Stanley Marcus saw the future with unerring clarity.
Forty years ago, Marcus, the late chairman emeritus of Neiman Marcus Stores, predicted in a speech that someday shoppers would use "phonovision" to purchase goods, whether from stores located 2 or 2,000 miles away.
"The mass use of color phonovision will introduce a completely new dimension to remote buying and selling," Marcus said in 1966. "In addition to mail-order shopping, customers will be able to call their favorite local or out-of-town stores over the phone and see the articles over the monitor that will interest them right in the comfort of their own living rooms. After the decision is made, the customer will put the plastic card in the special telephone slot and her account will be charged."
Fast-forward to 2006, when Marcus' idea of phonovision has morphed into the fast-growing universe of Internet shopping.
Brendan Hoffman, president and chief executive officer of Neiman Marcus Direct, said the "imaginative and innovative" Marcus proved to have "incredible clarity of what would come in the future. The worldwide Web has introduced a new dimension to buying and selling outside of the four-wall store environment, and this is something that we at Neiman Marcus have been trying to exploit."
Many in the industry were skeptical about whether luxury goods could be sold online when the Internet was in its initial phases, Hoffman said. Not anymore.
Neiman Marcus Direct, which includes the catalogues and online operations of Neiman Marcus, Bergdorf Goodman and Horchow, recorded annual sales of $650 million and accounts for about 20 percent of the company's overall earnings.
"As neimanmarcus.com celebrates its seventh anniversary," he said, "customers are comfortable buying everything from a $2,000 Gucci handbag to a $7,000 David Yurman bracelet, and, of course, their Manolo Blahniks, whether they are in one of our stores or thousands of miles away from one."
Although some luxury brands are still reluctant to have their goods sold online, particularly a few European players, "I really do think we'll see them all come online very shortly," he said.
Others, however, are so keen on the Internet that they are working with Neiman's on "sitelets," where the retailer handles warehouse fulfillment for the online stores of brands such as David Yurman and Salvatore Ferragamo. This program has been "gaining a momentum of its own as people understand what we're doing and recognize that it's really important for their brand to participate online," he said.Despite the early doubts, Hoffman said the Web business "exceeded $400 million in net revenues for our most recent fiscal year," and internal projections call for sales to jump to $1 billion within the next few years.
So it's clear that Marcus' vision — the idea of nontraditional selling methods — is something the company has been "thinking about for a long time."
Next September, Neiman Marcus will celebrate its 100th anniversary. The business was founded in 1907 by Carrie Neiman and her brother Herbert Marcus, who had $25,000 to invest, and narrowed the choice to two options. "One was to start a luxury goods store in Dallas. The other was to secure the bottling rights for the Southeast for a relatively new product called Coca-Cola," Hoffman said. "Stanley Marcus liked to joke that Neiman Marcus was founded on a bad business decision. But we're certainly glad they made that choice."
Shortly after opening, Hoffman said the founders "must have seen an opportunity to reach out-of-market customers" because they started advertising product in local newspapers and inviting people to call up on the phone or order via the mail.
In 1926, the company offered its first Neiman Marcus Christmas catalogue "and our direct-to-consumer business was off and running," he explained.
Shortly after acquiring the Horchow Collection in 1990, Neiman Marcus Direct opened as a separate operating division with its own dedicated 750,000-square-foot warehouse, one of two it operates.
"We opened up a customer-care center with 200 seats, which is now our secondary location to our 500-seat center in Canada,'' Hoffman said. "And we began to build the infrastructure of merchants, creative, marketing, etc., that are the foundation of the business today. All this being done before the Internet, but with phonovision in mind."
By the end of the Nineties, when it was time to launch a Web site, "all we had to do was build the site itself,'' Hoffman said. "I don't mean to minimize the complexity of building a Web site, but in reality, that really is the easy part."
