The Neiman Marcus Group is back investing in its business, rebounding to pre-COVID-19 levels and redefining its workplace and culture.
That’s according to Geoffroy van Raemdonck, NMG’s chief executive officer, and Lana Todorovich, president and chief merchandising officer for Neiman Marcus, who spoke at length with WWD on the company’s recent performance, on where the retailer is investing millions, and how it’s striving to, as they said, “revolutionize the luxury experience.”
With a new business plan completed last fall, there’s a three-year, $600 million cap-ex budget that earmarks $90 million in supply chain improvements over the next two years, and $250 million in store renovations — long overdue — with $100 million of that “committed” by landlords. Also, 60 hard shops, many for luxury leather goods, are in the works for 2022 launches and much of that expense will be shouldered by the brands. NMG operates 37 Neiman Marcus stores and two Bergdorf Goodman stores in Manhattan.
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According to Bob Kupbens, NMG’s chief product and technology officer, a significant portion of the cap-ex budget will target optimizing websites and apps for improved navigation, product recommendations and personalization; enhancing the group’s Connect proprietary clienteling tool used by sales associates to communicate with customers via email, chat, phone calls, photos and videos, and for upgrading order and warehouse management systems and cyber security. Last October Neiman’s online was accessed in a data hack, raising questions on whether there had been past sufficient investment in technology infrastructure and systems to help prevent cyberattacks.
There’s been some speculation that NMG is still fragile since emerging from bankruptcy in September 2020, and that certain luxury brands have reduced distribution to Neiman’s. Van Raemdonck strongly refuted that speculation, however, stating, “There is a perception out there which is the opposite of the reality. We have lost none of our top 100 brands. We are not seeing any decline in distribution. We have added more brands in the past year than we have over the last 10 years. We have increased the number of doors with LVMH [Moët Hennessy Louis Vuitton] tremendously. It is the same with Kering. That’s because we have the full-price luxury customer and luxury brands are looking for full-price selling right now.
“From a balance sheet standpoint, we really are very comfortable. We generate positive cash flow that we can reinvest into the business,” said van Raemdonck. “The available liquidity is above $1 billion. We have no money drawn on our revolver. Net debt is less than $700 million. Our cost of debt is around $70 million a year. It used to be $365 million.”
Disclosing some performance metrics for the privately held NMG’s fiscal first quarter, which ended Oct. 30, van Raemdonck said the company’s sales rose 7.3 percent on inventory that was down 14.9 percent compared to the corresponding quarter of 2019. “Inventory was down because we were cautious — not because we didn’t get deliveries,” he said.
“We see a continued improvement of our performance. Over the last eight months, it’s been positive to 2019 and that [positive trend] keeps accelerating.”
Regarding NMG’s volume outlook for the fiscal year: “We’ll be at more than $4 billion at the end of our fiscal year, running up to fiscal 2019 when we were more than $4 billion.”
Last quarter NMG’s gross merchandise value was up 13 percent compared to 2019, and full price selling was up 41 percent, van Raemdonck said. New customer growth at the group was up 18 percent and 17 percent of those placed a second order within 90 days of their first purchase. At Neiman’s itself, sales of its top 20 brands rose 61 percent versus fiscal 2019. This resulted in a string of three consecutive quarters of double-digit growth for these brands at Neiman’s.
The CEO said Bergdorf Goodman online is driving “significant growth.” He said compared to 2019, new customers grew by 40 percent and the average order value of Bergdorf’s online was up 14 percent in Q1.
In November, GMV was up almost 20 percent and full price selling rose 39 percent, he added.
“November was very strong. What is really exciting to see is that customers have bought early and they have bought at full price. I am wondering that with customers buying early, will there still be a rush before Christmas? For the last three years, shopping the week before Christmas was a frenzy.”
Asked if the momentum he sees now will spill into 2022, van Raemdonck answered: “I don’t have a crystal ball, but what we have seen is tremendous growth in full-price selling — and with new customers.
“Our loyal customers [those spending $10,000 or more a year at NMG] are as engaged as in the past but they have shopped less frequently in the last nine months. When life returns to normal, that customer frequency is going to come up,” he said. “When people go back to the office, back to traveling and back to big parties, they will increase their frequency” of shopping.
On the other hand, “We may see a little bit of tapering off of shopping by new customers,” considered first-time shoppers or those returning after being absent for at least a year. A decline could be due to some shift in spending from goods to more on travel and other experiences if the pandemic wanes.
