Neiman Marcus on Cusp of New Opportunity

Discussion
Jun 20, 2007

By Tom Ryan

Neiman Marcus, which has long thrived by going after the Ladies Who Lunch crowd, is experimenting with a new retail concept, Cusp, targeting younger hipsters.

Neiman’s has been challenged attracting shoppers in their 20s and 30s in its own stores without alienating its core customers – primarily baby boomers, 45- to 64-years old, with household incomes in excess of $200,000. Since last summer, three Cusp boutiques have opened in Los Angeles, Washington, D.C., and McLean, VA.

Cusp is “focused on a customer with a contemporary point of view who likes to mix and match her wardrobe from various designers,” Burton Tansky, chief executive of Neiman Marcus Group Inc., told the Wall Street Journal. This stands in contrast to traditional Neiman Marcus shoppers who tend to dress nearly head-to-toe in a particular designer’s goods.

Instead of the chandeliers, marble floors and grand artwork Neiman Marcus stores are known for, Cusp stores are smaller (7,000 to 8,000 versus 130,000 for a typical Neiman Marcus store) and much more informal. For instance, the Los Angeles boutique has a natural theme with garments displayed on twig fences, jewelry in wooden bowls, and necklaces placed atop dried lentils.

The product mix is trendier. Roughly 70 percent of the goods now at Cusp can also be found at Neiman Marcus but the overlap eventually will fall to about 50 percent and Cusp will have its own separate buying team.

Pricing is lower. Tops can be had for under $100, such as Ed Hardy t-shirts for up to $84, or Tokidoki tops for $44. Among its highest priced items is a $750 Tory Burch sequin tank dress for summer and an $805 See by Chloe dress for fall. In contrast, merchandise at Neiman Marcus stores can be priced in the thousands of dollars, such as a $3,290 Akris zip jacket for fall.

Karen Katz, president and CEO of Cusp, said Neiman Marcus is learning the habits and preferences of 20-something shoppers through Cusp. For instance, Cusp shoppers pick up items on Thursday, Friday or Saturday to wear that night, unlike Neiman’s average 50-year-old shopper, who tends to buy in advance for each season.

The WSJ noted that Cusp is targeting a strong part of the apparel market. According to NPD Group, sales of the “contemporary” fashions rose 10 percent last year, a pace nearly double that of women’s wear overall.

But Cusp also faces competition from other major retailers launching shops selling contemporary looks in informal settings. These include Pacific Sunwear of California (One Thousand Steps), J. Crew Group (Madewell), Polo Ralph Lauren Corp (Rugby), Tiffany & Co. (Iridesse), as well as Barneys Co-op.

Neiman
Marcus also hasn’t done well with retail offshoots. Its Galleries of Neiman
Marcus jewelry and home décor experiment was closed, and it has also sold stakes
in Kate Spade and Laura Mercier since going private. Further back, it sold
Contempo Casual to Wet Seal in 2001 after constant struggles.

Finally, Cusp could cannibalize Neiman Marcus’s own sales to younger shoppers. A fourth Cusp boutique opening in August outside Chicago will be 100 yards away from a Neiman Marcus at Northbrook Court mall.

“Cannibalization is not of concern to us,” Ms. Katz told the Journal. “Cusp is a free-standing store with a different target market, a unique merchandise mix, and distinctive architectural and visual elements.”

Discussion Questions: Do you think Neiman Marcus is making a smart move in targeting a younger, contemporary audience or should it stay focused on its niche of older fashionistas? What do you think will be Neiman’s primary challenges in reaching this contemporary consumer?

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11 Comments on "Neiman Marcus on Cusp of New Opportunity"


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Tom Ryan
Guest
15 years 10 days ago

I’m surprised everyone is so positive about Neiman’s move to tackle the contemporary market. Neiman’s already has a checkered past at trying new things (Contempo Casuals, Kate Spade, Laura Mercier, Galleries of Neiman Marcus – nothing has worked!).

And this moving away from their core competency?

They do “Old/Classic” well; not “Young/Trendy.” In fact, who does “young/trendy” well? Saks hasn’t, and now is going after Neiman’s audience. Barneys has struggled for years. (How long have they tryed to position themselves for an IPO?) I really think Neiman’s business model is a lot safer just going after older rich folks and it’s a healthy market. After all, the rich keep getting richer!

Craig Sundstrom
Guest
15 years 10 days ago

Though I don’t see anything “wrong” with this – and what choice do they have given the constraints of their ultra-upscale model (?) – I’m not sure how important this will be to their overall revenue picture. The stores are much smaller than their NM stores, and they sell lower priced merchandise. And, unfortunately, if they try to compensate for this by flooding the market – a la GAP – it may become a distraction from their core business.

