Karen Katz cops to a personal aversion to stiletto heels. She admits enlisting a local stylist for help in pulling her seasonal wardrobes together, and, worse still, that she hates to shop. Hardly the stuff of irony for a woman at the top of her field in a high-pressured career, except that as president and chief executive officer of Neiman Marcus Stores, Katz steers the ship of one of the bastions of American luxury retail, currently in the throes of a major boom.

On Tuesday, the Neiman Marcus Group reported dramatic gains in fourth-quarter and full-year profits: for the quarter ended July 31, earnings of $20.6 million, a whopping 187 percent increase over last year. Revenues increased 12.3 percent. Specialty retail revenues rose 11.1 percent. For fiscal year 2004, comparable-store sales were up 14 percent.

A 19-year veteran of Neiman’s, most recently as president of Neiman Marcus Direct, the catalogue and Internet division, Katz assumed her current post in December 2002, hand-picked by Burt Tansky, president and ceo of Neiman Marcus Group. The smart money says she’s being groomed to one day succeed Tansky — at the very least, she’s seen as the Group’s primary inside candidate. Tansky, who has no plans to retire any time soon, says Katz has a “retail personality: outgoing, aggressive, strong, willing to stand up and be counted.” Yet he tosses a mentor’s — and boss’ — challenge at every turn. Neiman’s recent dazzling performance has resulted from “a perfect storm” of stimuli, he says, Katz’s direction among them.

Others note her endless energy and tireless work ethic, while admiring the balance she has created for herself. Thus, her 10-hour-plus workday starts at 7:30 or 8 in the morning, depending upon whether it’s her day for carpool, and except for those numerous evenings with a business dinner on the agenda, she says, “I’m good at getting out of here. I’m good about getting up from my desk at 6:15 and going home.”

On a typically hot summer day in Dallas, Neiman’s senior store management has convened for a three-day general managers meeting, with the goal of educating the regional store general managers in the product. To that end, one day is spent at presentations by the general merchandise managers of seven categories. “There’s lots for everybody to be excited about,” Katz says between presentations. She manages to temper her enthusiasm with a not-there-yet vibe, directed both toward her staff and a visitor for whom ground rules have been set forth explicitly and then reiterated more than once: Any numbers mentioned are strictly off the record. “I’m paranoid,” Katz says. “Burt thinks not paranoid enough.”Certainly in regard to Tansky’s perfect storm, this is an enviable moment for Neiman’s, given the luxury explosion and fashion’s current mood of dressed-up, done-up clothes, rich with embellishment, pattern and color. The retailer lays proud claim to the wealthiest specialty store clientele in the country, one for whom spending is a way of life. “Our customer is not the woman who comes in for the occasional lipstick,” Katz says. She identifies a two-tier core clientele: the true fashion devotee who finds “everything about fashion intriguing —accessories, ready-to-wear, makeup” — and to whom “the whole experience of looking forward to next season is extremely important,” and her more sedate counterpart, a woman interested in luxury rather that fashion per se, one who wants to “look fresh each season, but not trendy. We take good care of both of those customers, from head to toe.”

But if retail is about anything, it’s about change, and it is among the ceo’s primary duty to remain au courant. Recently younger, highly fashion-oriented customers have started to shop Neiman’s, women with considerable current spending power and even greater potential. “Our goal is to develop that customer,” Katz says. “We still have a lot to learn about her and how she shops, and I don’t necessarily mean teenagers. I mean those 20- and 30-year-olds just getting themselves established. We know our core customer really well. We know why she becomes loyal to us. Now we have to understand this next generation, because it’s going to influence how our business will go five to 10 years from now.”

That customer is key to Neiman’s relatively recent embrace of contemporary, a category currently in the forefront of fashion but seemingly antithetical to the store’s bedrock of true luxury. “The way we reconcile it,” Katz says, “is that if it’s something that truly represents fashion, we have to be there. Juicy Couture is more widely distributed [than is typical of Neiman’s resources], but it represented a key fashion. The whole velour jog set — not too long ago we saw the pictures of Madonna and Guy Ritchie in them. We couldn’t not do that.”At Neiman’s everything focuses on perfecting the shopping experience for the customer. Katz toils zealously to ensure retention of the store’s exclusivity of merchandise and its legendary customer service, each increasingly difficult to secure. “We’re very aggressive about [securing exclusivity],” she says. “The minute we start getting into [a brand or collection], it becomes a matter of, ‘OK, what can we get exclusive?What colors? What styles?’ That’s when our merchants are so good. Once they see a business starting to click, they start asking, ‘What can we have just at Neiman Marcus? Can we get a launch?Can we have that for 60 days?’ That’s when the real creativity about our merchant kind of sets in.”

