More so than any of her predecessors, Karen Katz, the president and chief executive officer of the Neiman Marcus Group, is grappling with change at the luxury chain — and it’s been coming on strong.
This story first appeared in the October 28, 2014 issue of WWD. Subscribe Today.
There’s new ownership, more debt on the books, recently overhauled management and merchant teams, international ventures and a flurry of technologies to streamline the customer experience in stores and online, whether that’s personalizing the Web site or ordering online and picking up the order at a store. And what about dealing with those sinister data breaches impacting many retailers?
“Driving change today is faster and harder than ever and it has gotten very complex,” Katz said at the WWD CEO Summit.
“You have to set audacious goals for your team and push them hard to stay focused on those goals. At the same time, you have to adjust and readjust and adjust again, crafting the strategy as you are moving toward those goals.”
Katz’ theme on the day was how the 107-year-old Neiman Marcus Group stays modern and relevant through change, innovation and risk-taking, and what any ceo must think about to manage it all. “Are you doing change just for change sake? How will all these changes affect the customer experience?” she asked rhetorically.
She recalled a managers’ meeting in Dallas, where the $5 billion NMG is based, where she laid out a five-year vision to the team and “a reboot of our strategies.” There, she showed a film clip of a speeding freight train “to illustrate that you either had to get on board this freight train that was coming on quickly or you needed to jump off out of its way. It was a really clear message that things were going to be changing.…Even a brand with impeccable heritage, like Neiman Marcus and Bergdorf Goodman, has to change and keep up with the times.” Yet it also must be “grounded in the promise to offer customers well-edited product and serve them in a welcoming and gracious environment.”
A year ago, NMG was sold to Ares Management and the Canada Pension Plan Investment Board for $6 billion, lifting the retailer’s long-term debt to more than $4.5 billion. Asked about the added pressures that come with higher debt, Katz said, “I love talking about the debt on our balance sheet on a Monday morning,” then turned serious, saying, “We had been owned by private equity firms for eight years and it was time for us to make a change in our ownership.” Neiman’s could have gone public or opt for another sale to private equity. “We did have a choice,” she said, adding private equity was chosen.
“We know how to run a company with a lot of debt on the balance sheet,” Katz said. “Not everybody is up for this challenge but our team kind of understands what it takes to have to make $260 million in interest payments every year because of that $4.5 billion in debt. But in many ways, I believe being a private company in this day and time is actually better than being publicly traded. We’ve had an amazing first year with [Ares and CPPIB]. We needed to find equity owners who understand the great brands that we manage and we needed people who were willing to give us capital. We are pretty delighted with our ownership structure right now and feeling very good about the future in spite of the $4.5 billion in debt on our balance sheet.”
Katz was also asked about the decision to open Neiman Marcus at Hudson Yards, which is being developed on the far West Side of Manhattan. “This was obviously a big decision for us,” she said. “We really had no intention of coming to New York City. We don’t need to be in New York City. We have the best department in the world in New York City,” meaning Bergdorf Goodman, on the corner of Fifth Avenue and 58th Street.
When Katz and her team met with Steve Ross and Ken Himmel of The Related Cos., developer of Hudson Yards, “We were all kind of skeptical, but it’s a very, very, very compelling vision. Over time, Hudson Yards will bring a new epicenter to New York.…It will really allow us to attract a very different customer than we have at Bergdorf Goodman. We didn’t look anyplace else,” in Manhattan. “It wasn’t a matter of choosing one place over another.”
During the last holiday season, Neiman’s was hit by a data breach. “We were one of the first,” Katz noted. “It was really a terrible, terrible situation. The most important thing for us is making sure our customers are protected.” She acknowledged that “we did some things wrong in terms of leading to the data breach, but the first thing we did and most important thing we did was to reach out to all our customers and make sure they knew their interests were our number-one priority through the data breach. We are very, very lucky we have the kind of customers we have. They have a lot of confidence in us. They knew we would figure out how to fix the problem, and I believe our systems are much, much more secure today. We are very vigilant today and I think unfortunately, this is an ongoing situation with many other retailers.”
In a much different ongoing situation, Neiman’s has been in discussions with designer brands about leased shops, also known as concessions. American retailers have increasingly been embracing what’s largely been a European business model. Historically, Neiman’s has held firm against it, with a couple of exceptions, one being Louis Vuitton. “We have pretty strong opinions about doing leased shops and concessions in our Neiman Marcus stores,” Katz said. “We believe our most important priority is having an amazing customer experience for every customer who walks in one of our doors or clicks into one of our Web sites. Our philosophy is, leased and concession models interrupt how you truly service a customer around the store, and that’s what it’s all about.
“We don’t have millions and millions of customers, so each and every customer is extremely important to us and the relationship we develop with each customer is done by making sure they have an extraordinary experience when they are in our stores or on our Web sites. Leased departments interrupt the flow of that relationship because in many ways, you have to hand the people over. Times are changing. Some brands that we have done business with for many decades have different thoughts about the way they want to do business and so there are always ongoing discussions with them about it.”
Addressing the summit’s theme of Revolution/Evolution, Katz, who was wearing a Valentino butterfly print jacket (the butterfly always appears in some form on Neiman’s magalogues) listed several Neiman’s innovations since it was founded, from the “his and her” Christmas gifts to being the first retailer to offer a loyalty program, known as InCircle, and adapting paper gift certificates into electronic gift cards. She also said Neiman’s was among the first to offer affluent women ready-to-wear off the rack. “Innovation is not at all a stranger to us,” she said.
Here are some of Katz’s other thoughts on change and leadership:
• “Create an environment that fosters change and innovation. Second, figure out how to drive change deep into the organization. That’s not always easy.”
• “There has to be a willingness to accept failure, and celebrate both small and large victories.”
• “Leadership is about creating and selling a vision and inspiring a team to go execute on that vision. The responsibility of a leader is to create this cocoon, if you will, that nurtures change and innovation.”
• “Have a willingness to push your team, but you also have to have a willingness to have your team push back on you and push you out of your comfort zone. It can be very uncomfortable and very scary, but in my mind, you have to run toward that discomfort, not away from it.”
• “You have to show some measure of patience. At the same time, as fast as things are moving, you have to show a sense of urgency.”
• “When risk is controlled and you do it in a test-and-learn environment, you can minimize risk.”
• “There is no embarrassment in failure.”
• “There is great responsibility that comes with change and innovation. We always have to keep the customer in focus and make sure we are responding to the way they are changing their shopping habits.”