Currently, “We are seeing continued growth and it is really full price,” said van Raemdonck. “We moved markdowns later in the season and we entered the Black Friday-Cyber Monday period with very little promotion and very little inventory that was not full price. We want to be engaged with customers who buy full price and have the potential to come back to us regularly, and we are spending to cater to that customer.” NMG has been shrinking its Last Call clearance chain, which is down to five units, furthering the full-price positioning.
“The big message is Neiman Marcus and Bergdorf Goodman are focused on the luxury customer who buys full price and has the potential to be in a relationship with us. What we want to do is revolutionize the traditional way people buy luxury so it’s much more from a relationship, and specifically not transactional,” said van Raemdonck.
“Revolutionizing luxury experiences — that’s a big concept,” added Todorovich. “What it means is we don’t see ourselves as a retail platform providing a lot of access for customers to different products and brands. For us, luxury is about relationships. That is a big differentiator for us. Relationships trump transactions. How you connect with customers is so much more valuable to us than getting the sale.”
To better engage with customers, Neiman’s organization of more than 3,000 selling associates is segmented into different classifications depending on how associates interact with customers, including mostly “client advisers” who assist in stores/remote and online, as well as 250 digital client advisers (there will be 500 by mid-2022) based in the stores to meet customers but primarily engaging with them digitally; and 60 digital stylists who only serve customers digitally and generally live in proximity to stores to sometimes meet with them. Neiman’s also has 108 personal shoppers for appointments in fitting rooms. All the associates utilize Connect.
Van Raemdonck told WWD that NMG — like many companies in the COVID-19 era — has established a flexible hybrid workplace arrangement which has helped attract talent. More than 30 percent of the corporate associates reside outside of Dallas, where the group is headquartered. NMG also has significantly bolstered its senior management team over the last year with appointments in innovation, product design, customer insights and data and digital strategy.
“We believe our associates should work where they have the most impact. We have hired people who are not based in Dallas,” said van Raemdonck, who became CEO in March 2018. “If you are a tech person and based on the West Coast, that is where you spend most of your time. You interact digitally with your colleagues, and at times you come into the office not to check email but to collaborate with everyone. That is very progressive. An incredibly central part of our philosophy is we want people to work where they have the biggest impact. Some roles are Dallas-based; some are not.”
Four of Neiman’s general merchandise managers and the Neiman’s fashion office are based in New York. Buyers are still based in Dallas, though they spend about a third of their time seeing shows and showrooms in Europe; a third of their time doing the same in New York, and a third of their time in Dallas, according to Todorovich.
For those residing in the Dallas area, “We don’t require them to be five days in the office. We encourage them to come in two to three days a week,” said van Raemdonck, again echoing a flexible work plan being adopted by many companies during the COVID-19 era.
NMG moved out of its Dallas headquarters and is in the process of establishing a “hub” in the area for employees from different parts of the country to gather for meetings, and others will regularly work out of the hub. The company’s headquarters had been spread across four buildings, including the downtown Neiman Marcus store. The hub will make communications and collaboration easier, van Raemdonck noted.
Due to the flexibility, “We recruit people faster. It takes 32 percent less time to hire and our turnover rate is down 20 percent, compared to 2019,” said van Raemdonck.
Expressing his philosophy on leadership and developing the team, van Raemdonck said, “It’s really important to me that we promote a sense of belonging and career path for those who typically don’t see the same career path. We hire the best people but always look at a diverse base of candidates, and we create an environment where minorities feel empowered. The majority of Neiman’s employees are female and non-white, and the majority of the board is female with ethnic representation.
“But there are many more things we need to do. As one of the very few gay CEOs it’s important to lead with the notion that you show up as yourself and invite everyone. I think it links to the notion of growth. You need to represent your customer base.”
Unlike Saks Fifth Avenue, NMG has no intention of splitting up its dot-com and stores into separate companies. Van Raemdonck stressed the importance of maintaining an “integrated retailing” business model encompassing stores, e-commerce, and “remote selling,” whereby associates utilize the proprietary Connect selling technology.
“We know the customer who buys across those channels spends 4.5 times more within a year than a customer who only buys in one channel,” said van Raemdonck. “We are really saying we consider stores, online and the third channel of remote shopping as the one face of Neiman Marcus and Bergdorf Goodman. It’s not different faces or different businesses.” Separating dot-com and stores into separate businesses, “That’s not on the strategy for us.”
