Why is Neiman Marcus shuttering its Last Call off-price business?

Discussion
Photo: Getty Images/Andrei Stanescu
Mar 12, 2020
George Anderson

One might argue that no retailer does off-price better than TJX Cos. (Marshalls, T.J. Maxx), but Nordstrom (Rack) and Macy’s (Backstage) have also done well with the format. The same, however, can’t be said for Neiman Marcus, which has announced plans to close most of its 22 Last Call stores by October.

The luxury department store operator announced its plans for Last Call along with a reorganization that will see it combine its offline and online staff and put two distribution centers in Texas up for sale.

Proceeds from the sale of the two warehouses will go to purchasing equipment to help increase the speed of online deliveries, which make up about 30 percent of Marcus’s sales, according to a Dallas Morning News report.

Neiman Marcus is presenting the moves as a way to cut costs and free up capital that can be devoted to its core business.

“This is not a pullback,” Neiman Marcus CEO Geoffroy van Raemdonck told The Wall Street Journal. “This is a move forward. We’ve got a strategy that is working. We want to put our effort behind the full-price, luxury customer.”

Mr. van Raemdonck said that 20 percent of Neiman Marcus’s customers spend an average of $50,000 a year with the retailer.

Neiman Marcus has labored under billions of dollars in debt in recent years. The retailer restructured $5 billion in debt to push payments out to 2023, reports The Dallas Morning News, but has payments on most of the $137.3 million in existing bonds due this year and next.

The decision to cut loose its Last Call business could seem incongruous in light of the minority stake Neiman Marcus took in Fashionphile, a reseller of luxury handbags, jewelry and other accessories, last year.

The deal called for Neiman Marcus to set up Fashionphile Studio drop-off spots at up to seven stores. Sellers drop items off, receive an immediate quote and are paid with credits that can be redeemed at the department store.

In an interview with Fortune last April, Mr. van Raemdonck said, “There is a customer who enters the luxury market through re-commerce who one day will graduate into buying products of the season. We see [it as] a recruitment vehicle of the younger customers.”

Apparently, these same younger customers weren’t making purchases from Last Call.

DISCUSSION QUESTIONS: Do you agree with the decision by Neiman Marcus to close its Last Call business? What is your assessment of the direction the retailer is taking under Geoffroy van Raemdonck?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"With all that is going on with department stores – and the world – I think it’s smart for Neiman Marcus to focus on its core business. And its loyal full price customers."
"Neiman’s core customer is a true luxury customer and, it appears, not someone who is looking for bargains at Last Call stores."
"Here again we have a retailer with a debt problem. Could it be the result of a private equity LBO? In this case, absolutely."

Join the Discussion!

17 Comments on "Why is Neiman Marcus shuttering its Last Call off-price business?"


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Mark Ryski
BrainTrust

Re-focusing on core luxury and eliminating the Last Call outlets may prove to be a winning strategy for Neiman Marcus, however the elimination of outlets will be painful from a sales standpoint in the short to mid-term. Shoppers love bargains and the hunt which Last Call provided. Neiman Marcus has been through a lot of changes over the years, and this is yet another. Clearly continuing down the path it’s been on is not producing the desired outcomes – focusing on a singular, high-value luxury proposition may help.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
2 months 17 days ago

The demographics for Last Call, Fashionphile and Neiman Marcus are all vastly different. That there may be a gradual shift from one to another or a crossover is wishful thinking. To that extent, it makes sense for Neiman to close Last Call and focus on its core demographic.

Dick Seesel
BrainTrust

Too many players in an overcrowded space where it isn’t really simple to execute. If this was a distraction to Neiman Marcus (rather than a true growth vehicle like Rack), then this was the right move.

Paula Rosenblum
BrainTrust

“This is not a pullback.” Of course it is. The company does a ton of business online in its core business, has had some tough times, and wants to focus solely on its core business. This is not a terrible idea at all.

Clearly Mr. van Raemdonck has seen financial assessments that show it just isn’t worth it.

It seems that some retailers end up losing focus when they open new formats with different products. There’s real overhead there — designing, buying, store operations, distribution centers, etc.

I don’t think it’s a bad decision.

Bob Phibbs
BrainTrust

I think it is smart to focus on full-price customers instead too. I agree the opportunity is in full-price offerings but everything is off the table with the virus fears and oil war.

Rob Gallo
BrainTrust

I saw a big disconnect between Neiman Marcus and Last Call that the other retailers didn’t have. Nordstrom is upscale. Neiman Marcus is luxury. I think the customer expected to see luxury items that were discounted for whatever reason (previous season, overruns, minor defects, returned items). What you often found at Last Call online or in stores, was non-luxury brands with a few luxury needles in the haystack. The online luxury assortment was often higher-priced than what you could find at other retailers like Rue La La or even the brand’s own website (i.e. Jimmy Choo). I think this business became just too expensive to run and too far away from the core Neiman Marcus value proposition. I think the clarity will help.

Neil Saunders
BrainTrust

Last Call has always been a bit incongruous to the core Neiman Marcus business and its underlying philosophy. The demographic targeting of the chain is also a bit odd as it doesn’t attract all that many mass-market consumers in the same way that a TJX or even Nordstrom Rack does. This limits volumes and reduces the contribution Last Call makes to the group. For all these reasons, and more, the decision to close the division is sensible. Neiman Marcus needs to win in luxury and doesn’t need distractions.

