Neiman Marcus results show the latest sign of department store life

Discussion
Photo: Neiman Marcus
Jun 07, 2018
George Anderson

The demise of department stores has been predicted for years. Companies including Bon-Ton, J.C. Penney, Lord & Taylor and Sears continue to feed this narrative, but they are far from the full story. Others — namely Kohl’s, Macy’s and Neiman Marcus — have been trending upward of late with signs that they have plans in place to stay relevant to consumers beyond the next earnings report.

Neiman Marcus’ latest quarterly earnings report marked the third consecutive quarter that the luxury department store owner has seen its same-store sales increase. 

“Our strategy is working, so we will continue to be laser-focused on areas that set us apart from competitors — innovation that enhances the customer experience, a strong high-performance culture and new partnerships with both emerging and industry-leading luxury brands,” said Geoffroy van Raemdonck, CEO of Neiman Marcus, in a statement. “Our customers trust us to be a curator of trends today and tomorrow, and we are delivering for them.”

One of the pillars of Neiman Marcus’ strategy was for the company to stop trying to be something it is not, namely an off-price retailer. In the fourth quarter last year, Neiman Marcus closed 11 of its Last Call off-price concept stores. It plans to shutter three more next month.

The retailer is also looking to make itself more relevant to younger consumers. Earlier this week, the company announced on Twitter the phased rollout of its Idea Factory initiative, which will include “an array of concepts, products and experiences — from piercing and personalizing of fashion products, to candle-making, epicure and custom-mixing beauty creams.”

Kohl’s and Macy’s, which have also reported stronger sales in recent quarters, are taking their own paths to growth.

Kohl’s has succeeded with its push into health and the athleisure category. It has partnered with Amazon.com on pilots to test returns to the e-tail giant in Kohl’s stores. It has also opened Amazon shops in a small number of stores. The chain has right-sized its stores in recent years and is working with other retailers, such as Aldi, to carve out adjacent space as a means to reduce costs and drive added traffic.

Macy’s, unlike Neiman Marcus, has found success with its Backstage off-price concept, which it has been adding to its full-price stores. The chain’s recent acquisition of the STORY experiential retail concept has been seen by many as a means for the company to bring some excitement back to the shopping experience at Macy’s.

DISCUSSION QUESTIONS: What do you take from the recent sales success of Kohl’s, Macy’s and Neiman Marcus? Will the actions taken by these companies help recast the image of department stores in the minds of American consumers?

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"I think we have to wait until they have cycled through an entire year to see if sales increases are sustainable or not."
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19 Comments on "Neiman Marcus results show the latest sign of department store life"


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Dick Seesel
BrainTrust

The total department store segment may not be growing, but winners and losers are becoming clear. The winners (including Kohl’s, Macy’s and N-M) are taking share from the losers, but it is probably too early to declare victory vs. faster-growing segments like off-price. What seems to be working for the winners right now are some differentiation strategies that their customers are drawn to — and a robust approach to omnichannel. It’s innovative, not the “same old, same old” that doomed a store like Bon-Ton.

Lyle Bunn (Ph.D. Hon)
Guest

If there is a single theme to the resting of department stores, it is that shopping has to be fun and satisfying. When stores help to answer the question “what does this product mean to improving my life?” conversion becomes a natural outcome. By putting products into a lifestyle context, providing information about value and making the browsing experience worthy of the time, department stores can be a preferred option over speciality stores. The store-within-store options make the visit even more interesting.

Bob Phibbs
BrainTrust

The point is they are all trying to zero in on who they are and what their shoppers value. It makes it much harder to write the “retail apocalypse” story when so many are meeting with success. But let’s also acknowledge people are genuinely feeling more in the mood to shop. Now is the time when they feel that way to try a number of initiatives — not the least of which is to get back to trained associates — so when the inevitable shoe drops whether that is in a year or several, they can focus on what they learned.

Paula Rosenblum
BrainTrust

I think we have to wait until they have cycled through an entire year to see if sales increases are sustainable or not. When you’re up against soft quarters/years as these companies are, you really should wait a full cycle before declaring victory.

