The Neiman Marcus Plan For The Recession

June 11, 2009

For the Neiman Marcus Group, there’s no shortcut out of the recession.

“We don’t believe it will end until sometime in 2010,” Neiman’s president and chief executive officer Burt Tansky said Wednesday, after the company reported a net loss of $3.1 million and a comparable revenue decline of 25.1 percent for the quarter ended May 2.

“It will come slowly — not a breakout as seen in the past,” Tansky said of the rebound. “The customer will be more specific and cautious. We are assuming no change in the economic environment at least through the fall season.”

The Dallas-based Neiman’s, once thought impervious to downturns, has been reeling as much as any retailer under the weight of the recession. It’s been criticized by some for not responding sufficiently to the new consumer psychology after enjoying a long run of unabashed spending by the affluent. However, for the first time, Tansky and his team on Wednesday projected a proactive stance and detailed a recovery plan, citing:

• Salary and staff cuts at stores and headquarters, including centralizing marketing and fashion office functions to further reduce payroll and create a consistent and focused voice to consumers. Previously, there were separate marketing teams at Neiman’s, Bergdorf Goodman and NM Direct. Overall, NMG is operating with 16 percent fewer associates than a year ago.

• Reducing inventories, with receipts down 25 percent for fall, although they are not expected to be aligned to demand for several seasons, as Neiman’s works to flow through fashion products faster than basics.

• Overall, reducing expenses by $125 million on an annual basis.

• Creating new types of special events to lure customers. They’re often smaller and more intimate, and involve charities and gift card opportunities.

• Negotiating with developers to possibly postpone store openings, but not this September’s opening in The Shops at the Bravern in Bellevue, Wash., a suburb of Seattle. The store will mark Neiman’s debut in the Pacific Northwest. “We are scrutinizing all proposed projects with a heightened degree before we commit capital,” Tansky said. Stores are planned for Walnut Creek, Calif., and Sarasota, Fla., in fall 2011; San Jose, Calif., in 2012; Princeton, N. J., in 2013, and Oyster Bay, N.Y., where there is no opening date, as the mall there has yet to be built.

• Trimming store hours at certain locations to better schedule associates for peak traffic hours and away from down times.

Also on Neiman’s austerity agenda — bringing prices down via a shift in the merchandising mix toward more midtier pricing, within collections currently carried, without trading down.

“Let me assure you, we are not trading down,” Tansky stated. “We are simply rebalancing our assortments to offer our customers more opportunities, more options within a designer collection or a classification. I am pleased to say that most [designers] were very receptive to our plans. We are confident that this process will be a very collaborative effort, though it’s not happening overnight.” Some initial changes will be evident this fall, but the shift will be much more noticeable for spring 2010.

It’s a strategy that was previously disclosed, but not fully explained until now. “We are making changes to our merchandising strategy to strengthen our position in the midprice ranges without compromising quality,” Tansky said, adding the average price point had risen significantly, and that for several years customers responded “robustly” rather than questioning price. “It is no longer the case that price will be detached from intrinsic value.”

Tansky later assured WWD that the pricing shift doesn’t entail a retreat from couture to bolster a lower range like contemporary or bridge. He also said it was difficult to characterize midtier pricing because what is midtier for one designer or brand might be much different for another. “It’s different for every product in the company,” he said. “It’s vendor by vendor, class by class, category by category.”

Saks Fifth Avenue, Neiman’s primary competitor, is also working with designers to provide offerings at lower prices, and experiencing similar double-digit declines this season.

At Neiman’s, the weakness started being felt over a year ago and became pronounced last fall. It is being felt across Neiman’s specialty retail and direct-to-consumer businesses, and across all its geographic areas and merchandise categories. Neiman’s $3.1 million loss in the third quarter ended May 2 compared with a profit of $55.4 million a year earlier. Sales fell 24 percent to $810.1 million from $1.06 billion, and the declines were pretty much the same rate at Bergdorf’s and Neiman’s stores. Operating earnings for the specialty stores fell 58.6 percent in the quarter to $62.6 million from $151.3 million, while those in the direct marketing category declined 27.1 percent to $20.4 million from $28 million a year ago.

For the 39 weeks, the company posted total revenues of $2.88 billion compared with $3.57 billion the year before, with comparable sales decreasing 20.8 percent. There was an operating loss of $460.8 million, compared with operating earnings of $472.6 million.