Many of the Web sites that failed at that time "spent far too much time concentrating on building a fancy Web site and not nearly enough time in all the back-of-the-house logistics necessary to fulfill the order,'' Hoffman said. "That's really where the heart of business happens."The Neiman Marcus Direct warehouses ship to 30,000 customers every day and can accept up to 10,000 returns if necessary. "And our customer-care centers are set up to do phone calls, e-mails and live chat on a 24/7 basis. And by the way, 80 percent of the operation's Web orders still have some customer-care interaction."
Hoffman stressed that getting Neiman Marcus Direct up and running was not without its growing pains, however.
"We, too, thought a Web site for Neiman Marcus needed to have all the bells and whistles and glitz and glamour that we thought our customer would expect."
In the early days, he said, a customer who clicked on a shoe in the Manolo Blahnik boutique would see the shoe "rise like the phoenix off its stand, start to float toward the screen, do backflips, somersaults and cartwheels, getting larger and larger until it took up the entire screen, at which point, it would start to retreat — at which time, you may or may not have gotten the price. Now, remember, this was all being done long before high-speed Internet access, so you can imagine how long this took, and how many customers lost their connections somewhere along the lines."
As a result, not many shoppers were buying, he said. "From that lesson, we learned our first Internet buzz word — conversion. And really, conversion and convenience have been the major focus of our Web site ever since."
Today, almost half of the Direct business comes from outside the stores' trade area, Hoffman said, making the 37-unit chain "a national brand." This is complemented by strong sales in areas where the stores are located as well. Although there was some concern that the Internet business would "cannibalize" sales at Neiman's or Bergdorf stores, "that has not happened," he said.
In fact, the Internet has become a tool for customers to research products before coming into the stores. And because the Web site never closes, "it has provided great incremental sales." Although much of the business still happens during the standard work week, Hoffman said sales are also growing in the evenings and on weekends.At Neiman Marcus stores, Hoffman noted, sales associates routinely communicate with customers about new vendors, deliveries, trends and other issues. On the Web, the Direct division uses e-mails to serve the same purpose.
"While every e-commerce player has an e-mail campaign, the key differentiator is that ours is a daily campaign," he said.
Four years ago, Neiman's sent e-mails once a week and was cautious about increasing the frequency. "However, every time we sent out an e-mail, we saw customers come on the site and purchase," Hoffman said.
So Hoffman and his team pored over e-mails from their competitors and found that most centered around promotions and special offers — "things that are very compelling if you're in the market for that merchandise at that particular time. But if you're not, it's not something you really want to get on a regular basis."
Instead, Neiman's found that its most productive e-mails were about "informing the customer, just like our sales associates do, on trends, vendors and must-have items." Providing information rather than a "hard sell" allowed Neiman's to communicate with its customers on a daily basis; the retailer now sends e-mails to customers five days a week.
By analyzing the results of those e-mails, Neiman's found that some segments of the database weren't very active — men, for example.
"Since we rarely spoke to the men shoppers, they just gave up on our e-mails entirely," Hoffman said. "We realized that there was opportunity to segment our e-mails and, hopefully, provide them information that they were more likely to want to see."
So an e-mail about Prada would have a separate image for the men's customer and "we found that the men's customer suddenly started to become engaged and become very active on the site," he said.
This opens up the door to even more personalization. With repeat customers, for example, the company can market to them based on past behavior, and hopefully increase the conversion rate and, subsequently, sales.
The company is also dabbling in "AB testing," which allows it to "randomly show different content to different users and see what converts them at a better rate," Hoffman said.Neiman Marcus Direct does have a promotional component, which is especially popular among customers outside of the store-trade area. "They're really gobbling it up," Hoffman said, leading the company to consider launching an online business for its Last Call clearance division.
"We're working on breaking out the sale section from our site so that we can have a lastcall.com site, as well. The nice thing about doing sales online is in many ways it's cleaner," he said. "In a brick-and-mortar store, since you're constrained by space, when we're in a sale period you often see the sale merchandise lined up outside of the actual full price boutiques. Online, we put it in a separate sale silo so it really doesn't fight as much with the new receipts."
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