The future is upon the Neiman Marcus Group, which motored through a strong holiday season and is hammering out potential growth strategies.
In the months ahead, NMG will determine whether to take Neiman’s international; whether to expand or pull the plug on the fledgling Cusp and Last Call Studio formats, and whether to offer a dividend.
The luxury chain will also be fine-tuning and grappling with strategies to lure younger customers; deciding how often to offer free shipping on e-commerce, which Nordstrom does all the time now, and exploring where to open more full-line stores, although with 42 operating and a 43rd opening next week, there is limited opportunity left in the U.S. A proposal to pay a dividend to shareholders not to exceed about $500 million, which may require the company to tap into its revolving credit facility, is on the table.
“Now is really the time to think about our future,” chief executive officer Karen Katz told WWD in an interview from Paris, where she was attending the shows.
Neiman’s has recovered a lot of ground lost during the recession. But the retailer remains under pressure to sustain the momentum and sprout growth strategies, particularly since its private equity owners, TPG Capital and Warburg Pincus, are eager to take the company public. The equity firms paid $5.1 billion for the business in 2005.
On Friday, Neiman’s will open a two-level, 85,000-square-foot full-line store in Walnut Creek, Calif. Neiman’s is also planning to open a 100,000-square-foot store in Roosevelt Field in Garden City, N.Y., in spring 2015, which will be its first Long Island location. “We have been wanting to build a store on Long Island for a long time,” Katz said. Simon Property Group will “transform some of the mall into a luxury wing, and hopefully find some other great stores” to share the space, Katz said. “We believe there are lot of people on Long Island that shop Neiman’s and Bergdorf Goodman already. This will be their local store.”
Beyond those two sites, “We are carefully examining whether there are other opportunities around the U.S. There could possibly be more,” Katz said.
Three additional Last Call Studio stores will open this year in strip centers and power centers to see if these settings work for the format. The others are in more remote locations. Neiman’s is tinkering with Last Call Studio in many ways, including the merchandise, square footage and technologies. “There’s a laundry list of things,” Katz said during a conference call Friday.
Cusp, launched prior to the recession, is in a holding pattern. “The six stores are performing nicely. We just haven’t gone anyplace with that,” Katz noted.
The Dallas-based luxury retailer is in a good position to test new waters considering its recent performance. Earnings practically doubled in the second quarter ended Jan. 28 to more than $40 million, from $21 million in the year-ago period. Revenues rose to $1.28 billion, compared with $1.17 billion in the year-ago period, while comparable revenues increased 9 percent in the quarter, which is the chain’s second of its fiscal year.
Operating earnings for the second quarter were $108.7 million compared with $89.2 million for the second quarter of fiscal year 2011, an increase of 21.9 percent. There was also a 9 percent improvement in sales per square productivity to $525.
“Everything was working last holiday,” Katz told WWD. “We placed a lot of bets in shoes, accessories, beauty and men’s and those bets came to fruition. We were very pleased with the results.”
Discussing future possibilities, Katz said that internationally, “We are just beginning to investigate whether there are opportunities — are there opportunities in China, in Brazil? It’s a natural course of thinking for our brand. It’s not a decision you make quickly.”
On the technology front, there’s a lot in motion. By the conclusion of the Dallas-based luxury chain’s fiscal year, which is at the end of July, all 5,000 sales associates will be outfitted with smartphones. As of the end of January, 15 Neiman Marcus stores were outfitted. Bergdorf’s was outfitted last month. “The goal is to deepen relationships with customers and introduce associates to new customers,” Katz said.
So far, the mobile communications have “proved to be a tremendous asset for our sales associates. It enables them to just quickly and easily communicate what’s going on in the stores, the events, the promotions, the new merchandise.” Recently, one customer purchased $9,000 worth of resort merchandise from the San Francisco store via smartphone after being texted photos by an associate. The smartphones also enable associates to check on merchandise availability anywhere in the country. In addition, Neiman’s is testing at four locations a new iPhone app developed by Signature to provide more immediate service and tighten communications between customers and sales associates. It alerts associates when customers walk into the store, and alerts customers about events, new products and promotions.
By offering new technologies, greater service and shopping alternatives, Katz said Neiman’s is being “modernized” to capture a greater percentage of “younger, aspirational customers” and have them feel comfortable shopping Neiman’s. To further the cause, NMG last holiday season began accepting Visa and MasterCard.
Though the performance was strong, there are concerns for the year ahead. This spring, Katz said prices are up 5 to 6 percent primarily due to the value of the dollar against the euro and deliveries are running on time after running late over the last few seasons. “That’s a really good thing for our regular price selling,” Katz said during the call.
“The customer remains discriminating in how they are shopping,” Katz added. “It’s still very different from how it was before the recession. Customers are very focused on buying things they see as a good value, whether it’s $500, $5,000 or $50,000. We are being very particular,” in the buying. “It really has to be special and interesting product. That’s the way we are approaching fall.”
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