Photo: Neiman Marcus
Is Neiman Marcus right to focus on the top two percent of its customers?
In February 2023, Neiman Marcus’s CEO made a statement about the type of customer that the luxury department store operator wants to attract. Some sales staff believe he is putting out the wrong vibe, which might end up hurting the retailer.
Geoffroy van Raemdonck, CEO of Neiman Marcus, said in a Fortune interview earlier in the month that the retailer plans to focus on the two percent of its customers that make up 40 percent of its sales, those customers being its wealthiest, the New York Post reported.
“We are no longer about selling everywhere on the price spectrum, from clearance to high-end jewelry,” Mr. van Raemdonck said in the interview. He characterized it as preferable to have regular shoppers spending $27,000 per year vs. single-visit transactions with no guaranteed customer return.
In the wake of the controversial statements, top sales reps at the retailer were “horrified,” according to the Post. An anonymous sales rep told the Post about a customer who spends around $5,000 each year being “personally offended” at Mr. van Raemdonck’s comments. “What about the future millionaires?” the sales rep asked, alluding to the role of the aspirational luxury shopper in Neiman Marcus’s customer base.
The stated focus on the ultra-wealthy luxury customer seems to be in conflict with Neiman Marcus’s recent strategic moves.
For instance, in September 2021, Neiman Marcus partnered with streetwear publication Hypebeast to create a shoppable virtual showroom featuring exclusive sneakers from 11 luxury footwear brands, according to a press release. The styles were available for purchase on neimanmarcus.com and at 37 select Neiman Marcus brick-and-mortar locations.
Research shows that the earning power of the luxury streetwear customer differs significantly from the high-end luxury customer.
Two surveys covering a total of 40,000 customers and 700 industry workers recently conducted by strategy& (a subsidiary of PwC) in conjunction with Hypebeast found that 70 percent of streetwear customers make $40,000 a year or less. However, those same customers were willing to spend on big-ticket purchases in the space. Fifty-six percent said they spent an average of $100 to $300 on a single purchase, and 32 percent of Japanese respondents in particular spent $500 or more on a single purchase.
- Neiman Marcus CEO blasted by employees over ‘snobbish’ pivot to wealthy clients – New York Post
- Neiman Marcus’s CEO is done wooing the less than wealthy as luxury heads for a slowdown: ‘We are no longer about selling everywhere on the price spectrum’ – Fortune (subscription required)
- Streetwear: The new exclusivity – strategy&
- HYPEBEAST and Neiman Marcus Join Forces for Virtual Sneaker Showroom – Hypebeast
Discussion Questions
DISCUSSION QUESTIONS: What do you see as the value of customers outside of the top two percent for luxury retailers like Neiman Marcus? Will Geoffroy van Raemdonck’s statements alienate customers as some Neiman Marcus salespeople are concerned it will?
Poll
Loading …BrainTrust
It’s perfectly reasonable for a CEO to define the market he/she believes they should focus on, but whether this is the right part of the market to focus on or not is up for debate. The concerns expressed by staff and customers are valid — narrowing the focus too much will certainly alienate some customers. But given this new positioning, that’s kind of the point. Neiman Marcus will need to proceed with caution on this move. Ultimately, the success or failure of this strategy will be reflected in their financial results, and this approach will likely cause things to look worse, not better in the short-term.
I’m not sure his comments were as well-worded as he might have liked (in hindsight) but setting a higher-end target market is not an unreasonable strategy.
I believe if you have done the analysis and research to reach this decision, then you go with it. I believe Neiman Marcus will need to have some latitude to make any adjustments necessary.
The reality of the department store business is actually that most retailers follow the 80/20 rule: 20 percent of the customers make up 80 percent of the sales. Neiman Marcus has always catered to their top net worth customers, and this is just a refinement of what has made them successful. Every marketer does segmentation, but behind the scenes. With the data available to retailers these days, there is no reason to hyper-focus on annual spending alone. The top 2 percent is not a static group.
Bad customer moments can alienate this top tier, so it is essential to laser focus your efforts to keep them happy. Remember Julia Roberts as Vivian in PRETTY WOMAN, returning to confront the “saleswoman” who had kicked her out of the uppity shop the day before? “Big mistake! Big! HUGE!”
Sounds like the real growth opportunity lies in exploring the merchandising tweaks necessary to better address the next 4 percent to 8 percent of their customers. Still only 6 percent to 10 percent of their total. And yes, the comments sounded arrogant and snobbish. The point could have been made much more gracefully.
There are aspirational customers that one day may be in the top 2 percent. They should not be downplayed. Next year’s 2 percent have to come from somewhere. The children of today’s top 2 percent could easily become the top 2 percent of tomorrow. They should not be ignored. Is this too simple?