Meanwhile, there have been concerns over whether, with such big declines, the luxury chain can in future pay off the debt stemming from its $5.1 billion acquisition by Texas Pacific Group and Warburg Pincus in 2005, which took the company private. However Stacie Shirley, treasurer and vice president of finance, commented, “Year-to-date cash position remains strong. We are comfortable with our current liquidity position.”

She said the company is negotiating with banks to replace its existing revolver, and noted there’s no major principal payment until 2013 of $1.62 billion. Total long-term debt is $2.96 billion and there are annual interest obligations of $240 million. The company ended the quarter with $229.4 million in cash, compared with $206.1 million in the year-ago period.

“We have taken aggressive steps to reduce expenses over the past several months,” Tansky said. “Our team has done an excellent job of decreasing their spend. We are undergoing a comprehensive process that we believe has been thoughtful and significant.” Of the $125 million in expense reductions expected this year, $75 million have already been realized.

Tansky said there are no “rash decisions” with inventory changes, and that the strategy is still based on full-price selling — though for the short term, he acknowledged the company would be more promotional than historically, but not nearly as much as last fall.

The outlook isn’t rosy: “We are expecting current trends to continue and expect to see our inventories continue to adjust down over the next several quarters,” the executive said.

Despite Neiman’s depressed numbers, the chain remains among America’s most productive retail formats, at $511 a square foot in sales.

On the brighter side, margins should be higher in Neiman’s fourth quarter than last year, and as far as store closings, “We have no intention of making any changes at the 40 stores. They are all doing just fine, relatively speaking,” said Tansky. He also said Cusp, the nascent five-unit contemporary division, is also “going well considering” and that company is pleased with the business, though no new shops are planned.

He also squashed speculation, spurred by the centralization of the marketing and fashion functions, that the buying could be centralized as well. “We are not making any changes in the merchandising group,” Tansky said.

He sees hope with fresh looks and trends for fall, but nonetheless is keeping his fingers crossed. “New fall goods are just starting to come in. It’s just too early to make predictions,” said Tansky. “We won’t really know until we get through Labor Day and into September what the consumer reaction will be.”

For further information, visit: http://www.wwd.com/business-news/neiman-marcus-reports-loss-2163904?module=today#/article/business-news/neiman-marcus-reports-loss-2163904?page=1

Renovating Wal-Mart But Keeping Customer Loyalty

June 9, 2009

The bad times have been good for Wal-Mart Stores, and on Friday, the retailer’s new chief executive said he expected sales to continue to be strong, even after the economy rebounds.

“Our customers will stay with us when this economy turns around and they have more discretionary money to spend,” Michael T. Duke, the president and chief executive of Wal-Mart, told attendees at his first shareholder meeting since taking the helm this year. “We are building long-term loyalty to Wal-Mart.”

Like some other retailing executives, Mr. Duke says he thinks the recession has prompted a fundamental change in consumer behavior — a “new normal” in which people are concerned about saving money.

If true, that bodes well for Wal-Mart, which has built its reputation on low prices.

Wal-Mart’s profit was flat for the three months that ended April 30 — $3.02 billion, or 77 cents a share, compared with the same $3.02 billion, or 76 cents a share, a year ago. Still, its sales at stores open at least a year have outperformed competitors, including its primary rival, Target. During the shareholder meeting, which began promptly at 7 a.m., the actor Ben Stiller, the meeting’s host, quipped, “I hear they’re still sleeping at Target.”

Separately, Wal-Mart announced that it would start a new $15 billion program to repurchase shares. The news sent shares of Wal-Mart up 20 cents, to $51.07.

Media tours of Wal-Mart and Sam’s Club stores on Thursday offered some details about how the retailer planned to hold onto its new customers.

Executives said a new store design and remodeling plan would make Wal-Mart stores more pleasant. They also plan to expand thriving departments, like food and electronics.

The most popular items that families buy — groceries, health and beauty goods, pet products and baby products — will be located on the same side of the store, so customers do not have to trek from one end to another. Shelves will no longer be stacked so high, so stores will feel airier and easier to navigate.

There will be more signs pointing out the low prices of items, wider aisles without freestanding product displays, and, in general, fewer brands so consumers are not overwhelmed by 25 different kinds of toothpaste.

