WWD.com/retail-news/retail-features/luxe-retailer-s-mini-me-neiman-marcus-to-trial-smaller-store-formats-564511/
government-trade
government-trade

Luxe Retailer’s Mini Me: Neiman Marcus to Trial Smaller Store Formats

The Neiman Marcus Group is said to be cooking up another business strategy: a scaled-down version of its luxury stores in some choice spots.

View Slideshow

NEW YORK — The Neiman Marcus Group is cooking up another dish to accelerate its growth.

The country’s premier designer chain is expected to test next year a scaled-down version of its luxury stores in a few choice locations, according to three retail and real estate sources.

Neiman’s has been negotiating space in the Westfield Century City mall in Los Angeles and Tysons Corner Center in McLean, Va. The company has also been negotiating for a location on M Street in the Georgetown section of Washington, according to the sources.

They said the format would have approximately 10,000 square feet, at least with initial units, and would be flexible in its merchandising. Depending on the location, some stores could emphasize Neiman’s top-priced designer goods; others might focus on contemporary labels, which are not as expensive as designer. An accessories-only store is another possibility.

Neiman’s has yet to decide on a name for the chain.

“We’re not ready to talk about a new concept at this point in time,” said Ginger Reeder, vice president of corporate communications at Neiman Marcus Group.

In the luxury arena, interest in smaller specialty stores has intensified. Aside from the developing Neiman’s strategy, Nordstrom this month took a majority stake in designer retailer Jeffrey, and said it may open more Jeffrey stores. There currently are three, including two fashion stores in Atlanta and New York, and a shoe salon in Atlanta.

Meanwhile, Bloomingdale’s has been eyeing sites in Georgetown, Miami and Los Angeles, among other locations, to replicate its 79,000-square-foot SoHo concept. Bloomingdale’s chairman and chief executive Michael Gould declined to comment on any potential sites, but acknowledged the chain is examining real estate. “There are a lot of opportunities to expand SoHo,” to other parts of the country, Gould said. “There is nothing I want to talk about.”

Bloomingdale’s officials have said future stores modeled after the SoHo concept outside of New York would likely have less space. Located at 504 Broadway, Bloomingdale’s SoHo features an assortment focused on contemporary and bridge labels, better and premium-priced denims, cosmetics and accessories. Due to Federated’s acquisition of May Department Stores, expected to close this fall, there could be some real estate suitable for the SoHo concept.

This story first appeared in the August 30, 2005 issue of WWD.  Subscribe Today.

In addition, Barneys New York, which last December was bought by Jones Apparel Group, plans to open its eighth Co-op in Chevy Chase, Md., in the fall. Four or five more will open next year. They are in the 5,000- to 6,000-square-foot range.

“The branded fashion niche is becoming increasingly popular,” said Stephen J. Stephanou, executive vice president of Madison HGCD, a retail real estate consulting and brokerage firm based in New York. “Stores like Nordstrom realize they want to not just have a button-down look and that they can cater to a more contemporary and urban customer,” in such cities as Naples or Tampa, Fla., that attract young residents and retirees, but don’t have large enough affluent populations interested in high-end fashion to support full-sized units.

“When Neiman’s was being marketed, the book, similar to the book on Barneys, featured the specialty concept as a major growth concept,” said another source. “The specialty concept was a large part of what Texas Pacific bought into. Neiman’s has limited growth potential in its current large format. You can’t take it to Poughkeepsie with a 150,000-square-foot store.”

Most of Neiman’s stores are in the 150,000- to 175,000-square-foot range, with a handful exceeding 200,000. “Those [big-box] opportunities are limited at this point,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. “There are certainly another 10 to 12 opportunities for the next three to four years,” including the seven already announced by the company. Stores are planned for San Antonio, and Boca Raton, Fla., this fall; Charlotte, N.C., in fall 2006; Austin, Tex., and Oyster Bay, N.Y., in spring 2007; Natick, Mass., in fall 2007, and Topanga in West Los Angeles in fall 2008.

Aronson suggested the new Neiman’s strategy would not be cookie-cutter in character. “In my opinion, Neiman’s will test different merchandise combinations and different size stores,” though still in a smaller specialty environment. The future stores are likely to exhibit “sharply edited assortments in a narrow but deep and effective way, and still give great service.”

