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Neiman Marcus CEO Blames Fading Customer Loyalty for Latest Sales Plunge

Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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December 13, 2016, 2:21 PM ET
Courtesy of Neiman Marcus
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The sales carnage at Neiman Marcus is getting worse.

The luxury department store said on Tuesday that comparable sales declined 8% in its most recent fiscal quarter, the kind of drop Neiman hasn’t seen in about six years when customers were still just emerging from the financial crisis.

But this time, there is a new culprit, according to Neiman: Shoppers have become far less loyal, in large part because of the ease of internet shopping and price comparisons, making it hard for the retailer to hang on to its customers.

“They continue to shop for the best deal and the lowest price,” Neiman Marcus CEO Karen Katz told Wall Street analysts on conference call. “Our core customer is visiting us a little less frequently and customers in general are a little less loyal to any one retailer.”

Total sales fell to $1.08 billion from $1.16 billion a year ago and the Dallas-based luxury retailer reported a net loss of $23.5 million compared to a loss of $10.5 million a year ago. It was Neiman’s fifth straight quarter of declining comparable sales, a gauge that eliminates the impact of newly opened or closed stores.

To be fair, all luxury department store chains are hurting these days: Nordstrom (JWN) last month reported that comparable sales at its full service department stores fell 4.5% last quarter, while HBC’s Saks Fifth Avenue is also struggling.

 

Katz said that the internet has made prices transparent to shoppers and made it easier to hop from one brand to the next. What’s more, shoppers are impatient and want to “buy now, wear now,” a behavior that is particularly difficult for department stores that typically get merchandise many months after shoppers see it on a runway. (Last quarter, Katz had pointed to fashion bloggers as speeding up that trend.) And as Katz said, shoppers no longer want to buy winter coats in summer, or buy sandals at the height of winter.

To remedy that, Neiman has asked vendors to ramp up what they can offer it exclusively, and is looking to speed up the cycle of runway to store shelves. And it recently started a new partnership with fashion rental service Rent the Runway, a favorite of young, affluent and fashion conscious women, at the Neiman store in San Francisco— with plans to bring that to other locations next year. Though some analysts said the tie-up could train young Neiman shoppers to rent expensive dresses instead of buy them, Katz said already she is seeing shoppers complement a dress rental but buy shoes or handbags from Neiman.

There were also some other factors at play in Neiman’s dismal performance, some of them tied to the environment, and others self inflicted mistakes. Neiman overindexes in Texas, its home state, and an extended period of low oil prices has hurt the willingness of the affluent in those markets to spend, with no relief visible yet despite a recent rise in prices, Katz noted. At the same time, it’s fair to take that claim with a grain of salt: stock markets hitting at all-time highs is typically a boon to luxury spending.

Another challenge is the location of President-elect Donald Trump’s residence—a block away from its Bergdorf Goodman flagship. The company is working with New York police and the Secret Service to make sure customers can get into the store more easily.

And perhaps most frustratingly for Katz, Neiman lost about $35 million in sales because of chaos created by the integration of their inventory systems into one that had been designed to make ordering and tracking more efficient.

About the Author
Phil Wahba
By Phil WahbaSenior Writer
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Phil Wahba is a senior writer at Fortune primarily focused on leadership coverage, with a prior focus on retail.

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