The electronics department — a hit with consumers who want brand names at low prices — will be expanded and will offer more hands-on products so consumers can test technology like portable electronics and Blu-ray players. Also, electronics departments will be located on the back wall of stores so consumers see a wall of sleek TVs when they enter.

The food and produce area, which has helped increase sales in this economy, will also be expanded. Signs that say “fresh” will be near store entrances, along with the take-out food, deli and bakery areas so consumers can dash in and out if they want to. That could cut down on browsing and impulse purchases. But executives said the changes were a response to consumer research.

In a question and answer session after Friday’s shareholder meeting, Eduardo Castro-Wright, Wal-Mart’s vice chairman, said the retailer would retain its new customers by doing what it had been doing the last few years: making its stores friendlier and cleaner, and speeding up the check-out process.

Wal-Mart’s annual shareholder gatherings are spectacles: part vaudeville show, part revival meeting. Smokey Robinson, Miley Cyrus, and this year’s American Idol winner, Kris Allen, performed. The basketball player Michael Jordan spoke. On Wednesday night, Wal-Mart invited store employees from all over the world to concerts by the rock group Foreigner and by Chris Daughtry, a former American Idol contestant.

Amid the hubbub, the retailer said it was beginning an initiative to help promote women at Wal-Mart. Mr. Duke said he was “still not satisfied with our progress to date.”

Wal-Mart also used the meeting to highlight its entry into Chile with D&S, a major grocery chain. Additionally, executives said the retailer would continue using its size to achieve supply-chain efficiencies, recruit top talent and continue down the path toward environmental sustainability, a legacy of its former chief executive, H. Lee Scott Jr.

“Yes, sustainability was personal for Lee,” Mr. Duke said during the question-and-answer session, “but it’s personal for me.”

Wal-Mart surpassed $400 billion in sales for the first time during its last fiscal year. But Mr. Duke’s overriding message on Friday was typical of Wal-Mart’s approach to its business.

“This is not a time to take comfort in our success,” he said. “This is Wal-Mart’s time to look to the future and seize the opportunity to truly lead around the world.”

For further information, visit: http://www.nytimes.com/2009/06/06/business/economy/06walmart.html

Aeropostale Heading Towards Success During the Recession

June 9, 2009

While most members of the U.S. retail industry are focused on cutbacks and survival tactics, Aeropostale continues to defy the recession and post numbers that would be impressive even in the best of economic conditions. The teen apparel chain has been killing its competition, topping the same store sales charts, and rocking Wall Street investors with a 40% rise in stock prices since the recession officially began.

U.S. retailers aren’t the only ones asking how Aeropostale is doing it, and stock analysts aren’t the only ones wondering how long the winning streak will last.

Aeropostale’s CEO, Julian Geiger actually seems very eager to tell people how they do what they do. In an interview with Business Week way back in 2004, Geiger very openly revealed the company’s marketing tactics, which are relentless and somewhat unconventional for an apparel retailer. Specifically, Geiger revealed that the Aeropostale marketing team employs these strategies:

* Following trends instead of trying to be a trendsetter

* Looking at what’s on the backs of their target market, instead of what’s on the sales floors of their competitors

* Observing teens in theme parks, concerts, and airports instead of observing them on the streets of international fashion cities

* Allowing teens to view potential new styles, and stocking stores with the teens’ favorites

* Using 50 locations as test stores where new merchandise and merchandising is tried out prior to system-wide rollout

* Remembering that most teens are fashion followers, not fashion leaders

Either Aeropostale’s competitors didn’t read that interview or, if they did, they weren’t savvy enough to realize the brilliance hidden within the simplicity of the approach.

While cutting edge manufacturing, distribution, and operations management are supporting its success, there’s one timeless retailing principle that’s really the driving force behind the Aeropostale chain. That is, the customers get what they want.

This simple tenet is quite antithetical to the more popular marketing approach of working really hard to convince customers to want what you have, which is a strategy, by the way, that isn’t working very well for any retailer right now. In contrast, Aeropostale has discovered that when you ask teenagers what they want to spend their money on, and then you make those things available, the kids actually bring their money to your store. How radical!