For van Raemdonck, a luxury experience resides in “being guided and inspired to find the right product for you. It’s all about the relationship. Omnichannel retail, which we call integrated retail, it’s always being able to have a human being help you.” NMG works hard to leverage its brick-and-mortar fleet, holding 800 events in its stores in the first quarter alone, as well as 10 immersive pop-ups since June.
He’s no longer referring to Neiman’s as evolving into a “luxury platform” because it’s been too often associated with an “endless aisle” of products and prices or a marketplace format that other retailers such as Saks, Nordstrom and Macy’s are evolving into. “We really are focusing on women’s designer ready-to-wear, handbags, shoes, men’s, and precious jewelry,” the CEO said.
Last month Neiman’s launched “Stanley,” an app that provides a daily feed of three or four fashion stories based on past purchases and what shoppers looked at in the past, for an element of personalization and discovery. “If you bought a gray suit, we present a blue suit because we think you might like it,” van Raemdonck said. “This app is by invitation only, for people who really want to be in a relationship. We believe it’s made for people who look for engagement, for inspiration, not for one product.” The retailer sent out 52,000 invitations to join Stanley. Through the app, a shopper can reach a stylist or sales associate, and make purchases. Video and audio functions will soon be added.
While there is a perception that Neiman’s attracts older shoppers, van Raemdonck said, “Sixty-three percent of our customers are Gen X or Millennials, between 25 and 56. It was 48 percent two years ago.” He attributed the change to wealth being transferred to Millennials, and the pandemic triggering greater interest in luxury. “If you don’t travel, you discover luxury. Once you get into luxury, I don’t think you walk away from it, but maybe the level of spend tapers a bit” as COVID-19 recedes.
Explaining enhancements to the supply chain, a new 500,000-square-foot distribution center is expected to open around January 2023 in Pittston, Pa., double the size of an outmoded one nearby, Raemdonck said. Also, the distribution center in Dallas is being expanded in phases. NMG is investing in information technology for the centers. The Pennsylvania facility will reduce deliveries to stores and homes by two days, and double the number of customers who can receive shipments within two days. Both centers handle online and store fulfillment.
The Bal Harbour, Fla., store is slated for a full expansion and renovation, as is the store in Tysons Corner, Va. The Atlanta, Paramus, Westchester, San Diego, Houston, Oakbrook and St. Louis stores will be partially renovated. Bergdorf’s is also slated for some upgrades, and expansion to a couple of higher levels is under consideration.
Meanwhile, “Every store is being touched with investments in shops-in-shop,” said van Raemdonck. Adding restaurants and bars are part of the agenda, too.
The Natick, Mass., store will be closed, though NMG hasn’t revealed exactly when. No decision has been made on the future of the downtown Dallas store, van Raemdonck said. NMG will remain a Dallas-based company, however. “Dallas is the anchor. It’s important that companies have a heart and center,” he said.
On the vendor issue, “They are focusing on selling direct-to-consumer and focusing on growth with us,” said Todorovich. “We do have the luxury customers they want to sell to. When they operate their stores next to ours, we both grow. But when luxury customers come to Neiman Marcus, they come for lifestyle. They can shop across brands which you can’t do in vendor stores.”
Although the retail landscape is as competitive as ever, Todorovich stressed that Neiman’s still captures major exclusives. She said Neiman’s is the only retailer in the omnichannel multibrand world to sell the full expression of Tom Ford’s collection with the exception of Ford’s own stores, and that NMG has ongoing exclusive arrangements with Van Cleef & Arpels, Goyard, Jil Sander, Gabriela Hearst online, and with Jeff Koons X Bernardaud sculptures, aside from art galleries. Upcoming exclusives include an Alexander McQueen holiday “Silver” capsule, a jean collection from Purple, and from Brunello Cucinelli, a “Dream of an Italian Summer” collection of women’s and men’s ready to wear, handbags, shoes and accessories. She also said that Neiman’s has been working closely with Prada and Burberry on exclusive merchandise and installations.
