yerdle think tank

Neiman Marcus Group’s taking a stake in Fashionphile could just be one of a string of investments down the road by the Dallas-based retailer.

“I see many more partnerships like this one,” Neiman Marcus Group chief executive officer Geoffroy van Raemdonck told WWD on Wednesday after the company disclosed that it took a minority stake in Fashionphile, the 20-year-old business that specializes in the buying and selling of used luxury handbags, jewelry and accessories.

One possibility is that Neiman’s invests in a health and wellness company, van Raemdonck said.

The purchase price and the percent of Fashionphile now owned by Neiman Marcus was not disclosed, but van Raemdonck said, “It’s a meaningful investment, particularly when we look at our transformation agenda to be a ‘consumer-centric luxury platform.’ It’s an exclusive investment that really makes us a partner. We didn’t think we needed a majority position, but we wanted to be joined at the hips, and to be meaningful.”

“We have to invest” to further Neiman’s growth, the ceo stressed. “Luxury customers demand different things from retailers like us, and demand emotional experiences. Fashionphile is one of those. We really see this as an engine to fuel our growth. We have to invest and we will continue to invest in things like this. We are exploring other categories.”

Fashionphile, founded by Sarah Davis, operates a web site as well as four physical showrooms: in New York on Madison Avenue near 75th Street; Beverly Hills; San Francisco, and Carlsbad, Calif., where customers can drop off their items and shop online. Fashionphile primarily sells via its web site, Fashionphile.com.

Van Raemdonck said that Neiman’s will create salon-like drop-off locations inside certain Neiman Marcus stores.

“It will be a really welcoming area, with a Fashionphile ambassador. You will feel hosted,” the ceo said.

Fashionphile customers will be able to not only drop off and receive an immediate quote for their items from Fashionphile, but also immediate payment. That could bring extra sales to Neiman’s selling floors. The Fashionphile personnel will authenticate products and determine the value. Fashionphile refers to its business as a “buyout model.”

More than half of Neiman’s stores will have Fashionphile drop-off areas, van Raemdonck said, adding that so far, five to seven locations have been determined. “The first one will open in the fall,” van Raemdonck said. “It’s a matter of how quickly we can open while making sure the space and experience are right for the customer. We don’t want to compromise.” NMG operates 43 Neiman Marcus stores, as well as Bergdorf Goodman, Neiman Marcus Last Call, Horchow and Mytheresa.

Neiman’s will not be engaged in recommerce, also referred to as resale. Asked if it’s a possibility for the future, van Raemdonck said, “No. That is something very clear. We are not engaging in recommerce.” It’s more about helping customers who want to participate in recommerce, he explained, and to provide a “most frictionless experience for them.”

The idea of investing in Fashionphile goes back to last year as NMG was developing its agenda to transform into a customer-centric luxury platform. Customers were surveyed to help NMG learn what was needed, and 52 percent indicated they participate in recommerce.

Neiman’s conducted a second, more focused survey of those engaged in recommerce and learned that 75 percent of that sample used dollars obtained from reselling something for purchasing a new luxury product.

The retailer became convinced that recommerce was an opportunity and learned that Fashionphile was open to an investment. “Very quickly, we had a coming together of minds,” van Raemdonck noted.

However, the partnership recalls one Neiman’s had back in 2015 with The RealReal. The RealReal tested an in-store consignment program at Neiman Marcus locations, with signage advertising The RealReal’s consignment services and sales associates and white-glove pickup for customers. Neiman’s boosted the program by later offering consignors dropping off goods for consignment gift cards with an extra 10 percent added to the value of their payout. The RealReal project was ultimately discontinued amid certain vendor concerns. Now, four years later, there’s a different attitude toward resale and it growing popularity.

Investing in outside businesses would seem challenging for Neiman’s considering its substantial debt that needs to be serviced and paid down. But van Raemdonck pointed out the company’s agreement with 90 percent of its debt holders to convert and extend debt maturities, as previously reported, and he underscored that the retailer has ample cash.

Neiman’s has not made an investment in an outside company since September 2014, when it agreed to purchase the Munich-based Mytheresa.com online luxury business from founders Christoph and Susanne Botschen and Acton Capital Partners. In addition, NMG acquired the Theresa flagship, located in the heart of Munich.

