inventory of Neiman’s stores that have Wi-Fi capabilities, with the ultimate intention of having all 41 units and Bergdorf Goodman WiFi enabled. Some stores already are enabled; others are experiencing networking issues with local communities.

Last February, the NMDaily blog was launched providing “fashion insider” information, similar to Bergdorf Goodman’s Fifth and 58th blog. There’s a “roving team” of writers and editors in place for both blogs, and according to Katz, NMDaily has received 250,000 visits so far.

Katz said that when Neiman’s puts “fashion insider” stories and tips online, such as behind-the-scenes videos of fashion shows or interviews with designers or stylists, like Rachel Zoe, the company sees a spike in page views.

“The way we communicate the fashion trends has become increasingly important. The customer expects us to let them know what they need to buy each season to update their wardrobe. We have determined our most powerful voice is that of a fashion insider,” Katz said. It’s likely to lead to increased sales but that’s not quite determined yet. “That’s really the million-dollar question — how to ultimately monetize social media and turn it into real revenues,” said Katz. Eventually, it will be determined. “We can closely track the analytics of who is reading the blogs and who buys from that and how they click through and what happens in their shopping.…I do believe the online customer is a slightly younger customer, probably even more engaged in social media and sharing with their friends how they are shopping, but generally speaking very similar trends with what they are actually buying.” There’s also no real difference in terms of what’s bought off apps, iPads or smart phones, she pointed out.

During the conference call, Katz cited expanded e-mail capabilities. “E-mail and texting has replaced the telephone as the primary way of communicating” and while the company is reinvesting and upgrading stores, including planning a major renovation at the Bal Harbour, Fla., store [the first store Neiman’s ever opened outside Texas], Katz said the company views technology “as a way to strengthen and solidify already strong relationships we have with our customers.” Katz’ ultimate objective: for customers to be able to shop Neiman’s “anywhere, any time, anyplace.”