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Direct Hit

Status brands and hot trends are the name of the game at Neiman Marcus’ catalogs and Web site, which only a few years ago were awash in basic clothing.<br><br>"Growth is coming from vendors who were not in the book before — like Prada and...

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Status brands and hot trends are the name of the game at Neiman Marcus’ catalogs and Web site, which only a few years ago were awash in basic clothing.

“Growth is coming from vendors who were not in the book before — like Prada and Gucci shoes and bags — and we introduced YSL bags last spring,” said Karen Katz, president and chief executive officer of Neiman Marcus Direct, the catalog and e-commerce division of Neiman Marcus Group. “We’ve had terrific success with them.”

Roberto Cavalli and Ronaldus Shamask are the latest designers to appear in the catalog and Web site as Neiman Marcus Direct strengthens its three-year-old plan to heighten fashion offerings so that they mimic what’s in the stores. Neiman Marcus Direct targets the same lofty $250,000-per-year household income as the sibling stores, but its customers are slightly more suburban, casual and price sensitive.

“We are talking to all our vendors about focusing on the fashions of the season,” Katz said. “The customer has money to spend, but it will have to be something new and different. She has changed the way she shops and is much more trend driven. So if we are not giving her key trends, she will find them someplace else.”

Katz, who spent most of her 17 years at Neiman’s managing store operations and merchandising, is well aware that even affluent shoppers are checking out every tier of retail, from the mass market on up. She herself carries a denim tote from Target along with her YSL Mombasa bag.

To better appeal to choosy customers, Katz over the past year has revamped customer service. She eliminated about 10 poor-producing books and some prospecting mailings to slash expenses. The whole strategy is showing results.

“It seems like it’s working,” observed Adrianne Shapira, a retail analyst with Goldman Sachs. “Since they’ve upgraded the merchandise to align it more with the stores, the numbers have clearly improved.”

Eric Beder, retail analyst for Ladenburg Thalmann, agreed. “NM Direct has done a lot of positive things this year to refocus the business, significantly improve productivity and move the catalog closer to the stores,” he said.

Despite the economic difficulties during Neiman’s last fiscal year ended Aug. 3, NM Direct’s operating earnings more than doubled to $23 million on sales that squeaked up 0.2 percent to $444 million. About half of NM Direct’s customers are outside the urban markets of its 34 stores.

“It’s a great way for them to reach out to people in small towns who might not be able to get designer high-end things locally,’’ said Stacy Turnof, retail analyst for Merrill Lynch. “But high-income areas typically will have a Neiman’s close by.’’

Neiman’s catalog business is fairly large compared with its luxury retail competitors. Saks Fifth Avenue, for instance, last year phased out its Folio catalog of women’s apparel, accessories and home goods and the Bullock & Jones men’s catalogs, eliminating about $80 million in volume. But Saks still produces mailers that promote merchandise in the stores and has a transactional Web site.

“There are not many traditional department stores that have got a huge catalog business,’’ Turnof pointed out.

In addition to the flagship Neiman Marcus brand, NM Direct manages two other businesses that each operate catalogs and Web sites: Horchow home furnishings and Chef’s Catalog kitchen equipment.

“It’s been a challenging year from a sales point of view, but we’ve accomplished a lot with each brand,” Katz pointed out. “We remained focused, after we got through the hysteria of the 60 to 90 days after 9/11, on Neiman’s broad goals.”

Looking ahead, Katz is aiming for sales growth, noting “you can only expense yourself so far.” But she’s understandably wary of the laggard economy and soft retail scene exacerbated by the threat of war with Iraq.

“We’re all a little skittish about things,” she said. “We are taking it one day at a time.”

The good news is that inventories are as lean at the NM Direct as they are at the stores, and neimanmarcus.com’s performance is encouraging. Now three years old, it’s a year ahead of plan for sales and achieving profitability, though Katz declined to elaborate.

“It’s really tiny as a percentage of their total business,’’ Turnof pointed out. “Most department stores’ Web sites are running at 1 percent of total company sales. My guess is Neiman’s would be close to breaking even.’’

The appetite for top designer labels and trendy fashions has been surprisingly strong on the Web.

When Neiman’s tested 18 styles of Prada handbags online last December, they sold out in 24 hours, and the company could not even get enough product to fulfill demand. This fall, the merchant prepared a major launch, and the site sold 1,000 Prada bags, belts and shoes within four weeks.

“Where we have seen the greatest success online has been with accessories and shoes, turquoise, beauty, contemporary sportswear, gifts and home,” Katz said. “The whole status shoe, handbag and jewelry categories are really big now.” Leading labels include “anything Burberry we can get,” as well as Kate Spade, Manolo Blahnik, David Yurman and Isabella Fiori.

“We’re still trying to find our way with ready-to-wear,” Katz said. “We’re starting to get a feel with designer sportswear, but it is just not as large as you might expect at this point. We are trying to figure out what that customer is looking for on the Web.”