That deal reflected Neiman’s intent to greatly grow its online business, tap customers around the world and go head-to-head with similar global online retailers, such as Net-a-porter and Matchesfashion.com.

The deal with Fashionphile reflects the new strategy of van Raemdonck to transform the company to a customer-centric luxury platform, which encompasses bringing additional experiences, services and innovations to its stores and web sites, as well as efforts to broaden the retailer’s base of luxury shoppers. For Neiman’s, Fashionphile will be a portal for attracting new customers, particularly younger ones, and for providing an extra service for existing Neiman’s customers shopping, or selling back to, Fashionphile.

As van Raemdonck said, “Over half of our customers already engage in pre-owned luxury, and this partnership exemplifies our commitment to providing our customers with services and offerings they want and need. Fashionphile’s hyper focus on curating high-quality supply and providing best-in-class shopping experiences makes it the ideal partner. With Fashionphile, we will engage with customers participating in the secondary market and introduce Neiman Marcus to younger and aspirational shoppers already devoted to luxury brands.”

With the investment, NMG becomes the first major luxury retailer to directly invest in the fast-growing pre-owned sector. The apparel and accessories resale market is projected to grow to $23 billion by 2023 from $5 billion today, according to research from ThredUp, another recommerce web site.

Recommerce web sites have become increasingly popular. The values, styles and sustainability associated with the format all resonate with consumers of different generations, including Millennials. However, some brands, such as Chanel, have been vehemently opposed to the resale of its products. Still, resale sites such as Tradesy, as well as The RealReal and ThredUp, are growing. While these sites have a pretty wide range of products, Fashionphile focuses on what the company describes as “ultra” luxury handbags, jewelry and accessories. Fashionphile has a digital inventory of 15,000 items.

“Neiman Marcus is the perfect partner for Fashionphile as we pursue more innovative ways to engage with customers,” said Davis, president of Fashionphile. She said the partnership with Neiman’s represents a “new stage in the company’s growth.”

“Customers are approaching luxury in new ways, and pre-owned is at the center of that shift,” added Ben Hemminger, Fashionphile’s cofounder and ceo. He said Fashionphile will be “leveraging the resources, capabilities and expertise of Neiman Marcus to help us scale more quickly.”

The deal with Fashionphile comes at a pivotal time for NMG. Neiman’s is under pressure to increase volume and profits and reduce debt stemming from its $6 billion acquisition of NMG by Ares Management and the Canada Pension Plan Investment Board from TPG Capital and Warburg Pincus in 2013. And last month, Neiman’s opened its first Manhattan store, which is located at Hudson Yards. There’s been enormous interest in the store and how it will perform in the months ahead.

But the $5 billion luxury retailer is getting close to refinancing its $4.6 billion in debt. Holders of 98 percent of the outstanding principal amount of its term loans and holders representing 91 percent of the aggregate principal amount of its unsecured notes have consented to a “transaction support agreement” involving extending loan maturities into the future to 2023 and 2024, instead of 2020 and 2021. NMG has a $2.8 billion term loan due in October 2020, and two sets of bonds and an asset-backed loan due in 2021. Lenders on board with the agreement represent more than $4 billion of outstanding term loans and unsecured notes. The agreement is expected to close in late May.

The agreement completed would give NMG breathing room to sustain operations and support efforts to rev up its retail businesses. Neiman’s has been paying hundreds of millions of dollars annually to cover the interest costs on its debt, including $307 million during the most recent fiscal year, ended July 28.

Though anything but acquisition-prone, NMG has taken significant stakes in other high-profile firms in the past two decades. The luxury retailer acquired a 56 percent share of Kate Spade in 1999 for $33.6 million and expressed big plans for the brand, including store openings. However, in 2006, NMG sold Kate Spade for $124 million to the then-Liz Claiborne Co. Inc.

NMG also once owned Gurwitch Products, the licensee of Laura Mercier. In 1998, Neiman’s bought a 51 percent stake in Gurwitch, but sold the company in 2006 to Alticor Inc. for an undisclosed amount.

Van Raemdonck said Neiman’s investment would “really accelerate” the growth of Fashionphile. So far, Fashionphile has grown without any outside capital. “They’ve really grown on their own cash flow. It’s a profitable model,” van Raemdonck said. “The company grew 50 percent last year and is on track to grow 50 percent this year. The more available cash you have, the better to accelerate the growth.”

 

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