Don’t Mess with Marcus

Discussion
Oct 07, 2005
George Anderson

By George Anderson


A number of years back, the Texas Department of Transportation came up with an anti-littering campaign for the state’s highways that used the slogan: “Don’t Mess with Texas.”


Now that Texas Pacific Group and Warburg Pincus have officially gained control of luxury retailer Neiman Marcus, the two private equity firms are promising not to mess with the iconic Texas retailer.


Kewsong Lee, a managing director and leader of Warburg Pincus’ global LBO group, told The Dallas Morning News: “We haven’t changed one thing (referring to the retailer’s business plan). We don’t see a need to put a ‘stamp’ on the company other than to let management keep doing what it’s doing. If you’ve got a good thing going, why mess with it?”


Jonathan Coslet, a partner at Texas Pacific Group echoed Mr. Lee’s confidence in a released statement. “We’re delighted to be investing with the Neiman Marcus management team. Their success and leadership in the luxury retail sector is unmatched. Under their direction and through the efforts of more than 15,000 associates, Neiman Marcus continually offers an unparalleled shopping experience.”


Burt Tansky, president and CEO of The Neiman Marcus Group, signed a new five-year deal to continue leading the company.


“Our new partners share our vision of serving the luxury consumer with distinctive merchandise and outstanding customer service, continuing the nearly 100-year tradition of Neiman Marcus,” said Mr. Tansky. “We are pleased with the successful outcome of this transaction.”


Moderator’s Comment: Is Neiman Marcus essentially recession or other economic calamity proof? What challenges and opportunities are there before Neiman
Marcus? Where do you expect the company to go under private ownership?


The deal for Neiman Marcus involves the owners taking on a heavy debt load. It’s logical to think that a sale of some assets might be in the offing but
when asked that question, Kewsong Lee said, “We will de-leverage as we grow.”

George Anderson – Moderator
 

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7 Comments on "Don’t Mess with Marcus"


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David Livingston
Guest
15 years 4 months ago

Marcus is essentially recession or other economic calamity proof. However, is it not idiot proof. If it’s not broke, don’t fix it.

Mark Lilien
Guest
15 years 4 months ago
Most corporate wedding announcements include the happy couple’s avowals of eternal love and loyalty. Generally, love and loyalty end when profits are less than expected, or when egos clash. This can occur within 5 minutes or 5 years or never (rarely). NM has gone through ups and downs. It isn’t recession-proof. Sometimes the happy couple have unreasonably high expectations of each other. Success can lead to unhappiness: can the expansion take place fast enough, yet keep the profit increases? Will the owners commit the new capital needed? How many new spouses ultimately mean it when they say they don’t want their new partner to change anything? Half of all marriages end in divorce and many that continue married are unhappy. How about a realistic wedding announcement? The buyer says: We got married because the price seemed like something we could swallow and still make our shareholders happy if we can increase the profits by a big jump. If we can’t do it fast enough, we’ll either change the management or merge it with something else… Read more »
Santiago Vega
Guest
Santiago Vega
15 years 4 months ago

No retailer, or business for that matter, is recession-proof. We just happen to be in a financially-stressed environment that doesn’t really affect Neiman Marcus’ customer, at least not until the fad of owning the latest Manolos is a priority for that customer (and I don’t see this changing anytime soon).

The future for NM in its new and private hands is without a doubt GROWTH, meaning rapid sales increases through store-count expansion nationally and quite possibly internationally in order to justify (and pay for) its hefty price tag.

Craig Sundstrom
Guest
15 years 4 months ago

“We don’t see a need to put a ‘stamp’ on the company other than to let management keep doing what it’s doing.”

What more could one want to hear? That having been said, one struggles to find a successful retailer founded by a “private equity group,” but you can find many that failed after one took over.

Daniel Korn
Guest
Daniel Korn
15 years 4 months ago
In many aspects, it will be “business as usual.” The primary merchandising and marketing strategies are likely to remain unchanged given the success that the Company has enjoyed in recent years. However, the new owners will be looking carefully at some areas in particular: 1. Asset Sales: Since NMG has sold their receivables, there’s not a lot left with significant value. But look for the Company’s Brand Development initiative to become history. The owners will sell off the Company’s majority interests in both Kate Spade and Laura Mercier (Gerwitch-Bristow). NMG invested in these small, developing brands in the late 1990’s to diversify, and while there has been some growth, there is not nearly enough potential to mandate holding onto these non-core businesses. They’ll both be sold quickly but not in a “fire sale” mentality. 2. Expense Reductions: The owners will examine very carefully NMG’s organizational structure which divides the company into 3 business units: NM Stores, Bergdorf Goodman (essentially 1.5 stores in NYC), and NM Direct that combines the Company’s so-so print catalog division with… Read more »
Neil Thall
Guest
Neil Thall
15 years 4 months ago

Due to Stanley Marcus’ vision, Neiman Marcus has maintained a loyal upscale customer base through several ownership and management changes (among others, CHH and General Cinema ran Neiman’s for quite a while). Neiman’s shoppers can hope that the store continues Stanley’s vision, although new debt and ownership is a risk. Initial promises may give way to bottom line realities. Is Neiman’s recession proof? No, but the high end consumer has proven to be reluctant to give up personal luxuries. There may be fewer donations to charity, stays at the Four Seasons may be cut a little shorter, but nobody wants to give up Prada or Zegna. We’ll need a true recession to really affect Neiman’s, although certain departments may feel a pinch as demand patterns change (as in the past, when men’s tailored clothing suffered when most businessmen stopped wearing suits to the office).

Sid Raisch
Guest
Sid Raisch
15 years 4 months ago

This type of investment is a clear indication that the trend to go upscale and after the ultra-luxury market is a solid strategy.

Unfortunately, it also marks the beginning of the end for many if “too many” begin to compete for “too few” ultra luxury shopper dollars and hours.

These people recognize that owning the original, one-and-only is a better position to be in than to own an up and comer that hopes to compete with the entrenched provider for loyalty from the same market. Very smart move.

Is the old game, “battle for the masses” becoming the new game, “battle for the classes”?

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