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There’s pressure on the luxury sector, but Neiman Marcus says its shoppers are hanging in.
This story first appeared in the November 29, 2012 issue of WWD. Subscribe Today.
“We have seen no change in the mood of our customers,” Karen Katz, president and chief executive officer of Neiman Marcus Inc., told WWD on Wednesday. “They are learning to live with uncertainty, and we are learning to manage our business in the mood of uncertainty.”
Global economics, the looming fiscal cliff, and the impact of Hurricane Sandy could unravel the industry’s holiday season. While Black Friday weekend saw a rush of shoppers and widespread promoting online and offline, most retailers were lukewarm on the outcome and reluctant to read the tea leaves.
According to Katz, Neiman’s business is not as dependent on Black Friday and doesn’t crescendo as Christmas nears the way it does for other retailers. “Our core customer tends to shop steadily through the holidays,” she said. Still, Katz said the two extra days this year between Thanksgiving and Christmas pose an opportunity, and Neiman’s and Bergdorf Goodman stores have a “full array” of holiday gifts, priced from $50 to $50,000, and some “fantasy” gifts priced much higher. All 12 McLaren high-performance cars, priced at $354,000, sold out, and all five Target/CFDA mystery gifts, priced $3,500, were also sold, Katz said. The Target/Neiman’s holiday gift assortment of 50 designer exclusives, opened with a pop-up shop Wednesday night in New York and becomes available at Neiman’s stores and online by Saturday.
On Tuesday, Neiman Marcus Inc. reported results for the fiscal first quarter, ended Oct. 27, with net income rising 2.5 percent to $49.6 million from $48.4 million in the year-ago period. Total revenues were essentially flat at $1.07 billion compared to $1 billion in the prior year, though comparable-store sales increased 5.4 percent.
In the stores, women’s contemporary sportswear, shoes, handbags, jewelry and men’s wear were best-selling categories, Katz said, adding that the precious jewelry business was very strong. Online, Katz cited handbags, jewelry, beauty and men’s wear as bestsellers.
The $4.3 billion company has momentum, coming off a strong year where its earnings climbed 343 percent to $140.1 million and sales gained 8.6 percent, rising to $535, from $505 on a square foot basis. This, along with efforts to expand the business abroad, should help position Neiman’s for an initial public offering, though it’s core Neiman Marcus business in the U.S. is considered a mature business with little room left for expansion. Officials declined to comment on the possibility of an IPO this year. Neiman Marcus Inc. is owned by private equity firms TPG and Warburg Pincus which paid $5.1 billion for the business in 2005. Earlier this year, Neiman’s declared a cash dividend of $442.6 million, or $435 per share of its outstanding common stock to stockholders.
Though generally pleased with the latest results, Katz did say during a conference call that sales were “not as robust or as consistent as we would have liked. The cadence through the quarter was a little choppy.”
She explained that Neiman’s customers are “very attuned to [stock] markets both here and abroad.” They also closely followed the presidential election and were “weighed down” by the political and economic news. Nevertheless, “Our most affluent luxury customers are spending with confidence.”
In the current quarter (Neiman’s second), Katz acknowledged “a significant sales decrease” due to Sandy. “It was very difficult for our associates and customers,” in the Northeast, she said. However, she added, “We didn’t have any damage. As we move into the holiday season, there is a more normalized pace.”
During the interview and the call, Katz outlined Neiman’s projects in the works, with a particular emphasis on international initiatives. Katz told WWD there are no current plans to open stores abroad and that the focus remains on launching a Web site in China next month and broadening the online distribution worldwide. Earlier this month, Neiman’s announced a partnership with FiftyOne Global E-commerce, a technology company that helps retailers transact online with customers abroad, to grow its distribution to 100 countries. “We are pleased with the initial amount of business being generated,” Katz said. “We have more online customers in Seoul, [South] Korea, than Spokane, Washington.”
Among the other initiatives:
• $135 million in capital expenditures for next year, largely for renovating the Michigan Avenue store in Chicago, as well as renovations at Bergdorf’s and a few other Neiman’s locations.
• Of those shoppers accessing neimanmarcus.com by smartphones, 20 percent are accessing a new site; 80 percent still see the old site. Katz called the 20 percent “a control group,” not a test, to understand how customers are utilizing the new site and which of its features are working or not. The site includes a “hot button” highlighting items most shared in social media, and recommendations on products based on what consumers select. Katz said the new Web site integrates shopping and social media.
• Cusp contemporary departments have been weaved into 40 of the 42 Neiman’s stores. There are also six freestanding Cusp stores and no decision yet on whether to open more. “We have not started talking about whether we will expand that,” Katz said. She said the re-branding of the contemporary floors to Cusp involved renovations, increasing square footage, stronger marketing and a cross-generational appeal. “They have been very successful,” she said.