Katz sees protecting Neiman’s level of service as an even bigger concern. New store openings — 2005 openings are slated for San Antonio and Boca Raton, Fla.; 2006 openings will be in Charlotte, N.C., and Nantik, Mass. — always present challenges, but so, too, does an increasingly savvy, worldly clientele with ever-increasing expectations. “It is probably our single biggest challenge: How to maintain and strengthen this service-oriented tradition,” she says. “It is something we talk about every single day around here. As much as we talk about product and the trends of the season and key items, we spend an equal amount of time talking about our sales associates, their training, the ability to hire the right sales associates. All of that is part of how we challenge ourselves to offer higher levels of service.”

But then, in the fiercely competitive world of retail, every day is a learning process. And at a time when social and visual standards are in a state of constant evolution, retail executives and their customers sometimes engage in the process simultaneously. During the general manager meeting, one gm looks for consensus on how sales associates in contemporary should dress. How cute is too cute? How bare, too bare?

Katz acknowledges that the issue of appropriateness is one an institution like Neiman’s must deal with and reevaluate constantly. “We spend a lot of money making our stores visually beautiful. We talk about the art collections in all of our stores,” she says. “Along with that comes a level of appropriateness in terms of dress and attitude of our sales associates. Frankly, we’re struggling a little bit to try to figure it out: What should our contemporary sales associates wear? Or our men’s associates? Should they come to work without a shirt and tie? We’ve ended up, for now, sticking with the party line, that men should wear shirts and ties. The women who work at Neiman Marcus need to be appropriately dressed. We’ve tweaked that appropriateness over time” — liberation from the once-mandatory hose/no mules rule — “but we’re very judicious. We have our brand at stake, and that’s always overriding all the decisions we make.”The relaxation of de facto dress codes across the board has opened up all sorts of issues for fashion retailers, and for the clients they service, creating both possibility and puzzlement. Katz recalls that, once upon a time, at luncheons, “you knew exactly what women were going to wear, a lovely matching skirt suit. If it was February, it didn’t matter if it was still cold — spring clothes were brought out. It’s different now. We’re having a skirt moment, but clearly women love pantsuits, and they’re comfortable wearing nonmatching looks. Good for them. Everyone recognizes that comfort is an issue,” she adds, along with a chic woman’s caveat: “But there are ways to look pulled-together and still be comfortable.”

There’s even more at risk when it comes to dolling up for black tie. Everyone involved — party goer, her sales person and, perhaps, the store’s buyers — has struggled with what works for which event. “Wednesday night versus Saturday night? Can you wear short to one, long to the other? Short to both?” Katz understands the dilemma. “Men are dealing with the same thing. What we have to do as retailers is educate customers on the range of what’s appropriate, because everything has a range.” To that end, Neiman’s fall Men’s Book offered a “black tie” feature by men’s fashion director Colby McWilliams.

That holistic approach to serving the customer is an essential element to Neiman’s raison d’être. But at its core is a love and understanding of luxury merch, something Katz, a self-proclaimed “old bag lady” (former accessories divisional merchandise manager), has by the boatload. “Karen is smart, aggressive and she loves, loves, loves product,” says Barbara Cirkva, executive vice president of fashion for Chanel Inc. “Most store line executives don’t think that way. She has never lost that passion.”

That trait is not lost on other industry executives, who maintain that too many retailers have become number crunchers with little understanding of or appreciation for the goods they sell. “I met Karen when she came to see the collection at the Mansion on Turtle Creek,” says George Malkemus, president of Manolo Blahnik USA. “She came with Cynthia Marcus and Johnathan Joselove. They spent an hour and left. Later, I came back with additional shoes. ‘But what about that one shoe?’ Karen asked. That tells you the way her mind works. Most executives operate in a different world. They don’t think so creatively. She remembered a single shoe. It was one Manolo had edited out. But we brought it back.”Currently, handbags account for Neiman’s single hottest business, driven by the phenomenon of women shifting, seemingly en masse, from the concept of a lone, primary bag for day toward nearly daily changes, as has long been the case with shoes. “It started with the iconic bag and then it mushroomed,” Katz says. Among the hot lines: Gucci, Chanel and Marc Jacobs, the last of which exploded overnight into an enormous business. “The fashion customer clearly got on to it,” Katz says, but then notes a shift that speaks to her intimate knowledge of her customer. “Now, it’s also a soccer mom, a customer who has no fashion sense, because [the collection] is very utilitarian.”

“Karen has really gotten behind our accessories,” says Robert Duffy, president of Marc Jacobs. “She’s great to deal with, open to conversation and incredibly aggressive in getting the product into the store.”