“They are trying to focus on accessories, gifts and beauty because it’s so difficult to sell apparel online,’’ noted Turnof. “It’s been a challenge for every department store out there. When you are looking at buying a $1,000 suit, you really want to go to a store to try it on.’’

To keep the site looking fresh, NeimanMarcus.com in September mounted two different home-page fashion images that pop up randomly when someone visits the site. “The merchandise on the home page always sells really well, so this is really to maximize sales,” Katz said.

The Web provides the easiest avenue to experiment with new trends since it’s far faster to shoot a product digitally and zap it online than to produce a catalog, and about 1,500 items are typically available only online and not in the catalog.

It’s an effective tool for drawing new customers, as about half of the online clientele is new to Neiman’s. The Web customer typically is younger and more fashion-conscious than catalog shoppers. The primary demographic target for both NM Direct and the stores is women aged 45 to 50, but the Web site draws more shoppers who are 35 to 45. Eighty percent of catalog and Web customers are women.

In August, the Web site had 500,000 unique visitors, compared with 1.6 million at Macy’s and 275,000 at Saks Fifth Avenue, according to Nielsen NetRatings.

“The contemporary business is the strongest of what we sell online — like Marc by Marc Jacobs, Seven, Diesel and Laundry,” Katz noted.

The site, which features more than 5,000 items, has been fine-tuned to focus more efficiently on product. Gone are the fancy technical wonders that invited shoppers to take panoramic views of virtual designer boutiques. Instead, Neiman’s has worked out a simple formula: nine items to a page, no more than five pages to a category.

“If we can’t represent an assortment correctly, then we don’t do it,” Katz pointed out.

The catalogs for all three brands have gotten down to basics too. Only two years ago a catalog customer had less than a 65 percent chance that her selection would be in stock. Now that figure exceeds 90 percent.

In comparison, it’s easy to make sure an item on the Web is in stock: A product does not appear online until it has landed in the warehouse, triggering its automatic posting online. Likewise, products that have sold out are deleted from the site.

“We’re very focused on improving the customer experience; we recognized we could do a better job,” Katz said. “Over the long term, if a customer is satisfied they are going to keep shopping with you.”

The changes spanned from simply switching packing material to craft paper from messy Styrofoam peanuts to an ongoing effort to retrain all operators in NM Direct’s two call centers. “Customer care agents” now have carte blanche to solve shoppers’ dilemmas and have been given more exposure to vendors and products. In addition, buyers and the creative team occasionally eavesdrop on call center calls.

“If an item is out of stock, the merchants are mortified — and that’s what we want,” Katz said.

Based on experiments last year, the catalog and Web site this fall are grouping several items that represent a major trend, such as fringe, romantic blouses or denim.

“We are going forward with this more focused approach,” Katz explained. “In both the Web and catalog the customer’s response has been tremendous. She is so focused on what she will spend money on and she is closely in tune with the trends of the season. In some ways we’ve made it easier for her.”

Similar to the Web site, top growth performers in Neiman’s catalog are shoes, jewelry, handbags, belts and contemporary sportswear from such labels as Moschino Jeans, Tracey Reese, Laundry and DKNY. The bedrock of its business is bridge sportswear, with labels such as Ellen Tracy, Eileen Fisher and David Dart.

“Dresses and suits are coming back,” Katz said, citing Diane Von Furstenberg, Albert Nipon, Teri Jon and Kay Unger.

Neiman Marcus catalogs have an average circulation of 1 million, while it’s contemporary designer book goes to 1.2 million households and its Christmas Book has the largest circulation, at 1.8 million.

Neiman’s main call center is at its sprawling headquarters and warehouse in Irving, a suburb of Dallas. A second telephone hub opened a year ago north of the border in Edmonton, Alberta, and while it’s not operating at full steam, it is equipped to double the firm’s call capacity.

The business most likely to need extra telephone agents is Horchow. Specializing in baroque traditional home decor, it’s the fastest-growing brand at Neiman Marcus Direct. Horchow’s business got a surprisingly strong boost from a Web site that launched in July and exceeded plan within six weeks.

Horchow has benefited from the strength in the housing industry and the nesting urge that accelerated after 9/11.

“In addition, our merchandising and creative teams have done an extraordinary job of pulling together a Horchow look that is not available in catalogs,” Katz said. “It’s an over-the-top, more traditional look — we’ll add a finial to a lamp.”

Horchow has successfully branched from the living room and bedroom into garden and bath products and is now experimenting with decorative kitchen amenities. Its first bath catalog, which launched last spring and featured a hardwood double-sink chest for $3,499 across its cover, “was an unbelievable success — it blew away sales and productivity projections,” Katz enthused. “We’ll continue to move from room to room.”

Katz added, “We want to make it more profitable by increasing the higher margin businesses, so we are experimenting with more tabletop like dishes and flatware,” Katz said.

Across all three brands, NM Direct will mail 87 catalogs in fiscal 2003 and continue its effort to build the three online businesses. “Our goal is to increase our top line in sales,” Katz said, “and we feel we are positioned to do that.”

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