Neiman Marcus should be focused on where and how their future customers will spend, not just the wealthiest 2 percent. What happens when the 2 percent stop shopping and don’t exist anymore? The reality is that the 2 percent are aging and won’t live forever. Households have evolved and they can’t count on the next generation who live in this 2 percent to shop Neiman Marcus as tastes are changing. New money and Gen Z have spending power. The focus should be on strategies to capture new market share and finding reasons why more customers aren’t shopping Neiman Marcus.
“Elite” and “aspirational” have different connotations.
From a marketing perspective, so do “exclusive” and “restricted.” One will give you room to grow your customer base, and one will turn people off. Trying to make a brand exclusive to only a specific customer profile is not a very good growth strategy, in my opinion.
Retailers need to have a persona to focus on in designing their assortments. The top 2 percent is a perfectly good starting point. Aspirational 2 percenters may end up as buyers as well, and at sale time — well who knows who will be in the store buying the discounts. But having a firm vision of who to sell to is a great focus for assortment planning.
I imagine van Raemdonck was speaking to his team rather than the customer. There is a message that should resonate with every level of Neiman Marcus. Employees, not just the associates on the floor, should ask themselves if their actions reflect service to what a wealthy customer should expect. He did not say to ignore everyone else.
Decades ago, I went naively went into Bonwit Teller. I was treated in a very arrogant way. They assessed correctly that I could not afford anything in the store. Today I can afford almost everything they sell. I have never been back and likely won’t be.
They don’t sell anything any more as they went out of business. Oh … I see what you did there!
While it’s reasonable to have a strategy that focuses on the customers with the largest lifetime value, you still need a strategy to grow the next best customers or you’re limiting your future growth. Mr Raemdonck’s words could have been better chosen so as not to alienate that next tier customer. After all, that’s where much of Neiman Marcus’s future growth will come from — those customers that are already spending with them, but might spend more if appropriately enticed. A successful growth strategy needs both types of customers!
Putting out a vibe is one subjective take, the reality of valuable customers aging out of the brand should be a wake-up call. Neiman Marcus has no doubt been aware of this problem for years (hence the brand alliances and other moves) yet Mr. van Raemdonck’s comments come off as regressive and elitist. Many of Neiman Marcus’s customers may never hear the statements, yet associates are all too aware. For commission-based salespeople, the message could be a real buzz kill.
Interesting strategy, and probably taken out of context, but if he’s serious about the top 2 percent — good luck with that. Especially in a dying business model (department stores). I can see top 20 percent or even 15 percent, but top 2 percent? And what do the “bottom 20 percent” think? “We’re not for you.”? I’ll reserve judgement until I hear more but boy, as it stands, see you later.
Typically we’d look at the top 10 percent to 15 percent of top spenders at a luxury brand. If they are focusing on the top 2 percent and see an annual spend break at $27,000, they’ve lost their top and need to focus on building it back to keep the aspirational customer coming back. Otherwise, they’ll be closer to Macy’s and not a Neiman Marcus anymore.
I think Neiman Marcus’s bigger problem is the 2% they’re focused on, in their business anyway, skew pretty old. I could be wrong … but just from my observation, they have a demographic time bomb on their hands. Like many others in their segment.
I can see how some associates and consumers might view Mr. van Raemdonck’s comments as snobbish and rude. Hopefully, this won’t trigger a shopper backlash at Neiman Marcus. Truth is, most companies run shopper segmentations and come away with targeting and treating the top 10 percent, 15 percent, 20 percent of shoppers a bit differently than the bottom 10 percent. This is simply the reality of smart marketing and how retailers can make the most of their analysis. If he wanted to stick to only the top 2 percent, then I’d tell him: “good luck, but don’t hold your breath.”
The hubris of this comment is shocking. Everyone wants the top 2 percent, and you get them not by announcing it but by customer service. This is the same guy who famously showed off his mansion while sending out pink slips. Imagine a Neiman Marcus salesperson who caters to those who just spend $10,000 a year. #tonedeaf
I know someone who used to work for a glamorous luxury brand, who confirmed that the brand’s core audience was about 3,000 people. Controversial as it sounds, Mr. van Raemdonck is probably correct to focus on that elite group. How many of us need a new Ralph Lauren Purple Label tuxedo or $4,000 dress?
Making sure you have the merchandise and services needed to satisfy your most valuable core customers is essential. Announcing to the world that 98 percent of your customers are not important is foolish.
I’m a little concerned that the first time customer, who could potentially be a 2 percenter, might not get the experience they deserve. To the point of the anonymous salesperson, a $5,000/year spend is good.
I shopped at a high-end men’s clothing retailer whose owner realized his store didn’t need to be in a mall to serve its customers. His store was a destination for most customers. I came in twice a year when there was a sale. I always bought a sport jacket or suit. He said, “If all my customers bought a suit or jacket every sale, I’d be a happy man.” He had many customers that would drop $25,000 or more on a visit. The point is he always made me feel appreciated, regardless of how much or little I spent.