Aeropostale works hard to engage consumers in other ways besides marketing research. This year the store bonded with its youthful customer base at an emotional level with its “Teens for Jeans” charity project. More than 200,000 pairs of “gently used” jeans were gathered and donated by teen customers to be redistributed to their homeless peers. The project was green, it was activist, it was compassionate, and it was the perfect hip program for the store to insert itself into. With its active participation in the project, Aeropostale gave a human dimension to its brand that advertising dollars and publicity hype could never manufacture.

The Aeropostale we see today is miles away from it where it began, as a small department within the Macy’s chain in the 1980’s. After spinning off and floundering, Aeropostale was rescued from obscurity by Geiger, who defined the brand, built the chain’s identity, and gave Aeropostale a unique selling proposition that is clearly uniquely appealing to its niche. It would be great if its birth parent chain could reinvent itself in a similar way.

In June Aeropostale is bucking the recession again, by opening up a new concept store, P.S. Aeropostale, which is really just a younger version of itself. The new stores are aimed at the 7-12 year olds who have been shadowing their older siblings through the Aeropostale stores, but leaving empty-handed. While moms have worked hard to ignore the whines of their younger children, Aeropostale has worked hard to listen to them, and create a whole store based on their pleadings. If the chain continues to employ its own successful strategies with these spinoff concept stores, there will undoubtedly be a second reason for investors to be happy, and for retailers to shake their heads in wonder.

All of this because customers are getting what customers want? It’s hard to believe that it could really be that simple. Perhaps somewhere along the way retailing got more complicated than it ever really needed to be.

The End Of May Results For Retail

June 5, 2009

Macy’s Inc. reported a 9.1 percent drop in same-store sales in May, as consumers continued to put off unnecessary spending.

The Cincinnati-based department store chain said sales at stores open at least a year are in line with management expectations. Total sales declined to $1.7 billion from $1.9 billion a year ago, or 9.5 percent.

For the year, Macy’s said its same-store sales declined by 9.1 percent, with total sales down 9.5 percent, to $6.9 billion from $7.7 billion.

Macy’s, like most retailers, has been struggling to attract parsimonious shoppers while not giving away the store through deep discounts, a strategy that erodes profit margins. But recent reports regarding rising manufacturing activity and home sales gave a lift to retail stocks earlier in the week, based on hopes that consumers may be encouraged to go out and splurge on a few summer items.

Total May retail sales were projected to drop by 3.6 percent, according to Retail Metrics, a Massachusetts firm that tracks store sales. This compares with a 2.7 percent decline in April. Department stores were forecast to post the weakest results, down 8.5 percent, with “discretionary spending still in hiding,” according to its monthly report.

The retailer has projected full-year profits of 40 cents to 55 cents per share, excluding restructuring costs stemming from its companywide reorganization, part of its My Macy’s merchandising program. That said, Macy’s hedged that it will beat this guidance if the economy improves in the second half of the year. Annual sales, it has said, are expected to decline by 6 percent to 8 percent, with spring expected to be weaker than the fall, in part due to stronger performances last spring.

Macy’s operates roughly 845 department stores under the names Macy’s and Bloomingdale’s.

Other retailers reporting recent sales figures:

• Target Corp. said its May same-store sales fell 6.1 percent from the same month a year ago. Total sales, at $4.56 billion, were down 2.3 percent from May 2008. Target has consistently posted monthly same-store sales declines during the recession, as consumers have pulled back their spending on clothes, home furnishings and some of the other discretionary items that had boosted the company’s sales during better times.

• Kohl’s Corp. said its comparable store sales in May decreased by 0.4 percent and total sales increased 4.1 percent, better than management had expected. The Menomonee Falls, Wis.-based retailer (NYSE: KSS) said Thursday sales for the four-week month ending May 31 were $1.26 billion, compared with $1.21 billion in the same period of 2008. Year-to-date sales also are ahead of 2008 at $4.9 billion, compared with $4.8 billion in 2008, an increase of 1.3 percent. Comparable store sales year-to-date decreased 3.2 percent, Kohl’s said.

• Gap Inc. said that its comparable-store sales were down 6 percent year over year in May, and net sales were down 5 percent to $1.03 billion. Gap North American and Banana Republic were hit the hardest in comparable-store sales — going down 11 percent and 14 percent, respectively. International sales were down 7 percent. Old Navy was the one Gap brand that saw an increase — It was up 3 percent.

For further information, visit: http://www.bizjournals.com/louisville/stories/2009/06/01/daily36.html

Post-Recession: Luxury Clothing Sustainability

June 3, 2009

A smaller, stronger core of luxury — and fashion-forward — firms is likely to emerge from the recession, according to a new survey.

