The Neiman Marcus building houses the retailer's corporate headquarters as well as its flagship store. (Image via Dfwcre8tive)

Business

Is Neiman Marcus’ Real Problem Not Keeping Up With the Times?

It's something to consider, says a former CEO of the troubled luxury retailer, which announced it may be looking to sell itself.

Sure, Neiman Marcus president and CEO Karen Katz has had one hand tied behind her back, given the billions of dollars in debt the luxury retailer has strained under since a 2013 leveraged buyout. And, yes, consumer habits are changing fast, with some shopping less frequently and e-commerce putting the hammer down on traditional brick-and-mortar stores.

But Katz’s Dallas-based, high-end department store—which announced Tuesday that it’s exploring a number of rescue strategies, including selling the company—isn’t entirely blameless for its deteriorating situation. Some think Neiman’s has strayed too far from the customer-centric philosophy of the founding family’s Stanley Marcus, who retired in 1975. “Mr. Stanley” always insisted that the store executives get out from behind their desks and onto the selling floor, the better to learn from the shoppers.

“Neiman Marcus used to be great at that,” retailing expert Allan Questrom told business analyst David Johnson on Johnson’s CEO Spotlight show on KRLD 1080 Tuesday. “You have to ask, ‘What’s relevant to my customer today?’ It takes a lot of time and effort to do that, and the problem is [people spending] too much time in their office, not on the floor looking at the customer.”

Today’s millennial customer does not relate to Neiman Marcus or the brands it carries, Questrom went on—and that’s a big problem. In contrast to the new Forty Five Ten retail store in downtown Dallas—he called Brian Bolke’s store “of the moment”—the nearby Neiman’s flagship store is “very dated. I don’t feel like there’s any excitement going on,” said Questrom, who served as Neiman’s CEO from 1988 to 1990. In contrast to a renovated Neiman’s he just visited in Los Angeles, “if you go to the Neiman Marcus at NorthPark, it looks just like it did when I was there!” he said. “It’s got no energy at all.”

Alan Shor, president and co-chairman of The Retail Connection brokerage in Dallas, says that while department stores across the board are struggling with a shift in consumer buying habits, Neiman Marcus has “the added burden of what appears to be a tremendous debt load. Part of your cash flow has to be used to satisfy the debt obligations. That adds significantly to the cost of doing business. It makes it hard to grow or maintain your business.”

Questrom agreed about the financial strain, telling Johnson that any potential buyer—Canada’s Hudson’s Bay seemed a likely contender—would benefit from the seller having to “take a markdown on the debt, obviously, because they paid too much money for it to begin with. They bought it at the peak of a hot upscale market,” Questrom said, before sales began to soften for many high-fashion retailers. Neiman Marcus is currently owned by Ares Management LP, an investment firm based in Los Angeles, and the Canada Pension Plan Investment Board.

“It’s a great company,” Questrom concluded about Neiman Marcus. “But they have a huge debt that they have to figure out how to get rid of, so that they can invest in the store.” Besides pumping more money back into the company, he advised eliminating some of its (more than 40) stores that “aren’t in the right location”—or at least shrinking their footprint. And, of course: “Putting a lot of attention on getting [Neiman’s] people out into the stores and their communities, and finding out what relates to this new millennial customer.”

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