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Luxe Retailers Look to the Web for Growth

Neiman Marcus and Saks used their earnings reports to hammer home the importance of the Web and how it’s transforming their businesses.

Neiman Marcus has been putting a focus on digital initiatives.

The outlook for the high-end consumer might have dimmed some, but luxe retailers have found their guiding light in the Web.

This story first appeared in the February 27, 2013 issue of WWD.  Subscribe Today.

Saks Inc. and Neiman Marcus Inc. weighed in with quarterly results Tuesday. And although their bottom lines varied — with Hurricane Sandy helping pull down Saks’ net profits, and a charge for debt extinguishment erasing most of Neiman’s earnings increase — both companies used the opportunity to hammer home the importance of the Web and how it’s transforming their businesses.

E-commerce is expected to be a vital source of growth for luxe companies this year, when affluent consumers might find themselves on shakier ground.

Stephen I. Sadove, chairman and chief executive officer of Saks, estimated that the company’s core customers have seen their tax rates rise by 8 to 10 percentage points with higher capital gains taxes, an increase in the payroll tax and other adjustments.

“In aggregate, it’s a substantial increase to that consumer,” Sadove told WWD.

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That higher tax rate is being offset in part by a strong stock market, which is still near its all-time high, but the good vibes have not been enough to lift luxe shoppers.

“There’s a little bit of a malaise that the higher income consumer is feeling,” Sadove said.

Although retailers continue to draw from their traditional bags of tricks — having sharp fashions, hot brands and good service — many see the integration of online operations with stores as the key to engaging consumers now and for the future.

Sadove said the Internet was gaining a “critical mass” and that marketing money put into digital promotion resonated both online and in stores. Saks is also fulfilling some of its online orders directly from stores, an initiative that will be expanded.

By going online, retailers gain not only new customers, but new customer expectations and competitors.

“On the Web you have to look at what somebody like Amazon is doing,” Sadove said. “Not because they’re selling the high-end apparel, but because of the consumer experience [online shoppers are] looking for.”

Amazon.com, for instance, has one-click buying and a vast array of customer reviews.

“Those have now become the expectations of the consumer, so you’ve got to continue to invest,” Sadove said.

Saks’ fourth-quarter net income fell 44.7 percent to $20.4 million, or 13 cents a diluted share, from $37 million, or 21 cents, a year earlier. Excluding special items in both periods, earnings were flat at 17 cents a share — 2 cents higher than the 15 cents analysts projected. Revenues for the 14 weeks ended Feb. 2 rose 5.6 percent to $976.6 million from $925.1 million. The most recent quarter was one week longer than the year-ago period and helped make results look better. Comp sales, which strip away that extra week, increased 0.7 percent for the quarter.

Neiman’s has also zeroed in on digital initiatives — from investing in Web sites overseas to arming its associates with smartphones to help them communicate with customers.

“We remain very focused in providing our customers the greatest level of flexibility to shop with us regardless of where she is and what device she is using,” said James Skinner, executive vice president, chief operating officer and chief financial officer, on a conference call with debt investors.

Skinner said the company wants to grow its e-commerce business not just by having a strong assortment of luxury goods, but also by being “a site that is easy to navigate” as well as having “sophisticated customer analytics and the latest in digital marketing.”

Neiman’s recently launched, neimanmarcus.com.cn, a full-price e-commerce site for the Chinese market that operates like the U.S. flagship site. The company also invested an additional $10 million in Glamour Sales Holdings, a Chinese e-commerce firm Neiman’s already pumped $28 million into last year. The retailer now owns a 44 percent stake in Glamour.

Net profits for Neiman’s, which just finished its second fiscal quarter, were up modestly to $40.4 million from $40.1 million a year earlier. Excluding a loss on the extinguishment of debt, the company’s earnings jumped 24.2 percent in the quarter to $49.8 million.

Neiman’s revenues for the three months ended Jan. 26 gained 6.5 percent to $1.36 billion from $1.28 billion on a comparable-store sales increase of 5.3 percent. But the company’s online sales grew 17.9 percent to $314.7 million and accounted for 23.1 percent of total revenues for the quarter.