Neil Saunders
BrainTrust

It is good to see Neiman Marcus making progress and I applaud the steps the group has taken to engineer a turnaround. However, without wishing to pour cold water on the latest update, the group did still make a $19.9 million loss. Driving this is the huge debt pile of almost $4.5 billion which means punishing interest payments every quarter will continue to dilute gains in operating income.

As for department stores in general, yes some are getting their act together better than before. However, there are huge structural issues in the sector and there is more pain to come before a full and proper recovery manifests itself.

Art Suriano
BrainTrust

The secret of success is to be different. Too many retailers have lost their identity and lack reasons for customers to shop them and to remain loyal. Neiman Marcus has found its niche and is staying with it. Kohl’s has a strong identity and continues to be innovative. The jury is still out on Macy’s because to me too much emphasis is on price. If through the acquisition of Story they can begin to build a meaningful identity that makes them stand out from their competitors then yes, they too will continue to survive.

What retailers have to realize today is the store can still do well, but it must be under today’s terms which is give the customer a rewarding and pleasurable customer experience. One reason why so many department stores have failed is that they have forgotten who they were and more importantly they forgot their customer.

Bob Phibbs
BrainTrust

Excellent point Art Suriano!

Joanna Rutter
Guest
1 year 7 months ago

The second question is curious to me — perhaps because I don’t perceive “recasting the image of the department store” as retail’s priority whatsoever. These brands are doing well because they have placed their customers’ experience above preserving their footprint or preserving legacy for legacy’s sake. That has very little to do with the format and everything to do with their reputation as authoritative curators.

Sunny Kumar
BrainTrust

“Experience” has become the go-to panacea for how brands that are being affected by disruptive, economic and shifting consumer shopping behaviors can fix their businesses. And yes, providing a more interesting and pleasing experience will help, but this needs to be much more than a superficial shift.
Even today in the UK a depart store, House of Fraser, has announced they are closing more than half of their nationwide stores; lack of investment over time coming home to roost.

Department stores must again live to what they truly stand for, even if this needs to be re-considered and then change at a DNA level of how they do business, including why. Then they must invest in this belief and ensure what they do is actually innovative and gives consumers a real, repeatable reason to shop with them.

Camille P. Schuster, PhD.
BrainTrust

It makes sense for Neman Marcus to move away from low price because low price is not part of their image. Innovation, performance, and distinctive products are exactly what is consistent with their image. Trying to be something you are not because it is popular does not spell success. Experiments need to be consistent with the brand image.

Rich Kizer
BrainTrust

Today we have more intelligent customers (thanks to the volume of information and opportunities of the the internet) who know what they want, and how they want it. One department store chain does not necessarily share another’s customer base. True to their target audience, the stores in this article have focused on differentiation strategies that are important to their base. It is good to see that department stores are again seeing their unique market position. No one can truly imitate Neiman Marcus or Kohl’s, and on and on. And that kind of effort just may be the needed rejuvenation that our department store landscape needs.

Andrew Blatherwick
BrainTrust
It is great to see some department stores starting to get their act together and perform well. All too often recently we have heard of the demise of the department store. Only today in the UK, House of Fraser announced the closure of more than half its locations stating that life was really difficult for department stores in this online world. Clearly that is not the case across the board, it is a lack of dynamism and innovation that is causing certain department stores to decline while Neiman Marcus and others, like John Lewis in the UK, buck that trend. Department stores are large spaces and need to stay relevant to the modern consumer to thrive. There are a lot of exciting new retail developments and brands that are looking for high quality space. These two are synergistic and the department stores can help themselves and the new startups by linking up and creating exciting spaces to shop. For a department store to go down the discount route is surely to misunderstand your consumer, they… Read more »
Gene Detroyer
BrainTrust

There will continue to be an ebb and flow in the department store life cycle trend. But there is no way they the life cycle will change, and department stores are now on the end. Some like NM will continue, because of their upscale offering. But, online will continue to be the black cloud hanging over them and consumers will continue to gravitate to online with most of their needs.

