Lower prices at Neiman’s?

DISCUSSION TOPIC

Neiman Marcus Capitulates on Price 6/15/09

TOPIC SUMMARY:

After reporting a 24 percent decline in third quarter sales, Neiman Marcus Group disclosed plans to offer more lower-priced goods and promotional marketing events. On a conference call last week, Burt Tansky, Neiman’s CEO, said that while customers hadn’t questioned the chain’s prices in the past, “we are sensing a shift in our customer’s mind-set.”

The new merchandising strategy, according to The Wall Street Journal, “will strengthen our position in mid-price” goods, the company said, and equates to a “rebalancing” of its mix to include some lower-priced goods among its designer collections.

However, Mr. Tansksy cautioned, “This is not something that will occur overnight,” and the larger impact won’t happen until Spring 2010. In the meantime, more promotional and other events are being planned to boost sales.

Mr. Tansksy also said he doesn’t see a turnaround occurring soon. “We believe that the recovery is tentative and any improvement will be gradual,” he said. As a result, it is pursuing a “conservative” merchandise-buying plan for the fall and will curtail capital spending by 25 percent in its next fiscal.

Neiman’s move follows several similar ones by other luxury purveyors to lower prices:

  • Barneys has been opening more of its “Co-op” discount stores while closing some of its regular boutiques;
  • Saks announced plans to open several of its “Off 5th” outlet stores while skewing pricing at its full-price stores more toward affordable merchandise;
  • Pottery Barn Kids, following in the footsteps of its parent Pottery Barn, will substantially increase the number of lower-priced products it offers starting this fall;
  • Longtime fashion designer Max Azria in early June reached an agreement to develop a Miley Cyrus/Max Azria collection for Wal-Mart Stores. Prices top out at $20 per item.

Tiffany is among the fewer and fewer high-end stores stating that it would not cut prices.  But the luxury jeweler is finding its customer looking for bargains as well, even to the point of haggling at counters.

“Everyone feels compelled to ask the question for fear of feeling foolish after the fact,” Tiffany chief executive Michael Kowalski said at the Reuters Global Luxury Summit in New York. “And yes, the questions are being asked more often and the answer is the same — the price is the price is the price.”

Discussion questions:  What’s the best strategy for Neiman to offer more value in their offerings without impairing its upscale positioning?

My post: 

I find this development disheartening.  I have always admired Tansky’s firm resolve to remain a true luxury retailer and never succumbing to the lure of lowering their standards due to short term economic difficulties – no matter how severe.  In fact it was Tansky who belittled former CEO Terry Lundgren’s “much better” strategy in the early 90’s when he tried to add moderately priced product, with disastrous results.  The customer for this product can find it in any other department or specialty store, and in Tansky’s words, the true Neiman Marcus customer is not interested in buying lower-priced merchandise.  Within each luxury brand’s assortment, there is the opportunity to lower the average price points through careful product selection and increasing the mix of accessories, etc.  It is a monumental mistake to risk the brand of Neiman Marcus by adding moderate product.  I fear the real reason for this isn’t Tansky changing his tune – but rather the private equity owners forcing his hand in order to deliver short tem results.  Private equity buyers seldom hold onto their purchases for more than 3-5 years.  Could a sale of NM be in the cards in the next 24 months? 

Mike Osorio, your Dare to be Contagious! ™ strategist

www.OsorioGroup.com

What do you think?  Please add your comments and add to the discussion!

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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13804

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