If Neiman Marcus doesn’t want to appeal to the broader population, they don’t need to be in a mall. They don’t need to have clearance or big sales. That’s their choice. And regardless of how much someone spends, if they only buy one item a year, they should still be appreciated. (I’m sure they will be!)
Luxury brands and retailers are destinations that come with high customer expectations. Neiman Marcus has lost its luster and diluted its brand experience by not focusing on excellence. If the top customers can not be served properly, then no one is receiving a premium experience.
I’ve had many customers that spent more than $100,000 a year, $27,000 is a pretty reasonable entry point. Aspirational customers may not be able to afford the most expensive items, but they can still be valuable repeat customers and brand advocates. They may return for special occasions, clear out sale items, take advantage of loyalty programs to stabilize revenue, and be more likely to engage on social and write reviews.
I’d challenge top sales reps at the retailer being “horrified,” they are commission based and typically working their book and rarely have the bandwidth to build their book by developing a $5,000 customer into a $27,000 annual spend. By focusing on the top, technology can make the greatest impact scaling talent, shopping services and assortment plans down market to develop their client base over time.
Mr. van Raemdonck might be careful what he wishes for, as ridiculously wealthy patrons are highly difficult to satisfy, extremely fickle in their product choices, and not loyal. As many other panelists have observed, there is a risk of offending the merely affluent clientele who have many other options where to spend their disposable income.
I’m likely in the minority, but I do think this is the right strategy. There are too many retailers (Nordstrom, Saks, Macy’s, Bloomingdales, Von Maur…) firmly rooted in the large middle, but very little in the way of competition at the top. Rather than spending enormous resources going head-to-head with Nordstrom, why not hyper-focus on filling the white space between individual luxury boutiques and a more convenient one-stop department store experience. I would even go bigger by offering a high-end concierge service for an annual fee to consolidate not only product purchases, but help with services such as dry cleaning, repairs, style consultants, rentals for big events, etc.
I’m willing to bet it doesn’t have much of an impact on today’s customer — the full 100% think they are the 2 percent.
I thought “How in the He** did a simple, common sense statement in a magazine interview become “controversial”? Then I noticed the NY Post mention … that beacon of light — “Headless Body in Topless Bar” — of journalism (though to be fair, I believe the business coverage is better than the rest of the paper). Translation: much ado….
As far as the basic question: Mr. van R said focus, and that’s perfectly logical … it’s not like they’re asking for a 1040 to gain admission to the store. It might make sense to have (somewhat) lower price points in lines aimed at younger customers — the idea being that they will “grow into it” as they become older, and wealthier — but how much is a business decision. I think the only mistake here was TMI: it used to be “never give an amount and a time,” perhaps that should just be “never say anything specific.”
To focus on the two percent of its customers that make up 40 percent of its sales, must be a carefully curated strategy from retailer Neiman Marcus. Retail and online data can be utilized to create hyper focused customer segmentations, define the specific audiences that matter and surface unique experiences to each of those groups. What Neiman Marcus would be missing will be new millionaires with a taste for luxury and an engaged Generation Z. There is a rapid rise in the number of rich people in the world and approximately half of them come from the United States.
I’m in full support of the idea that a luxury brand should spend most of its messaging, product mix and marketing dollar toward the core customer base. But 2% gives you little to no room to attract the next profitable 15% along on the journey.
Retailers require more layers of customers, than say ultra-exclusive brand Rolls-Royce. If they are seeing too many single-visit transactions, then maybe that’s saying something about the experience, the customer not connecting, the mix of products, service — or all the above.
We should learn from history. For those older, you may recall that in 1983, Halston signed a $1 billion, six-year deal with JCPenney (and reported it himself, on live television), which was unheard of at the time. Halston’s vision was to “dress every woman in America,” no matter where they shopped; his line Halston III, available exclusively at JCPenney, allowed him to do just that. This move was met with disdain by the high-fashion world, and the tide began to turn on the then-golden Halston. Bergdorf Goodman, the high-end department store that had maintained a two decade-long creative partnership with Halston, immediately dropped his line upon hearing the news. Despite the widening wealth gap in this country, I support the CEO’s remarks.
The luxury retailer is aiming at centralizing their special services and offerings for loyal customers who also heavily spend. In my opinion, narrowing down the focus on the top 2% of customers does not conclude that others will simply be excluded from Neiman Marcus’s offerings.
A business’s aim should be to make profits. If a certain number of customers generate the most revenue for the business, then the retailers would be willing to go the “extra mile” to satisfy these customers. Therefore, focusing is definitely a good strategy to get more returns from existing customers.