New York-based Abrams Research polled more than 100 luxury-industry experts — executives, designers, buyers, editors and bloggers, among others — and 36.8 percent said the luxury sector would evolve to a more streamlined but strengthened model, with 34.9 percent expressing confidence that aspirational consumers would be a key component.

“This has everything to do with how these brands are facing the challenge of marketing themselves through new channels, like social media,” said Dan Abrams, chief executive officer of Abrams Research, who also is chief legal analyst for NBC and MSNBC.

Respondents were asked to name retail and fashion brands that were best-positioned to thrive and were given the option of selecting as many as three brands.

Topshop ranked first, with 34.1 percent of those surveyed naming it as a brand that will flourish. It was followed by Chanel, 28 percent; Louis Vuitton, 21.9 percent; Forever 21, H&M and Marc Jacobs, all tied at 13.4 percent; Hermès, with 7.3 percent, and J. Crew, 6.1 percent. Other brands that got traction included Cartier, Yves Saint Laurent, Gucci, Rolex, Tiffany & Co., Diane von Furstenberg and Prada.

“There is a huge contrast between these top brands, and you see it within the top two names: It’s Topshop versus Chanel,” Abrams said. “These brands represent two business strategies that can survive the recession. You either stick with discount prices and strategically market your products, or you stay true to your loyal fan base and don’t compromise the quality of your goods, so as not to dilute your brand.”

Shopping brands online that respondents felt were best-positioned to thrive were: Net-a-porter; 33.7 percent; Gilt Groupe, 15.7 percent; neimanmarcus.com, 8.9 percent; barneys.com, 6.7 percent, and Eluxury.com, 6.7 percent. “The broad lesson here is that the luxury-brand community knows they have to make themselves relevant online,” Abrams said. “So how far do they go without losing that sense of exclusivity?”

The survey asked how the Internet will best be used by luxury brands for marketing and advertising. The results: 34 percent ranked “innovative advertising” as the most effective tool, including mini Web movies on brands’ sites — such as those that have been featured on gucci.com and tods.com. Partnerships with influential fashion-luxury bloggers followed with 27.4 percent and use of social networks such as Twitter and Facebook, 13.2 percent. And 13.2 percent of respondents also said distribution beyond high-end sites, such as neimanmarcus.com, to lower price-point sites, like Zappos.com, would be an effective tool for luxury brands.

“As marketing through social media moves to the forefront for many businesses, I think a lot of luxury brands are now saying, ‘How do we get ourselves on Twitter? Do we really want to be there? Does that cheapen us?’ ” Abrams said. “Brands need to figure out a way to still be exclusive within the social media platforms, because it’s an enormous marketing opportunity.” For further information, visit: http://www.wwd.com/business-news/retail-stocks-extend-gains-rise-15-percent-tuesday-2155407#/article/retail-news/after-the-recession-the-look-of-luxury-2155374?navSection=business-news

Surveyed: The Least Affected By the Downturn

May 28, 2009

A shopper profile report issued by mall media operator EYE and Arbitron, which identified three shopper segments — carefree, power and value — found that the 18- to 24-year-old carefree shopper has been least affected by the downturn.

According to the study, just half of the segment has jobs but is supplemented financially by parents. That additional support and a relative lack of obligations allow them to spend around $500 each month at EYE malls, which encompass over 3,500 panels in 250 shopping malls across the country.

Power shoppers skew female, tend to be between the ages of 25 and 44, and are more likely to have children in the household. The power mom shops for the entire family, visits more stores per mall visit and spends over $9,000 per year in EYE malls.

The value shopper specifically looks for sales while shopping and is twice as likely to buy items on sale as other shoppers. Even with these sale strategies, the value shopper spends nearly 25% more than the average shopper as they are triggered to spend more than they intended when they see good value in an offering.

Almost three-quarters of value shoppers are female and are likely to be between the ages of 25 and 44.

“The Adult Shopper Profile is a key measure of consumer spending and engagement with advertising,” said Alton Adams, CMO of Arbitron. “Advertisers can better target shoppers near the point of purchase by including these profiles in their place-based advertising decisions.” For further information, visit: http://www.chainstoreage.com/story.aspx?id=105469&menuid=443