NEIMAN’S NEW CHIEF: MAXIMIZING GROWTH FOR A ‘MATURE’ COMPANY
Byline: Holly Haber
Dallas — H.W. Mullins thinks the Neiman Marcus chain, at 93 years old and with few luxury markets left to tap, still has a lot of growing to do.
“We feel that with our new stores and store expansion program and our plans to acquire companies, similar to those we’ve already acquired — Kate Spade and Laura Mercier — we have a solid growth strategy, even for a mature company,” said Mullins, who was promoted to chairman and chief executive officer on Valentine’s Day.
“There are more affluent Americans today than there were seven or eight years ago, and we think that will continue to grow,” Mullins asserted. Citing internal research, Mullins projected that the American economy will keep expanding over the next five to 10 years, baby boomers — Neiman’s core customer — will hit peak earning power between now and 2010, and that the greatest transfer of wealth in American history looms as parents of baby boomers bequeath their estates.
In his first interview since his promotion, Mullins, 48, who was vice chairman, detailed how the Dallas-based retailer plans to maximize its own riches primarily through renovating and expanding existing stores, opening three or four new stores by 2004 and further developing fine apparel, beauty, gifts and men’s casual clothing businesses. He continues to report to his predecessor, Burt Tansky, who remains president and chief operating officer of the parent Neiman Marcus Group.
Mullins said he is encouraged that business is brisk across most categories, especially designer sportswear and ready-to-wear, shoes, accessories, handbags, men’s clothing and shoes. The bridge business has improved, he pointed out.
However, “Over the next five years, we have to be more focused and specific about the opportunities we target,” he said. “We have identified four specific areas that have huge growth potential and will position us where we want to be — fine apparel, beauty, the casualization of men’s wear and becoming the quintessential gift store from the most luxurious to practical hostess gift.
“We have always been good at identifying opportunities as they come along,” he reflected. “What we have not always been as good at is quantifying how big the opportunity could be. Then we are very good at executing, but if you don’t quantify it accurately, then you miss some. We’d say let’s put it in five or eight stores and test it and by the time we figure out this could be big, much of the opportunity has gone by. So we are really developing a culture where we are getting more proficient not only at identifying an opportunity, but getting there in a hurry.”
Designer apparel sales last year rose to the volume of the bridge business and present a “huge opportunity” for growth, he said. Neiman’s powerhouse luxury brands for the past 10 years have been Giorgio Armani, Chanel, Escada and St. John, but the biggest gains are germinating from Gucci, Prada and Jil Sander.
“This whole modernist group has really reached a level of importance in our assortment, whereas before, they were sort of the icing,” Mullins pointed out. “It’s harder to build a business with more forward fashion because there are fewer customers who understand it and you have to have a different mind-set with your sales associates. They tend to sell what they are more comfortable with. It’s frustrating, but it also presents a great opportunity.”
Other “modernist” labels with potential are Piazza Sempione, Celine, Helmut Lang and Miu Miu, he added.
While Mullins doesn’t expect Neiman’s bridge business to grow, he did say that contemporary will be much more important, through added square footage and deeper buys. “As we design new stores, we are creating a contemporary environment, and that is a major share of the growth potential.”
On the men’s side, Neiman’s will experiment this fall with custom suits that will be made through arrangements with key resources: Brioni, Ermenegildo Zegna, Oxxford and Giorgio Armani. The company will install computerized measuring capability in its stores, create a computerized pattern room and then transmit the information to the manufacturers.
“I see a big opportunity in custom suits,” Mullins asserted. “We’re in an age of customization, whether it’s clothing or the Internet or anything else. Twenty-five percent of the high-end men’s suit business in this country is made to measure.”
He doesn’t envision offering custom clothing for women because it is more complex than men’s suits in terms of design and predicting which fabrics to stock. “With women’s custom clothing, you really have to have a vision of what you want it to look like when you start out,” he asserted. “It isn’t like a men’s suit where there isn’t that much variety.”
According to Mullins, building a few new stores, and expanding and renovating several “A” locations are critical for growth. The company is investing about $500 million over five years to build new stores in Tampa and Coral Gables, Fla., and Plano, Tex., and to renovate or expand five existing units. A fourth new location will probably be announced within a year, Mullins noted, declining to reveal where. A previously announced opening in Syosset, N.Y., is on hold pending approval of the developer’s plan by the township.
Over the next three years, blueprints call for the unit on San Francisco’s Union Square to become the largest in the chain at 250,000 square feet through construction of a 60,000-square-foot adjacent building. The store currently yields more than $100 million in annual sales.
In addition, the Las Vegas store will swell from 102,000 to 155,000 square feet, and the Fashion Island store in Newport Beach, Calif., will gain a third level, increasing its square footage from 124,000 to 170,000.
The high-volume Houston Galleria unit is due to expand by 40,000 square feet, providing more room for accessories and women’s shoes. The space will be freed up when the men’s department moves downstairs from the main level and administrative offices shift next door. The store, which is one of Neiman’s top three producers, with well over $120 million in annual sales, continues to achieve gains despite heightened competition from the elaborate prototype Saks Fifth Avenue opened two years ago across the mall, Mullins affirmed.
In Atlanta, Neiman’s has remodeled the fine apparel area, built an accessories boutique for Gucci and plans to renovate the Chanel boutique.
In addition to Houston, Neiman’s top-volume stores with sales reportedly well over $120 million apiece are NorthPark Center in Dallas and Beverly Hills, Calif., with the Atlanta site and the Michigan Avenue unit in Chicago approaching $100 million each in annual sales.
