Byline: Wendy Hessen

NEW YORK — Neiman Marcus, already operating in most major affluent U.S. markets that can support its luxury merchandising, has found a new road to expansion.
In an exclusive interview with WWD, Robert A. Smith, president and co-chief operating officer of the Neiman Marcus Group, disclosed that next fall Neiman’s will launch a freestanding chain selling precious jewelry, designer jewelry, gift and home goods. The upcoming chain has been tentatively named The Galleries of Neiman Marcus.
“Strategically, this is a significant undertaking,” Smith said Tuesday. “What I like most is that these are categories that hang together and are completely consistent with servicing the affluent customer. We’re taking those families of business within our existing stores and presenting them in their own environs.”
“Strategically, this is a significant undertaking,” Smith said Tuesday. “What I like most is that these are categories that hang together and are completely consistent with servicing the affluent customer. We’re taking those families of business within our existing stores and presenting them in their own environs.”
Three Galleries stores — averaging between 10,000 to 15,000 square feet — will open in the fall of 1998, the first in Cleveland’s Beechwood Place Mall.
“Cleveland represented a combination of having a terrific mall that was just renovated and willing to hold an opportunity for us and take a risk with us,” Smith said. “It’s a market that could represent the potential of a whole group of Midwest markets that we could do well in.
“We will do three stores in a prudent fashion next fall into early spring,” said Smith, adding that the other two initial locations are yet to be finalized. He would not disclose the potential sites.
“‘The plan is to open each unit and prove to ourselves the economic viability of the concept,” said Smith, who didn’t disclose specifics about the look of the stores except to say they will be different from Neiman’s full-line stores. “We have thoroughly studied the market and are in the process of developing architectural plans.
“This is not a shoot-from-the-hip venture. We will leverage the buying staff, operations and systems capabilities of the whole Neiman Marcus group. If [The Galleries] work, we will roll them out.”
“We have a number of opportunities to leverage the Neiman Marcus brand and this is one of the good ideas.”
Besides the Galleries concept, Smith cited other plans in the works. Among them:
Opening a 60,000-square-foot Neiman Marcus store on Worth Avenue in Palm Beach, in time for the 1999 holiday season.
Expanding Bergdorf Goodman’s business initially by transforming the store’s Plaza level and eighth floor to selling space from storage and office uses.
Expanding Bergdorf’s through additional units and new concepts, such as Bergdorf Men.
Smith also hinted at the possibility of acquiring other stores, but gave no clue about what type or when.
Over the last few years, there have been rumors about Harcourt General — Neiman’s parent — possibly seeking to sell the Neiman Marcus chain, but Smith said the company would not consider such a move.
“Neiman’s is a core operating unit of Harcourt General,” he said. “Having recapitalized a year ago, we’ve now put ourselves in a position to look at several other things.”
First on the agenda is the development and testing of the Galleries concept, a combination of several categories of business that in total, bring in $250 million annually to the 30-unit Neiman’s chain. Precious jewelry alone accounts for $100 million of that figure.
The freestanding boutiques could be a gold mine for the chain, which has built a solid reputation in the industry as one of the few major store groups that understands that selling gems is different from selling clothes, even very expensive clothes.
Instead of relying on regular store traffic to drive fine jewelry sales, Neiman’s has supported the department with strong customer service, professional sales staffs and significant marketing and advertising dollars.
And unlike many other fine jewelry retailers who rely on unbranded product in favor of promoting just the store name, Neiman’s has been among the first to push the fashion and brand envelope by focusing on the latest jewelry trends and designer labels to drive the business.
Smith said more than 75 percent of the fine and designer categories is branded, which is likely to remain the same in the new specialty store format.
“I don’t foresee us getting into a designer/manufacturing business like Tiffany,” he said.
The established management and merchandising team will report to Neiman’s chairman and chief executive officer, Burt Tansky, who Smith said will eventually choose a manager from the ranks of the existing organization to run the new specialty chain.
The initial investment for each store will be roughly $2 million to $3 million, according to Smith.
And while Smith would not confirm cities for Galleries stores, other than Cleveland, he acknowledged some will be in affluent, secondary markets, such as Aspen and Santa Barbara, Calif. International sites are being considered as well, he acknowledged.
“We have thought about as many as 30 to 40 markets that could make sense, in resort areas, smaller markets and overseas, which could be a particularly great way to extend the Neiman Marcus brand,” he said. “We’re in active discussions with a number of developers; some we’re currently not in at all, others where we have a store nearby. A possibility could be Greenwich, Conn., which we see as a subsegment of Westchester, or Pasadena, Calif., a subsegment of Los Angeles.”
Neiman’s operates a full-line store in White Plains in Westchester, N.Y., but does not have a unit in the Pasadena region.
“Our intent, initially, is to learn a bit about being in an unknown market, and also to be in areas nearby some markets that we’re already in to see the effect on the business,” Smith said.
This fall, the store’s magalog, The Book, doubled its marketing commitment for fine jewelry and watches and plans to focus on expanding the depth of assortment and marketing support and exposure of its established roster of designers.
There won’t be a separate magalog for the Galleries. Instead, the company will use The Book to further familiarize its new customers with Neiman Marcus.
“We will have to think our marketing plans through, but we would be foolish not to leverage our vast reach,” Smith said. “We will now have outposts to build relationships with new customers and we have the capacity to bring merchandise from the rest of the operation to our customers in smaller stores. We’re willing to leverage the entire Neiman Marcus assortment for those customers.”
While acknowledging that the country remains overstored, Smith expressed confidence that consumers will still accept well-executed concepts.
“We believe we are taking a segment of our stores that makes us unique and different, put it in a smaller context and address a customer base we may not be able to address in a full-line store.
“From a competitive point of view, beyond a company like Tiffany, the fine jewelry market is highly fragmented, and few have the scale and reach that Neiman Marcus has.”
When asked how he thought the Galleries will fair against other established fine jewelry retailers such as Bulgari and Cartier, Smith said, “There is a world of difference between Tiffany, Bulgari and Cartier. All represent different concepts with different parameters of success.
“My suspicion is that we will fall somewhere in between, albeit with a broader assortment. Our standards for salesmanship and reputation regarding presentation and semi-exclusive and exclusive merchandise precedes us.”
While the assortment for the new stores will be about the same as established units, Smith pointed to two strong growth areas that could get more exposure — watches and estate jewelry.
Neiman’s key fine jewelry lineup includes Alfieri & St. John, Henry Dunay, John Hardy, Elizabeth Locke, Lagos, Paul Morelli, David Yurman and Rudolph Erdel, and fine watches such as Audemars Piguet, Chopard, Piaget and Concord.

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