Source: Neiman Marcus
Did Neiman Marcus Make a Mistake Laying Off Its Service Ambassadors?
Leticia Miranda, a Bloomberg Opinion columnist, doesn’t think Neiman Marcus Group (NMG) is being entirely forthcoming about why sales fell nine percent in the most recent quarter and earnings before interest, taxes, depreciation and amortization plummeted 25 percent.
The retailer, which operates luxury department stores under its namesake and Bergdorf Goodman banners, said the results went against a very strong quarter a year ago and reflected higher promotional activity driven by excess inventory levels.
Ms. Miranda said that NMG failed to include its decision to reduce its workforce, including service ambassadors, by five percent as a factor in its down quarter.
“These were staff who greeted customers at store entrances and helped process returned merchandise, handled customer issues and recommended services to clients like alterations, jewelry cleaning, or spa treatments. That left the commission-based sales team responsible for facilitating returns while also attending to shoppers browsing the store’s luxury goods,” wrote Ms. Miranda.
In response to a query from Bloomberg, Neiman Marcus said the “changes better enable our store associates to deepen their relationships with our luxury customers.”
Mr. van Raemdonck earlier this year said that NMG was focusing its energy on the top two percent of its customers, who represent 40 percent of its business. This cohort spends an average of $27,000 a year with the retailer.
“We are no longer about selling everywhere on the price spectrum, from clearance to high-end jewelry,” Mr. van Raemdonck said at the time.
Unnamed sales reps were reported to be “horrified” at NMG’s approach. One told the New York Post that a customer who spends about $5,000 a year was “personally offended” at Mr. van Raemdonck’s remarks. The sales rep also said the strategy could turn off shoppers entering the luxury goods segment for the first time.
NMG continues to stand behind its top two percent strategy.
“We continue to see real strength with our most valuable customers,” Mr. van Raemdonck told WWD.
“We are very surgical in our actions and are distorting our efforts and spend toward customers that are already engaged in us. We are surgically looking at expenses. We remain really agile. We have lived in this uncertain environment for quite awhile and every month we double down on what’s really working,” he said.
Discussion Questions
DISCUSSION QUESTIONS: Do you think Neiman Marcus’ decision to lay off service ambassadors negatively impacted its sales? Does NMG’s increased promotional activity run counter to its top two percent focus?
Poll
Loading …BrainTrust
When service standards and expectations are lowered, expect dis satisfaction of customers, especially your best clients. During medic ore times, stepping up service is critical to client satisfaction. Loss of service is like a hole in the boat. Tread very carefully.
As the Julia Roberts character said in Pretty Woman: “Big mistake. Big mistake!” The top two percent are missing the Service Ambassadors more than Neiman Marcus thinks. Not to mention the other 98 percent who already feel like they don’t count. It’s white glove service without the people who fit the gloves. I’m not sure what part of the luxury brand experience is being misunderstood here. Perhaps all of it.
In my experience, you use the 80/20 rule, where the 20% make up 80% of the sales. Instead of cutting the Ambassadors, they should be adding more. The economy is certainly a factor, but many of their best customers are insulated from this turmoil. Concentrating on only the top 2% is alienating those aspiring customers who spend less but are moving on up.
Nice Ken….. doesn’t focusing on 40% of the business mean you’re dismissing 60% of your business? That math will not work!
Very doubtful. The top 2% have a strong relationship with particular sales people, and many don’t even come to the store. I would be willing to be a lot of money they didn’t even notice them when they started and don’t notice them being gone.
I don’t have enough data to know whether that specific decision was a good one or not more tactically, but having been a senior executive in a past life at Neiman Marcus, I can tell you there is zero chance that particular decision was material in explaining the weaks results. Saks reported a very similar pattern. The overwhelming driver is the contraction in spending by aspirational luxury customers both due to the shift to more spending on “essential” products and towards services.