“It’s very possible that within the next 12 months, we could have six stores that are over the $100 million mark,” Mullins noted.
Pleased with its acquisitions of Laura Mercier cosmetics and Kate Spade accessories, Neiman’s continues to search for luxury-goods manufacturers that are relatively small, but have growth potential.
“Our success with Laura Mercier and Kate Spade has been nothing short of remarkable,” Mullins enthused. “We didn’t buy them with the intention of keeping them exclusive. They’re doing well with us and with our competition. If we could find 10 more like that, we’d be thrilled. But it isn’t as easy to identify those candidates as we would like. Some people want to go it alone, and some people we feel may not have long-term potential.”
Expansion of the Galleries of Neiman Marcus concept is in abeyance until the three existing units attain higher levels of productivity, Mullins said. The test units, located in Scottsdale, Ariz., Seattle and Cleveland, sell only fine and designer jewelry and tabletop.
Galleries stores have matched the productivity within the same classifications as in new full-line stores, Mullins said. “They have maintained momentum, but we think that running a mall [more specialized] store is very different from running a full-line store, and we have lots of skills to develop,” he explained. “It’s different from a marketing standpoint, staffing standpoint and clientele standpoint. We think that even though they have done well, they have much greater potential. We want to assess whether or not we can get them to the levels of productivity that we would really like before we build any more.”
As for Neiman’s six-month-old Internet commerce site, Mullins said he has no idea when the venture might turn a profit.
“It takes a long time to generate volume,” he said. “But I think it’s a great opportunity, particularly for replenishment luxury items like a cosmetics cream. The sales associate could e-mail the customer that it was time to send a new 30-day supply. It’s also a huge opportunity for people to become familiar with Neiman’s who may not live near a store.”
Mullins was bullish on the fall collections.
“I’m very optimistic,” he said. “It was a great display of luxury, elegance and attention to detail and color that makes the clothing look unique. When our customer walks down the street, she wants her clothes to look like the value is there. There was tremendous newness, creativity and excitement and a lot of product they don’t already have in their closet.”
Mullins predicted that the return of the jacket and suit looks would be popular.
“I think women will wear jackets in a modern form that are softer and unconstructed and are often worn almost as a blouse,” he said. “Women like to look put-together, and it’s not always easy to do that with a twinset or a pair of slacks. The designers have figured out that there is a way to wear the jacket that makes it comfortable, whether it’s a matching two-piece ensemble or not.”
While addressing developments in fashion, Mulllins also addressed rumors that have swirled around the company. Among the most persistent: that Harcourt General, run by the Smith family, wants to sell Neiman Marcus Group, but Harcourt officials have repeatedly denied they plan to sell the chain, and Mullins noted that since more than half of NMG stock was spun off to Harcourt shareholders last October, reducing the Smith family’s stake, it was no more likely to be sold than any other public company.
“My feeling is Neiman’s won’t be sold,” he said.
Strong demand for luxury goods propelled Neiman’s profits ahead 32.2 percent in the second quarter ended Jan. 29. Earnings rose to $41.3 million, or 84 cents a share, from $31.2 million, or 64 cents, the previous year. Sales gained 12.8 percent to $890.3 million from $789.2 million. Neiman’s same-store sales climbed 9.7 percent, and NM Direct’s business lofted 12.8 percent.
The robust results are partly due to comparisons with a somewhat weak fiscal 1999, Mullins pointed out, when Neiman’s business was affected by stock market gyrations in the fall of 1998. For fiscal 1999 ended July 31, earnings shrank 12 percent to $93.5 million and revenues gained 7.6 percent to $2.55 billion. Comparable revenues inched up 2.6 percent from the previous year.
Mullins described himself as an avid reader. The last book he read was “Gates of Fire,” a history of a famous battle in 500 BC where 300 Spartans held off thousands of Persians, and he’s currently reading a history of the first operas in Venice. “I think you have to have a diverse point of view,” Mullins mused.
Built like a halfback, Mullins works out four or five times a week, running and lifting weights. Yet it’s easy to get beyond that imposing figure. He’s very approachable and short on pretense, which endears him to his staff, and to his 16-year-old daughter, Alexandria, an aspiring actress featured in this month’s Teen People magazine and who also will be in Bobbi Brown’s forthcoming book about teen makeup.
Stylewise, Mullins favors suits by Zegna, Armani, Oxxford, Brioni or Kiton and shirts by Berelli and Brioni.
Mullins joined Neiman’s as vice president and divisional merchandise manager for leisure sportswear and swimwear in March 1991. He steadily rose up the ranks, serving as senior vice president and general merchandise manager, then executive vice president of merchandising, and later vice chairman, his last post.
Mullins has lived in Texas for most of his adult life, but says he grew up in several different parts of the country, including Southern California, Las Vegas and Nashville, Tenn., because his stepfather was a drummer in country-and-western bands.
He started his retail career as a store manager at Foley’s in Houston, was promoted to divisional merchandise manager and subsequently worked as general manager for a Macy’s unit in San Francisco.
He surprised the industry when two years ago, he announced he wanted to be called “Hugh,” instead of his lifelong nickname, “Butch.” There were rumors that the corporation advised him to do that, to present a more “sophisticated, corporate” image. He had a different explanation.
“I was stuck with that name when I was about two months old, and I hated it,” he explained. “I’ve never felt like a Butch. Even my immediate family doesn’t use it anymore. It didn’t suit me. It is a very casual name with a Southern undertone.”