Ryan Mathews
BrainTrust

It’s proof of the wisdom of the oldest, truest lesson of retail: Do what you do well and don’t try to be all things to all people. If you can’t make a clear statement of identity to the market, you are going to fail. For Neiman Marcus, for example, the same stores that embody ultra-prestige cannot embrace discount pricing — it’s just corporate cognitive dissonance, and the market doesn’t forgive it.

Now as to the second question, I’m not sure what saves department stores as a channel, as opposed to individual retailers. We may see the channel essentially fade away over time and successful companies like Neiman Marcus and others evolve into what we might now think of as speciality retailing.

Craig Sundstrom
Guest

“Our strategy is working…” until it doesn’t. Even by the standards of short-termism these frequent “look at so-and-so’s last quarter” posts seem mis-directed. Of course in a given category there are likely to be stronger and weaker performers, particularly over short periods of time, but it says little about long-term prospects. Department stores have been declining for the past 30-80 years (depending on who you ask) and recent trends have only accelerated the downward direction … the real question is whether or not “rock bottom” will be reached while there are still some left.

Now of course, NM isn’t a typical department store: luxury is doing well, and by its nature is IMHO less affected by online than many segments. The likely demise of L&T, or its merger into Saks, will make for (even) fewer, tho stronger, competitors. As for Macy’s and Kohl’s, they will continue to reap the benefit of struggling JCP and, especially, Sears … but bigger slices of a shrinking pie is no winning strategy.

Shelley E. Kohan
BrainTrust

Neiman Marcus, Macy’s and Kohl’s have approached the changing mindset of the consumer in different, but successful ways that resonate with their own target markets. Neiman Marcus made of the most courageous decision a few years ago by providing iPhones to the sales staff which opened a gateway of direct communications with their core customer. Neiman’s invested in an innovation lab headed by the highly talented Scott Emmons and they remain very focused on developing initiatives positively enhancing the store experience. Macy’s EVP of Business Development, Marc Mastronardi, just unleashed 130,000 employees with micro-influencer status to widen the social media reach. According to Mastronardi, Macy’s has a balance of passion for possibilities and drive for execution. Great ideas but with credibility to get it done. Kohl’s focuses clearly on their deliverables to the target market including convenience and price. Recent partnerships have helped drive traffic to the stores but also aid in making the shopping trip more convenient (adding Amazon and Aldi).

Steve Montgomery
BrainTrust

I agree with Paula about waiting to see if these sales are sustainable. Something to remember is, as there are fewer department stores, those shoppers who like shopping in them have fewer choices. The three mentioned in the article serve three different consumers and are some of the few left for each segment.

Stephen Kraus
BrainTrust

Neiman Marcus has been successful in tackling one of the most pervasive challenges facing luxury brands today – how to evolve so that they are relevant to today’s consumers, yet also remaining true to the elements of their heritage that made them successful in the first place.

They have embraced their upscale nature, and avoided the “muddle in the middle” positioning that has left many department stores struggling. And unlike many luxury brands, they have successfully embraced digital media. Our data shows that traffic to NeimanMarcus.com is up 10-15% vs. last year (in contrast, traffic to their Last Call discount site is much smaller and largely stable). They reported that their online sales are up 17%. Department stores obviously remain a challenging category, but Neiman Marcus illustrates how differentiation and branding remain more crucial than ever, particularly in challenging categories.

Min-Jee Hwang
Guest

Struggling department stores should look to Khol’s, Macy’s and Neiman Marcus for inspiration. In this rapidly changing and tech savvy marketplace, retailers have to be flexible, current with trends, and open to new business model methods to appeal to the shoppers of today. Department stores like Neiman Marcus have discovered the importance of uniqueness, specialization, and customer engagement in the retail industry. These qualities are vital to modern brick-and-mortar success. It’s about what you are offering that your competitor can’t. If more department stores take on these interactive business models, they will be looked upon more fondly by American consumers while potentially saving stores and malls from closing as well.

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Braintrust
"I think we have to wait until they have cycled through an entire year to see if sales increases are sustainable or not."
"It makes it much harder to write the “retail apocalypse” story when so many are meeting with success."
"Let’s stop talking about the death of these once great retailers and celebrate what some are doing. "

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