Mark Hunter
Guest
Mark Hunter
15 years 10 days ago

This is a smart move by NM since they’re not trying to dilute the equity of their name and what it stands for. By creating a new retail outlet, they’ll be able to attract a new audience without risking their current customer base.

The question is if they have the intellectual horsepower to pull it off. Retail is defined by management and rarely have we seen an executive team that has been able to pull off the ability to run distinct retail formats for any length of time. Even Target with its talent base was not able to sustain both Target stores and their Dayton Hudson stores. My guess is if NM is successful with the format, look for them to spin it off or sell the new format within 10 years.

Li McClelland
Guest
Li McClelland
15 years 10 days ago

If they handle it right, in their “regular” customers NM will have a built-in channel to raise awareness of Cusp and to market gift cards for Cusp merchandise. Moms and grandmas love to spoil the younger fashion set and the NM loyalists have the wherewithal to do it in grand style. NM’s history of quality and cachet will work in their favor with Cusp fashion.

Amy Covington
Guest
Amy Covington
15 years 10 days ago
I think this is a smart move; however they could work this demographic (of which I am a part) into their main stores. Eventually their target customer will be replaced by my generation of shoppers, and we shop differently as they’ve noted. I like the Neiman experience but not the stuffy sales staff and the fact that they only accept Neiman’s own credit card, Amex or cash. It’s their way of weeding out the “wrong” shoppers from their stores so as not to get under the skin of their target audience (at least this is my take on it). I shop at NeimanMarcus.com all the time and Last Call, and they accept all forms of payment, so it’s evident what they are doing. I have no desire to possess a retailer’s credit card or an Amex card. So if you don’t have the bills to pay in cash, you are alienated from shopping in the store. I hope they have a more liberal policy at the Cusp stores. I live near Chicago, so I’m looking… Read more »
James Tenser
Guest
15 years 10 days ago

Neiman-Marcus clearly recognizes that its traditional clientele is gradually aging out of the market. The whole department store concept – whether high-end or mainstream – is under some pressure anyway due to the ongoing generational roll and the plethora of retail alternatives. So diversifying into smaller apparel boutiques that appeal to younger, hipper shoppers is a natural step. Cannibalization is of little concern here – Cusp goes after a shopper that Neiman’s can’t attract anyway.

Laura Davis-Taylor
Guest
Laura Davis-Taylor
15 years 10 days ago

Smart move. They’re launching into this new idea with eyes wide open on the challenges that appealing to this niche effectively brings. Done right, they’re going to expand their brand footprint and learn some valuable insights about this shopper that can extend into the legacy store. I also applaud that they’re doing it as a standalone rather then trying to confuse the shoppers within the traditional store with a radical departure.

Dick Seesel
Guest
15 years 10 days ago

This feels like a smart move. It keeps the targeted age and income demographic spending within the N-M “family” especially if Neimans (and Saks) are deliberately pitching to older customers. It allows growth at a lower development and operating cost than opening more mall anchor stores…and most mall specialists are not addressing this customer well. It also provides a vehicle to test and uncover new design and brand talents that might work their way into full-line NM stores as a result.

Michael Tesler
Guest
Michael Tesler
15 years 10 days ago

They are smart merchants and they are keeping this concept separate but also close enough to learn from it. It will not cannibalize (it is far too small and has separate locations and target customers) and it also is far removed from Rugby and Madewell which are much more casual, preppy daytime concepts. Fashion stores move ahead by experimenting and learning rather than becoming locked in to single visions…what NM is doing is necessary for them to maintain a leadership position.

Gregory Belkin
Guest
Gregory Belkin
15 years 10 days ago

I agree with Mike and the other comments, above. This is a smart move to keep close enough to Neiman Marcus to learn the rules of the road, yet differentiate enough to attract a new audience. The article is very correct in that Neiman Marcus has en established identity towards the baby boomers. Now, they are starting an entirely new entity with a yet-to-be-determined reputation. This is a big opportunity!

Janet Lee Schultheis
Guest
Janet Lee Schultheis
14 years 11 months ago

I’ve been a Neiman Marcus customer for years and this is a great concept for Neiman to explore. They will do well because the baby boomers’ kids want something
new and trendy. They are after the Tory Burch shoes,
Nanette Lepore, Trina Turk and the new Milly that’s just
getting started. We have a home near Seaside Florida and
have seen the new Milly 2007 collection. I’m a 60’s
gal and this is a reincarnation of the Twiggy style. Neiman carries the Milly line, but I’m sure the new CUSP concept will have it in their stores and will carry a broader fashion line of it… I wish Neiman Good Luck and I’m sure it will be a “Winner” in the fashion world!!!!

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