Neiman Marcus Capitulates on Price

Discussion
Jun 15, 2009
Tom Ryan

By Tom Ryan

After reporting a 24
percent decline in third quarter sales, Neiman Marcus Group disclosed plans
to offer more lower-priced goods and promotional marketing events. On a
conference call last week, Burt Tansky,
Neiman’s CEO, said that while customers hadn’t questioned the chain’s prices
in the past, “we are sensing a shift in our customer’s mind-set.”

The new merchandising
strategy, according to The Wall Street Journal, “will
strengthen our position in mid-price”
goods, the company said, and equates to a “rebalancing” of its
mix to include some lower-priced goods among its designer collections.

However, Mr. Tansksy cautioned,
“This is not something that will occur overnight,” and the larger
impact won’t happen until Spring 2010. In the meantime, more promotional
and other events are being planned to boost sales.

Mr. Tansksy also
said he doesn’t see a turnaround occurring soon. “We believe that
the recovery is tentative and any improvement will be gradual,” he
said. As a result, it is pursuing a “conservative” merchandise-buying
plan for the fall and will curtail capital spending by 25 percent in its
next fiscal.

Neiman’s move follows
several similar ones by other luxury purveyors to lower prices:

  • Barneys has been opening more
    of its “Co-op” discount stores while closing some of its regular
    boutiques;
  • Saks announced plans to open
    several of its “Off 5th” outlet stores while skewing pricing
    at its full-price stores more toward affordable merchandise;
  • Pottery Barn Kids, following
    in the footsteps of its parent Pottery Barn, will substantially increase
    the number of lower-priced products it offers starting this fall;
  • Longtime fashion designer Max Azria in
    early June reached an agreement to develop a Miley Cyrus/Max Azria collection for Wal-Mart Stores. Prices top out
    at $20 per item.

Tiffany is among the
fewer and fewer high-end stores stating that it would not cut prices.  But
the luxury jeweler is finding its customer looking for bargains as well,
even to the point of haggling at counters.

“Everyone feels
compelled to ask the question for fear of feeling foolish after the fact,” Tiffany
chief executive Michael Kowalski said at the Reuters Global Luxury
Summit in New York. “And yes, the questions are being asked more often
and the answer is the same — the price is the price is the price.”

Discussion Question:
What’s the best strategy for Neiman to offer more value in their offerings
without impairing its upscale positioning?

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12 Comments on "Neiman Marcus Capitulates on Price"


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Dick Seesel
Guest
11 years 10 months ago

“Lower-priced goods” by the standards of Neiman Marcus don’t mean “cheap.” However, their merchandise mix today is perhaps the most high-end of the luxury retailers. There is very little opportunity for even the upper-moderate-to-better customer to find something affordable in N-M by today’s standards.

Neiman’s key competitors have already reacted to the rapid change in consumer spending and psychology: Saks is famously running more deep discounts on designer apparel, and Nordstrom is adding more moderate prices to its merchandise mix. If I were advising Neiman, I would suggest putting a compelling strategy in place sooner rather than later, to avoid missing the entire 2009 fall season.

A smattering of sale events (or value-added offers for frequent guests) may be an easier place to start than a revamp of the merchandise mix. However, I would push the merchants hard to shift some OTB dollars by working with the supplier base with a renewed sense of urgency.

Phil Rubin
Guest
11 years 10 months ago
Neiman’s move can be seen from two perspectives. First, it seems to be a disconnect with their brand heritage, somewhat desperate and indicative that they have lost their way as both a merchant and with respect to being customer-focused. As a bit of a contrarian, it does indeed seem to be a sign of capitulation and that the worst is behind us. Of course, we’ll see and for their sake, hopefully this is not the case. What they might unintentionally accomplish is conceding the top shelf space to someone like a Saks or a Nordstrom. The converse perspective is that they are basing this move on a fundamental shift away from large quantities of conspicuous consumption. The whole, “this is a new era” and “things are really different now.” We’ll see. As economic cycles go, while this one is particularly pronounced, what goes up must come down and vice-versa. As the economy rebounds we expect to see plenty of pent up demand at the high end. Regardless of which assessment is correct (assuming that at… Read more »
Carol Spieckerman
Guest
11 years 10 months ago

Neiman’s re-working its product and pricing mix is certainly preferable to stubbornly standing ground, waiting for things to return to the way they were and watching the markdowns pile up in its otherwise pristine stores.

What I find most interesting is the number of design houses that are stumbling; the very designers that feed product to the likes of Neiman’s: Cavalli, Prada, Versace…. Even if Neiman’s was on a roll, their brand portfolio–and exposure–would be in a constant state of flux. The Mylie/Max deal has been derided in the design community, but I’m betting that a few secretly wish they had snuggled up to Hannah and yes, WALMART!

Ryan Mathews
Guest
11 years 10 months ago

The obvious choice is a Nordstrom’s Rack format, but there are more subtle options like introducing lines built around a theme like sustainability that also happen to be lower priced.

