Bucking the industry trend, Neiman Marcus says it’s closing most of its Last Call off-price discount … [+]
ASSOCIATED PRESS
At a time when off-price retail is hotter than ever, luxury retailer Neiman Marcus is cooling on it. It’s shutting most of its Last Call off-price discount stores to double down on its full-priced luxury business.
The Dallas-based company, which also owns Bergdorf Goodman, said Wednesday it will shut the majority of its 22 Last Call stores, cutting about 500 jobs, with only a few locations staying open to sell excess inventory from Neiman Marcus. The retailer also will cut another 250 non-selling jobs across all of its stores among a series of restructuring moves. Some employees will have the opportunity to apply for other positions within the company, Neiman Marcus said.
“What’s right for TJX or anyone else isn’t right for us,” Neiman Marcus Group CEO Geoffroy van Raemdonck said in an interview, referring to off-price leader T.J. Maxx parent TJX. “The gap between the luxury we sell and the off-price customer is very big. Transition from a Last Call customer to a Neiman Marcus customer is a long road. We decided to target the luxury customers and be the destination.”
Why? Its full-priced customers at both its namesake chain and Bergdorf have helped the company generate seven quarters of comparable-sales gains out of the past nine and allowed the retailer to widen gross margin by giving away fewer promotions, Raemdonck said.
For instance, 40% of the sales at the 43 regular-priced Neiman Marcus stores come from customers who spend more than $10,000 a year. At the two Bergdorf Goodman locations right across from each other on New York’s Fifth Avenue, 100 sales employees alone sell more than $3 million a year each, he said.
“These customers are very loyal to us and truly luxury customers,” he told me, adding 46% of them are millennials and Gen X, both of whom spend just as much as other generations. “Neiman Marcus and Bergdorf shoppers are really the high-end customers. We should put our effort on that customer and invest there. We want to scale in what we are best at: luxury.”
He declined to give a breakdown on Last Call’s performance, but said the move means the company, with about $5 billion in total sales, no longer needs to invest in buying some inventory just for Last Call, a common strategy employed by off-price retailers including TJX as well as by Neiman Marcus rival Nordstrom’s Nordstrom Rack and Saks Off 5th.
“It wasn’t Last Call wasn’t successful,” he said. “Its customers don’t have the same upside potential. The profitable and sustainable growth is going to come from Neiman Marcus and Bergdorf. We believe the change we make is going to bring more profit.”
Making money is crucial for Neiman Marcus as the company has reported net losses and is saddled with some $4.5 billion in long-term debt, it reported in its most recent quarterly report. The general department store space Neiman Marcus sits in also has struggled and has seen the bankruptcy of Barneys New York and declining sales at Macy’s.
Raemdonck said the company has “ample liquidity” with its debt not due for another four years at the earliest. It’s also looking closely at expenses to cut in areas that don’t make a solid business impact.
And while rival Nordstrom also recently opened its first New York flagship, Raemdonck said Neiman Marcus’s one-year-old Manhattan “retail theater” store is performing better than the company has expected. He also said one in five transactions at that store is related to alteration, beauty, restaurant and other services, with those customers spending more than other shoppers who don’t use any service.
“We are going to invest in beyond the transactions,” he said. “If you offer customers a service, they become more frequent and more loyal.”
As to the coronavirus outbreak that originated in China and has spread to other countries including Italy, France and the U.S. in an escalating global healthcare crisis, he said the company has received its spring inventory with enough goods for the next two months. While some retailers have felt the negative impact of fewer foreign tourists to cities such as New York, he said Bergdorf stores in New York primarily serve domestic customers.
But he isn’t blind to the threat to demand especially against declines in the stock market, key to the luxury spending psyche, and an increase in coronavirus cases in the U.S.
“We do recognize there’s a crisis,” he said. “There’ll be an impact. It’s difficult to assess what it would be. We are planning for reduction in demand or supply.”
Related on Forbes: Coronavirus may be hurting business worldwide, but it’s driving shoppers to Costco
Related on Forbes: Abercrombie & Fitch shows signs of a comeback
Related on Forbes: Department stores’ biggest threat isn’t Amazon—it’s TJX