I hesitate to offer an opinion based on minimal data, but from a distance, I feel like the Service Ambassadors were a meaningful point of differentiation for NMG. They seemed to add real value to the store experience for every shopper, in every spend category and they shielded commissioned salespeople from lower value/administrative tasks. I am all about highly targeted segment marketing, and applaud the overall strategy, but wonder if tweaking the Service Ambassador model to ensure more programmatic “hand-offs” of high-value clients to their salesperson at certain points in the interaction would have been a better first step before eliminating the program entirely?
Whether or not the Service Ambassadors were accomplishing certain goals, the more alarming message is the belief that existing high spend customers are all that NMG needs to be successful. Have never known a successful retail business which dismissed the need to acquire and welcome new customers or appreciate those who were occasional purchasers.
Neiman Marcus’ decision to lay off its service ambassadors can’t be blamed for its poor results. Combined with the ill-advised two percent strategy, it does reinforce the elitist vibe. “Surgical” actions, “distorting” efforts and spend toward the two percent…Neimans isn’t just giving up on wider appeal, it’s actively shunning a swath of potential new customers.
As some say, the best customer is the one you already have. Yet, this feels shortsighted towards attracting new customers in the future and long-term growth.
This is the company that emerged from bankruptcy just 2 years ago. As the company issued pink slips, the CEO showed off his palace of a home. The underlying issue here is there is not as much special about the brand as there once was. And these results, when luxury is up 20% for most of the brands they carry in their own stores, is alarming. Saying they only want to serve the top 2% yet having to use promotions is like talking out both sides of your mouth. You’re a department store, and not that special – the treatment of commissioned associates having to do more mundane returns will lead to higher turnover.
Too soon to tell if this was a mistake, but I just keep coming back to their strict focus on the top two percent. I can’t imagine that they haven’t crunched the numbers on this, and I’m all for “picking a lane,” but this is such a narrow lane it seems beyond risky.
Surely this staff reduction and realignment was tested, trialed, and challenged for its’ effect on sales and profits before the complete roll out…??? Right…??? Or does the top 2 percent sneeze and NM catches pneumonia…??? Talking about “real strength” in the midst of negatives comps is just gibberish. If they are already “surgical” and “agile”…what’s left? One Day Sales…???
The decision to lay off service ambassadors will do real damage to the brand positioning and the value prop to the highest value customers. I am not sure the impact would have been felt in revenue that quickly, though. I am a little confused about how laying off service ambassadors ties in with a high-value customer strategy. Shouldn’t you do both?
Excess promotional activity is the likely culprit in the short term, I surmise…
Keeping the top two percent engaged is important, as long as you are also identifying the next likely cohort(s) and courting them to buy-up into Tier 1.
This is really a long term – and IMHO “penny wise, pound foolish” – issue; so whether/not it’s affected current results isn’t the point; it’s going forward.
Without something to distinguish it, what is NM but just another hi-priced store?? A formerly famous catalogue isn’t going to cut it.
Yes. This is a mistake. NM is looking to drive transaction size, frequency, & customer lifetime value through long term relationships. Removing service & support to add friction into the shopping process impedes their own goals. I understand that costs matter, but it doesn’t follow their strategy of creating relationships over time with the most high value customers.
it negatively impacted sales, but I would guess that it compounded with other variables to plummet 25%.
The Neiman’s customer expects service, and the Neiman’s commissioned sales rep would rather spend his/her time selling not doing exchanges or any other activity that does not lead to a sales transaction.
Sounds like an accounting move that didn’t account for the customer or the sales employees, and it makes me wonder what other subtleties changed that led to the sales drop.
Without reviewing Neiman’s financials closely, it’s hard to blame one specific area over another for the decline in sales. However, in a time when consumers are prioritizing service, convenience and value well above brand loyalty, it’s not ideal to be cutting back on resources that help positively shape the customer experience. However, if their new target customer does not use this resource, cutting it makes financial sense – although it may hurt the retailer’s reputation for customer service.
The company’s decision to increase promotions, however, is absolutely counterintuitive with its focus on its biggest spenders. Discounts are most effective in capturing new and less-loyal customers, not people who already spend tens of thousands of dollars with the brand already.