For spring, over 65 brands are being introduced to NMG, primarily contemporary labels and some luxury lines, Todorovich said. Sixty designer hard shops are in the works for 2022, mostly for leather goods, and 65 to 90 are in the planning stages for the year after. “In leather goods, hard shops are still the model for how our customers shop, there are some in ready-to-wear planned as well, but we also have a large advanced contemporary business where it is not the case,” said Todorovich. “Between fall and spring 2022 we have the largest distribution expansion in a decade — about 500 new luxury points of distribution. We have the means to invest in the stores and invest in inventory. The brands are following us. They want to be in more doors, do more exclusives, and want to do more events with us. They are growing with their own stores and growing with us.
“We don’t define ourselves by selling products,” Todorovich said. “We define ourselves by building relationships with customers that leads to curating the right products for them. It doesn’t start by selling. It starts by inspiring you and providing the inspiration you buy.”
Anish Melwani, chairman and CEO of LVMH North America, giving his perspective on wholesaling to multi-brand retailers, told WWD, “As luxury brands get larger and stronger, they seek to control more of their distribution. Louis Vuitton is an example of a brand in our group that had wholesale at one point and has moved systematically to only having its own stores although some of the stores are shop-in-shops inside department stores. That is a strategic direction that has nothing to do with Neiman’s personally. It’s global, not just in the U.S. You are seeing Dior doing it now, and other brands do it little by little. Outside of our group, Gucci has done it. You go from wholesale to a leased department and eventually if the business is big enough and can be sustained, you move out of a leased department to a freestanding store. Often as Louis Vuitton has done, you sometimes keep the leased department even when you have a freestanding store in the same center because it all comes down to, does a department store have a loyal clientele that prefers to shop in a multi-brand environment? The challenge is some department stores, and I’m not thinking about Neiman Marcus directly, lose that client draw and become less valuable to brands, especially stronger brands.”
Melwani said that since NMG emerged from bankruptcy, “We’ve probably expanded points of distribution partially because they cut back so much on their buying when they were going through Chapter 11. A partner like Neiman’s is most valuable to brands that are still trying to build their awareness and desirability among clientele in the U.S. If you have a brand that has ubiquitous awareness and high desirability, than the value add of any retail partner is limited.
“To me, the most important metric with a department store that is easily measurable is full price sell-through — what percent are they selling at full price before it goes on markdown. To the extent Neiman’s has expressed a shift in strategy to really focus on relationship selling and driving greater full-price sell-through, that is a perfect alignment with what we are looking for. On the other hand, if any strategy of other department stores are yielding more sales on markdown, we don’t need anyone to help us sell off-price.
“Certainly, NMG’s overall situation feels less precarious than when we were looking out for a Chapter 11, which very quickly became reality with COVID-19,” said Melwani. “I’m hoping that all of this leads to their ability to do the upgrading and maintenance deferred for so long to bring some of their physical locations back to the glory they were known for.”
“We enjoy a great relationship with the new management,” said Brunello Cucinelli, designer and CEO of the Italian brand bearing his name. “Yesterday we had this two-hour discussion with my team in New York, their team in New York and myself,” virtually, Cucinelli said last week. “We talked about taste, plans for the coming five to 10 years. I am sure we can grow together with true luxury. I spoke with Geoffroy and Lana. They seemed serene. The mood was OK. The perception was of a healthy, sound company. They really believe in taste. When they come to view the new collection, we are always on edge waiting for their feedback. This shows you hold them in high regard. They are the first to see the men’s collection. Saks and Neiman’s, they are obviously competitors, they keep asking who is better — I say they are both great.”
Asked if he’s increasing or decreasing wholesale, Cucinelli replied that there’s a 50-50 balance between wholesaling and retailing through his own stores, such as the recently expanded Manhattan flagship on Madison Avenue. “We would like to maintain this ratio with the American market.” He sees no change ahead in the number of Neiman’s doors selling Cucinelli. He provides a “very limited quantity” of exclusive product to Neiman’s. “My philosophy is one single collection, the very same, for all my customers.”
He said multibrand stores serve as “a source of inspiration for our own retail. When we put together our own stores, we always take a peek at what’s in their stores.”
Cucinelli said his business is slightly larger at Neiman’s than at Saks.
“Saint Laurent’s longstanding partnership with Neiman Marcus continues to be very solid,” Francesca Bellettini, president and CEO of Yves Saint Laurent, said in a statement. “Neiman Marcus is at the forefront of client engagement and retention, and values the importance of creating a true luxury experience as much as Saint Laurent does.”