Neiman’s has apparently grabbed a couple of good spots to test its next format. Richard Hodos, president of Madison HGCD, described Westfield Century City as “one of the most successful shopping centers in Southern California. The center is being redeveloped, there’s a high-income population, and it’s near Beverly Hills,” Hodos said. It’s anchored by Bloomingdale’s and Macy’s.

Hodos described Tysons Corner Center as having a high-end and better-priced component, anchored by Nordstrom, Lord & Taylor and Bloomingdale’s, but with a broader appeal and customer base considering there is also Hecht’s and L.L. Bean, among other stores.

Aronson described Georgetown as “SoHo-ish and very consumption oriented,” adding, it’s becoming “a specialty store mecca, with a cross-section of affluent, young customers.”

Generally, Neiman’s has thrived by operating large, spacious stores with dominant designer presentations and plenty of service and pampering, so lots of decisions would have to be made as to how to downsize the presentation without diluting the image.

“The issue is how do you basically take out 90 percent of the assortment and yet maintain the high-margin product and the signature lines for which you are well-known,” asked Isaac Lagnado, president of Tactical.org., a consulting firm. With Neiman Marcus, “I could see an accessories and small leather goods push. Accessories such as Gucci, Prada, and Dolce [& Gabbana] Neiman’s is known for, and they are very high margin.”

But in a smaller format featuring accessories, the ready-to-wear and shoe presentations might be minimal and lack impact. Lagnado noted that shoe departments eat up a lot of space and would be difficult to include. There could be “huge turf wars” among Neiman’s merchants to grab space in the next generation of Neiman’s.

A smaller format could be done fairly quickly, Lagnado said, suggesting stores could take a year to locate, build and get open, and the chain could open 12 or so a year, compared with full-sized stores, which take three to five years from soup to nuts. Neiman’s has been opening about one or two full-sized units annually.

If the scaled-down stores don’t succeed, “They can pull up stakes and leave, the way Gap or Express does. If it doesn’t work out, the mall guys are not going to penalize Neiman’s. They would be happy to have them and probably subsidize the construction. Neiman’s is a major national brand.”

In the Nineties, Neiman’s experimented with the Galleries at Neiman Marcus format, which specialized in jewelry and gifts. It operated three sites, but the format ultimately failed because the company picked the wrong locations and merchandise to sell, trying to compete against Tiffany’s and other fine jewelers.

The second attempt seems to be spurred by the impending change in ownership. Neiman’s is in the process of being sold to two private equity firms, Texas Pacific Group and Warburg Pincus LLC, for about $5.1 billion. The deal should close by November.

The $3.6 billion chain had been controlled by the Smith family for 20 years. They were supportive, allocating capital to renovate and expand stores and open new ones at a methodical pace, and enabling the store team to sharpen the service, merchandising and luxury appeal, without much interference.

But the high price tag puts pressure on TPG and Warburg Pincus to grow the business faster, to service the debt load and get a good return. Elevating same-store gains is challenging, considering they are already at double-digit levels, so developing new formats appears to be critical.

“Neiman’s now needs to perform for investors that are setting strong benchmarks,” Stephanou said.

With the new format, Stephanou said, “The key thing is to understand the markets where they take this. Neiman’s in Georgetown could have a younger and more contemporary appeal, Tysons could be a mix of the two, and Century City might be more luxury-oriented. Neiman’s is smart enough to mix each store in accordance with the market.”

The chain could also grow by continuing to expand its catalogue and online businesses, which are said to be the fastest-growing units, or by opening stores in the U.S. in key affluent metro areas where Neiman’s might have just one site, or none at all. Neiman’s operates 35 units and two Bergdorf Goodman stores; the Direct Marketing segment including catalogues and online operations under the Neiman Marcus, Horchow and Bergdorf Goodman nameplates, and the Kate Spade and Laura Mercier operations.

Neiman’s main competitor, Saks Fifth Avenue, has done enormous research in how new stores and formats would go over across the country, and has opened a few smaller units, known internally as Main Street formats, that are 20,000 square feet or larger, which haven’t performed up to expectations. At one time, the company even considered airport stores selling cosmetics and accessories, but determined the format wouldn’t be profitable, one retail source said. Saks has also already closed many of its smaller units.

Meanwhile, SFA parent Saks Inc. is said to be mulling whether to sell just its northern department store group or SFA as well. TPG is said by financial sources to be among the potential bidders for Saks Fifth Avenue.

“The only growth strategy for Neiman’s that makes sense is to buy Saks,” said the source. “Neiman’s, in my opinion, is a mature business.”

View Slideshow