But success in one area is not necessarily good enough, as Katz articulates a truth about many accessories-driven fashion houses: Often, their ready-to-wear lags far behind in sales. Chanel, now enjoying one of the most remarkable runs in recent fashion history, makes a compelling exception. The collection’s fall trunk shows were “feeding frenzies, like we were giving the clothes away,” with ready-to-wear, accessories and shoes all stellar. Similarly, over the last year, Prada, long a bag-and-shoe staple for Neiman’s, has turned a lucrative corner, and both its collection and Prada Sport clothing sales are now “amazing.”

Yet while other accessories-driven houses may lack in terms of clothing sales, overall, Neiman’s ready-to-wear, including the toniest merchandise the store calls “couture,” is booming. Katz cites a range of resources: Oscar de la Renta (“unbelievable trunk shows”), Dolce & Gabbana (“multidimensional, and the bags and shoes just get stronger”), St. John (“for the conservative customer who doesn’t wear certain modernist clothing”), Akris (“remarkable quality”) and Giorgio Armani (“really popular now”).

As for her own wardrobe issues, Katz claims a latent boho streak — Dries van Noten, Marni — one to which she gives expression only on weekends, finding anything too artsy or casual inappropriate for work. To wit, she maintains that long-standing expectation requires a daily jacket, and acknowledges that, as ceo, she feels the pressure to dress chicly in a way she never did before. She works a daily uniform strong on Chanel and Prada, worn on the cusp of pragmatic and fabulous, because “I feel confident and comfortable. I feel like I’m pulled together in clothes that represent fashion and luxury.”Handbags make for Katz’s primary indulgence, and here she claims to go with the eccentric rather than the obvious label. Case in point: her new Luella. In fact, during regular closet purges, about the only things she doesn’t send to resale shops are her bags and her Chanel suits, destined, at some point, she supposes, for her nieces’ wardrobes. She also loves jewelry — costume and real, but prefers the latter — especially cuffs and brooches, and would buy it “all the time, if I could.” As for vintage, “I like it, but I’m not well educated.”

That kind of blunt self-awareness —and Katz’s zero inclination to fake it —make her something of a populist ceo in a luxury empire. “First and foremost, she is just a very real person,” says Ann Stordahl, executive vice president of women’s apparel. “She has no pretenses.And while she’s very aggressive in business and very focused, she’s also very oriented toward families. No matter, really, how important a meeting is, she will always take a call from her son. Or sometimes she’ll schedule a business dinner a little bit later so she can run to see his soccer game and then get back.”

She has been married to Alan Katz for 21 years. A partner in a small investment firm, he travels frequently to New York and San Francisco. Given her travels to Europe and various stores, “we’re like wanderers. It’s all about which suitcase one of us is using.”

When at home, they are almost obsessive about spending proverbial quality weekend time as a family, as well as one or two “active” vacations — hiking, skiing — a year. That said, Katz boasts no particular athletic skill, and says her best sport is “running around the neighborhood,” which she tries to do four or five mornings a week, around dawn. Even then, it sometimes turns into a working run: When she and Stordahl, who happens to live in the neighborhood, can’t quite cover everything during the workday, they’re likely to chat as they jog.

But then, internally, Katz’s penchant for clear, frequent communication makes for an informed, on-board and engaged staff and colleagues. Brendan Hoffman, who succeeded Katz as president and ceo of Neiman Marcus Direct, joined the group four years ago as vice president of the clearance stores. “Karen would pick up the phone and call me, question me, you know, try to work out some agreements. She was just the most down-to-earth person that I met. She’s just never lost that.”Nor does she ever turn her eye away from concrete financial matters, large or small. She calls herself “something of a Girl Scout” in enforcing Neiman’s Code of Ethics, and keeps a tight rein on expense reports. But she recognizes the line between frugality and foolishness, even when it comes to something as minor as a shopping bag. She recalls a store visit last February during which she noticed new spring merchandise being packaged in holiday bags. When she asked why, she was told that to pitch the bags would be a waste of money. “I didn’t like it. We must protect the brand, always,” she says. “You have to watch everything, big and small — even Christmas bags in February.”

Despite such focus, Katz maintains that she never strategized her career. Rather, her ascent happened organically, the result of hard work and saying yes to opportunity, and definitely aided by Tanksy’s arrival. “Burt took a real interest in me. He clearly moved me along, sometimes maybe a little too quickly,” she says. “I do get asked the question, ‘When did you envision that you’d be ceo, and did you always want it?’ That’s just not the way I function. Every time I took on new responsibilities I was terrified the first six months, and then got the hang of it and thought, well, gosh, the next thing looks like something I could be interested in doing.”

Now, from her perch at the pinnacle of Neiman Marcus, what does she love most about the world of luxury? Katz shrugs her Chanel-swathed shoulders. “What’s not to love?”

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