Gene Detroyer
BrainTrust

Here again we have a retailer with a debt problem. Could it be the result of a private equity LBO? In this case, absolutely.

Now to the topic of Last Call. Of course, the name implies that it carries those products that didn’t sell the first time around at Neiman Marcus. But we all know that the retailers are still trying to fool the consumer by simply selling cheap product in off-price outlets. I believe that today the savvy shopper knows that and if they are not looking for quality but price, they are going to “off-price.”

My colleagues above made several strong points regarding brand and customers. I agree with all. When I teach strategy, I teach that expansion must be like a game of dominoes. There must be a connection to the current business in some way. In this case Last Call was a move off the domino board.

Jeff Sward
BrainTrust

This move sounds like a hard-nosed focus on core competencies and survival. The severely heavy debt load must be serviced. If Last Call was not break even to slightly profitable, it had to go. Simple. I doubt they would be shuttering a profitable business. Like lots of other players, Neiman Marcus is finding that what sounds like a logical strategic initiative is not so easy to execute profitably. And Neiman Marcus doesn’t have the wiggle room to both invest in e-commerce and service their debt. So this sounds like the pragmatic, logical move to make. The e-commerce opportunity will still be there when they are healthy enough to consider it again.

Steve Dennis
BrainTrust

Having personally worked on this growth strategy when I was the head of strategy for the Neiman Marcus Group I am disappointed (on many levels) that this decision had to be made. Given Neiman’s botched the execution — and given the precarious position they find themselves in right now (particularly in light of their debt situation), it is likely the right call.

Yet, there is no reason the company could not have developed this into a significant and profitable part of their portfolio. And it was/is sorely needed as the full-price luxury business is very mature.

But they went about it in the wrong way, failing to learn from the lessons of Nordstrom Rack (and others). They had too narrow a customer and assortment focus and did not put most of their stores where they needed to be, ceding “white space” to other competitors.

This is not to say that the off-price/faux clearance segment is not over-crowded, nor that issues of brand dilution do not need to be managed carefully.

Brandon Rael
BrainTrust

Referring to shuttering the Last Call off-price business as a “pullback” may not have been the best communication approach by CEO Geoffroy van Raemdonck. What it is essentially is a refocus on the full-price, luxury aspects of the business, the driving of an internal transformation, and a business strategy shift at Neiman Marcus to drive profitability.

The off-price segment is extremely congested with the competition, and this is a wise business decision to maintain Neiman Marcus’ focus on their core customers, luxury options and cross channel experiences. It all comes down to what the Neiman Marcus brand does extremely well, and that is addressing the needs and expectations of their full price luxury-minded customers, who are extremely loyal to the company.

Ricardo Belmar
BrainTrust

Neiman’s core customer is a true luxury customer and, it appears, not someone who is looking for bargains at Last Call stores. Perhaps originally Neiman Marcus expected the Last Call stores would be a way to recruit younger customers to the brand who would one day “graduate” to the full-line store hinted at in the article. I suspect their management team has realized that the resale market may be a better, more cost-effective approach to new customer acquisition on a path to luxury in the future. If e-commerce is where their growth is, and resale is something they want to invest in, the Last Call stores may have been too much of a drag on their finances if they were not profitable. It’s unlikely they were driving Last Call customers to e-commerce on full-price luxury products.

Georganne Bender
BrainTrust

The Fashionphile Studio customer is different from an off-price shopper. One is a gateway into upscale fashions, the other just wants a deal. With all that is going on with department stores – and the world – I think it’s smart for Neiman Marcus to focus on its core business. And its loyal full price customers.

Ryan Mathews
BrainTrust

Neiman Marcus’ decision make perfect sense to me. Why try to compete in a market that’s rapidly becoming overcrowded (discounting) when your brand equity is tied to luxury, social elitism, and — frankly — stiff pricing? There are no guaranteed paths to success, but losing focus and continuing to expend capital you don’t have on off-brand projects is a guaranteed path to failure.

Patricia Vekich Waldron
Staff

Last Call used to be an event – – a big bi-annual sale that drove traffic, optimized inventory and attracted core and aspirational shoppers. When I lived in Dallas it was on everyone’s calendar!

Neiman Marcus would be well served to put their energy into experiences like this.

Doug Garnett
BrainTrust

This seems to make sense — especially since outlet style stores are no longer merely a place to offload overstock. At this point in time, does Nieman Marcus really need to have to source and create product to fill the small Last Call channel? I can’t see it.

Craig Sundstrom
Guest

This seems like a reprise of the Burlington discussion (“just because something works for someone else…”) and as with Burlington, the question is “why didn’t it work?”

I think in Neiman’s case the answer is simply that they didn’t have a big enough store base for this to gain momentum. The comment about the 20% spending — eye-opening, but not surprising (for those familiar with luxury retail) — emphasizes why I’ve never put much faith in these format tweaks … there’s only so much you can do when your basic business model collapses.

wpDiscuz
Braintrust
"With all that is going on with department stores – and the world – I think it’s smart for Neiman Marcus to focus on its core business. And its loyal full price customers."
"Neiman’s core customer is a true luxury customer and, it appears, not someone who is looking for bargains at Last Call stores."
"Here again we have a retailer with a debt problem. Could it be the result of a private equity LBO? In this case, absolutely."

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