The Neiman Marcus Group, amid growing losses and revenue declines, is reexamining strategies it’s held onto for decades and seeking fundamental change.
In its bid for recovery, Neiman’s is striving to develop formats to attract “aspirant Millennials” so there’s less dependence on older customers. The Dallas-based luxury chain, is also challenging vendors to develop many more exclusives, and to alter the timing of fashion deliveries to better reflect the rising “buy-now, wear-now” preferences of shoppers.
The changes are being spurred by NMG’s continued declines in profits and sales as retailers struggle with a rapidly evolving landscape. On Tuesday, the group reported a net loss of $23.5 million for the first quarter ended Oct. 29, compared to a $10.5 million loss for the same period a year ago.
Adjusted earnings before interest, taxes, depreciation and amortization were $122.9 million compared to adjusted EBITDA of $164.3 million for the year-ago quarter.
Total revenues of $1.08 billion represented a 7.4 percent drop from total revenues of $1.16 billion for the first quarter a year ago. Comparable revenues fell 8 percent.
Competitors fared better last quarter, with Nordstrom’s comparable sales up 2.4 percent, and Saks Fifth Avenue down 4 percent.
“The customer has changed the way they shop,” Karen Katz, NMG’s president and chief executive officer, said during a conference call with investors after the disappointing results were released.
“There is no question that our core customer is visiting us a little less frequently and customers in general are less loyal to any one retailer. A lot of that is because of the price transparency online. Price transparency on the Internet gives customers greater access to information about price and promotion. I think that is here to stay. There’s less regard for loyalty, channel or brand,” she said.
To counter the negative trends, Katz said that Neiman’s is seeking a greater amount of exclusive products from designers and working with vendors “to think differently about when they are shipping goods and which goods they ship in what seasons.
“Customers are less likely to buy winter coats in the summer or sandals in the dead of winter. We are working very closely with all of our vendor partners to try to better align getting buy-now, wear-now into our stores. That is a big change for the industry,” Katz said.
Regarding the promotional retail environment, “It is more intense this year,” Katz observed. “We are thinking deeply of how we have to stay competitive online in terms of pricing and promotions. That is one particular challenge that we have. Our online business as a percent of our total business is much larger than anyone else,” at around 30 percent of total sales.
There is no shortage of concerns at Neiman’s, or at NMG’s Bergdorf Goodman. Stores in gateway cities such as San Francisco, New York City and Miami are attracting fewer tourists due to currency differences and have been hurt the most. Neiman’s locations in Texas have been impacted by low gas and oil prices and stores in South Florida have seen a “big drop-off” due to fewer international customers and the Zika virus.
Neiman’s has also been adversely affected by serious glitches arising from the introduction of its NMG One common merchandise system, causing vendors to miss sales data and impairing ordering and replenishments. The NMG One system is geared for better planning, markdown optimization and maximizing the efficiency of inventory across channels and became fully live at the end of last August.
Neiman’s said the total sales impact from NMG One glitches was between $30 million to $35 million last quarter. There will still be some business loss this quarter, though not as much as last quarter.
“These issues are complex, and unraveling problems is tedious and time-consuming,” said Katz. “There will be a financial impact related to NMG One in the second quarter, though the Q2 impact will be less than Q1.”
Bergdorf Goodman has been negatively impacted by the high security measures around Trump Tower since Donald Trump won the presidential election. “The traffic and situation around that part of Fifth Avenue have become quite congested,” Katz said. “We are working through the situation between the NYPD and the Secret Service to make sure customers have easy access to get into Bergdorf Goodman.”
She didn’t comment on the state of the business at Bergdorf’s, though she did note that Bergdorf’s women’s store is expanding to 4 West 58th St., where it is relocating offices from the adjacent women’s store. The eighth floor of BG women’s will begin to unveil new selling space in 2018. BG has not revealed what categories will be sold within the new selling space.
At the end of last quarter, NMG’s inventories were down 1.9 percent, though they need to be brought further down to be in line with sales trends. Katz said the luxury chain is “right in the middle of a heavy markdown period for clearing the fashion goods.”
On the positive side, the Neiman Marcus store in Manhattan’s Hudson Yards is on schedule to open in September 2018, Katz said. It will be Neiman’s first New York City store. “We’re right on track in terms of our construction,” the ceo said. “We are extremely excitement about the look and feel and the vendor lineup. It will truly be the store of the future for Neiman Marcus.”
Also, there are some pockets of business that are selling well, including velvet shoes and handbags, men’s and women’s sneakers, Gucci, the collection of “Love to Give” gifts, and private-label Neiman Marcus gourmet goods. “When there is newness and interesting things to buy, [the customer] definitely opens her wallet to that,” Katz said.
NMG appears to be in deep analysis to figure out which customer groups should be targeted to lift the business. “It’s a really important strategic question,” Katz said. “We are trying to outline all of the different customer segments we want to go after and how to go after them. Everybody is talking about the huge population that Millennials are providing to retailers. We have to dissect this population of Millennials [into] subsets the brand should appeal to.”
Last month, a 2,500-square-foot Rent the Runway “Dream Closet” opened inside Neiman’s San Francisco flagship. “We are feeling very good after just a couple of weeks that the sales we are getting are from new customers coming in to rent dresses and wandering onto another floor and finding something they have to buy,” to complement the dresses. “All of these customers are new customers.” Katz said dress rentals lead to additional sales of shoes, handbags, beauty products and accessories, and attracts “aspirant Millennial customers.” Additional Rent the Runway shops at Neiman’s stores will be revealed next year.
“Over time we will have a number of initiatives to really dig into this subsegment of this fashion Millennial customer.”
Katz pointed out that to further attract younger customers, typically with lower income levels than core customers, “over 40 percent of our exclusive offerings are priced less than $500.”
While the Neiman’s team, as Katz said, is focused on day-to-day operations and serving its customers, “we are preparing to launch programs to attract new customers” while hanging onto loyal ones.
“Business has been challenging on every front, but we are far from being discouraged. We are determined to correct the course and right the business,” she insisted.
Although consumer balance sheets are in good shape, with Wall Street posting record highs, “I think there is still a high degree of uncertainty,” over the future, she added.
Regarding Neiman’s own future, not too long ago NMG owners Ares Management and Canadian Pension Plan Investment Board were considering selling the chain, possibly through an initial public offering, which was scrapped last year. For now, a sale of the $4.95 billion company seems unlikely given the state of the business and the price that would be asked considering the owners bought the retailer for $6 billion in 2013.