Mel Kleiman
Guest
11 years 10 months ago

The only way that this strategy is going to work is if NM can continue to offer the quality and the exclusivity that their core customer is looking for, at a lower price–either real or perceived. If either of these suffers in the quest for a lower selling point, it is going to lower the value of the overall brand.

If they loose their position in the marketplace and their core customer in the long run, this could spell the demise of NM as we know it today.

Camille P. Schuster, PhD.
Guest
11 years 10 months ago

Neiman Marcus needs to resist making decisions that lower the quality and image of their retail brand and/or product brand images. Having some promotional events means only a short-term price reduction which may well be appropriate in these economic times. Lowering prices on current items means that consumers may interpret it as the current prices have been set too high in the past. Bringing in other brand names at a lower price preserves the image of the current brands but may result in lower sales of the high-priced items. Bringing in new brand names from the same manufacturer at lower prices preserves the image of the current brands and may generate more sales for the manufacturer and Neiman Marcus.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 10 months ago

Neiman Marcus needs to be careful of the slippery slope of lowering prices. Although the economy has greatly impacted luxury brands I think Tiffany has the correct approach. Neiman Marcus has worked hard to create a store known for high fashion, quality merchandise and exceptional customer service. Lowering prices will impact one if not all of these key differentiators.

I would suggest two great books for people in the high fashion retail world. Jack Mitchell’s “Hug Your Customer” and “Crossing Fifth Avenue to Bergdorf Goodman” written by Ira Neimark. These two gentlemen are icons in the retail world and share a great deal of their experience in their books. Both leaders have decades of experience and survived tough times in the past.

Li McClelland
Guest
Li McClelland
11 years 10 months ago

NM management is doing what it needs to do to keep its stores open, its workers employed, and its rent/debt paid during an unprecedented economic downturn. I think many retailers are going to look different and have somewhat new demographics when the dust finally settles. Not to pick on Macy’s, but their mismanagement has left a huge hole of opportunity in the upper mid-market sector where customers still have some purchasing power and still want nice, quality products and expect good service. NM and Saks will pick up some of this share by lowering their prices — in addition to holding on to many of their traditional customers who are scaling back but still like to walk out of the store with a luxury logo shopping bag.

Tonia Key
Guest
Tonia Key
11 years 10 months ago

The customers Neiman’s lost were most likely the ones that had no business shopping there in the first place. They’ve probably racked up huge amounts of debt trying be ‘in’ and are now probably trying to pay that debt down.

Neiman has repeatedly e-mailed me in the past four years. I have no idea how I got on their mailing list. My credit score must be flagged or something. I have ignored all of the e-mail blasts as I cannot afford to shop in their stores and refuse to go into debt to them to do it. I’ve seen some nice shoes but, I just can’t do it.

Jayne Keedy
Guest
Jayne Keedy
11 years 10 months ago
N-M has been losing its exclusivity for decades. Even in its couture salon departments, its merchandise is readily available elsewhere. And N-M already has its Neiman-Marcus Last Call stores which could easily be equated to Nordstrom’s Rack stores. N-M has a less obvious problem that is affecting its bottom line and its public face. It is slashing the credit limits of long-standing credit card holders (some of whom have had N-M and Bergdorf credit cards for decades) and not offering help to credit card holders having a difficult time unless they agree to close their accounts. Our company provides mystery shoppers to a variety of companies and we often ask our shoppers to provide their personal experiences with retailers for whom we do not provide mystery shopping programs. If N-M intends to keep their position in the marketplace, the first thing they need to concentrate on is keeping long-standing customers from going away. Their newly instituted policies concerning their credit card holders is a sure-fire way to alienate a loyal customer base. N-M has always… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
11 years 10 months ago

I think the current environment requires an approach similar to what NM is doing. Their value proposition has historically been built around luxury and fashion, but things have changed.

Value–intrinsic value–has now become part of the value proposition, across all sectors and price points, and high-end retailers and products are not immune. Conspicuous consumption is out, conspicuous value is in.

This means assortments for high-end retailers have to be re-skewed toward more moderately priced products, and if they’re more modestly styled, all the better. It’s all part of the new normal, and it’s not likely that we’ll revert back to the old normal anytime soon.

Mike Osorio
Guest
Mike Osorio
11 years 10 months ago
I find this development disheartening. I have always admired Tansky’s firm resolve to remain a true luxury retailer and never succumbing to the lure of lowering their standards due to short term economic difficulties–no matter how severe. In fact it was Tansky who belittled former CEO Terry Lundgren’s “much better” strategy in the early 90s when he tried to add moderately-priced product, with disastrous results. The customer for this product can find it in any other department or specialty store, and in Tansky’s words, the true Neiman Marcus customer is not interested in buying lower-priced merchandise. Within each luxury brand’s assortment, there is the opportunity to lower the average price points through careful product selection and increasing the mix of accessories, etc. It is a monumental mistake to risk the brand of Neiman Marcus by adding moderate product. I fear the real reason for this isn’t Tansky changing his tune–but rather the private equity owners forcing his hand in order to deliver short term results. Private equity buyers seldom hold onto their purchases for more… Read more »
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