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THE RIGHT STUFF

Neiman Marcus attributes success to savvy merchandising

BY MOLLY KNIGHT

When Herbert Marcus broke ground 98 years ago on the first Neiman Marcus store, in downtown Dallas, the retailer’s mission statement was, “It’s never a good sale for Neiman Marcus unless it’s a good buy for the customer.”

This philosophy has made a loyal fan out of one Beverly Le Vato, a blonde, impossibly young-looking 75-year-old resident of San Clemente, Calif. “I’ve never had a bad experience at Neiman’s,” she said.

Indeed, she easily recalls one particularly good experience. “One time I wanted to buy a Steve Fabrikant dress and it was $900,” said Le Vato, who drives a Mercedes and shoots hoops with her grandchildren. “So I said, ‘Call me when it goes on sale,’ and they took down my name and phone number. Sure enough, the lady called me three weeks later to tell me it was on sale for $400. I drove right down and bought the dress.”

Targeting such loyal and discriminating consumers as Le Vato is one of Neiman Marcus Group’s keys to success. The company enjoyed a record-breaking year last year, with sales reaching $541 per square foot, while its operating margin swelled to 13.8 percent. Earnings for 2004 shot up 87 percent from the previous year. Same-store sales, meanwhile, were up 10.6 percent at the Neiman Marcus stores and 14.3 percent at the company’s chic Bergdorf Goodman stores in New York City.

These numbers soared above those of the average department store chain for the year. (Not that Neiman Marcus likes to be called a “department store” — “We’re a specialty store,” insisted one executive.) U.S. department store same-store sales growth averaged about 1.7 percent in 2004, according to ICSC Research. Nordstrom posted 9 percent same-store sales growth last year, and Saks Fifth Avenue reported 5.2 percent.

“These results are an important vindication of our strategies and initiatives,” Burton Tansky, president and CEO, told investors during a year-end conference call. He cited the company’s full-price selling and its aggressive management of expenses and inventory for the success. The group also operates online and print catalogs for the Neiman Marcus and Bergdorf Goodman names, as well as for Horchow, an upscale home furnishings line. It has not hurt, of course, that the company has had the right merchandise on offer at the right time. “Our merchants have done an outstanding job of filling our stores with the assortments that satisfy our customers’ desire for the latest fashions and trends,” Tansky said. “The results have been more-satisfied customers and improved inventory returns.”

Observers seem to confirm that. “Neiman Marcus always does well by using interesting and exciting fashions and excellent displays,” said Kurt Barnard, President of Nutley, N.J.-based Barnard’s Retail Consulting Group. “They know how to attract and appeal to the customers they are counting on.”

Neiman Marcus works with such top designers as Marc Jacobs and Prada and gets the best products from less exclusive brand names. The company also owns majority interests in the popular Kate Spade accessories and Laura Mercier cosmetics brands. “One of our key priorities is to differentiate our offerings from the competition,” Tansky said. “And we believe we have been successful in doing so.”

Neiman Marcus stores anchor nine of Taubman Centers’ 21 malls , and that’s just how the firm, which is known for its portfolio of luxe properties, likes it, says William S. Taubman, executive vice president. “The customers respond well because they have a very clear definition in their minds of the store being upscale,” he said.

But what sets Neiman Marcus apart from other high-end retailers is its success in selling these items at full price to its well-heeled customers. “The economy may not be going very well overall, but it is going very well for these people,” said Barnard. “There are lots of people around with lots of money to spend.”

The company is also noted for its shrewd pace of expansion. Since that first Neiman Marcus store went up in 1907, only 34 of them have joined the fleet. And with a mere six scheduled to open over the next three years, the company is not exactly saturating the market. “This discipline has allowed us to focus on locations that are consistent with our high sales-productivity model,” Tansky said.

Neiman Marcus’ meticulous expansion appeals to mall owners. “They’ve been consistent over a long period of time with their strategy and execution, and we like that,” Taubman said. The chain’s next store, a 120,000-square-foot Neiman Marcus anchor at Westfield Shoppingtown Topanga in California’s San Fernando Valley, will open in the spring of 2008.

Barnard affirms that this conservative approach has also paid immeasurable dividends from a consumer perspective. “They stay in control because they don’t allow anything they do to overwhelm the customer,” said Barnard. “When you have too many locations, the store can take on a life of its own — and the company might not like that life.”

Instead of rapid expansion, the company is focusing on remodeling and reconfiguring existing stores. By expanding the square footage of its stores between 2 percent and 3 percent, the company says, it can capitalize on product lines with the greatest potential for productivity and growth.

Neiman Marcus has also exercised that same discipline in managing its inventory. To support growth and better serve customers, the company has boosted the capacity of its store distribution centers by 25 percent to more than 600,000 square feet.

Le Vato, who collects chintz china and recently built a tea-party house in her backyard, agrees that Neiman Marcus has positioned itself head and shoulders above other department stores. “If you want something really grand,” she said, “you don’t go to Robinsons or Macy’s. You go to Neiman’s.”