NEIMEN MARCUS CASE

SUBMITTED BY
GROUP 3
Deepak Raut , Ekta Kamdar , Porag Dutta , Sharad Shukla ,
Sumit Singh & Vaishali Singh
 Neiman Marcus

The Company
Operated at the top end of fashion apparel and accessories retailing.
-31 stores with approx. $ 2 billion revenue.
-Competed primarily with designer boutique stores.
-Served the luxury customers (age group 45-54 yrs) with strong emphasis on
building relationships with them.
-Sales based on catalogues.
Three primary catalogues:
- Neiman Marcus: entry level price point in women’s leisure apparel, linens, and
home goods.
-Horchow : targeted top 10% of U.S. households, featured furniture, decorative
and linen products.
-Chef’s catalogue: targeted top 30% U.S. households, featured gourmet cookware.
 Marketing & Sales

Incircle program:
-Customers automatically enrolled after spending $3000 in a given year.
-Points redeemable for gifts like Jaguar cars, collector’s items etc. Incircle customers
accounted for nearly 50% of NM sales.
The Book:
- Published “Megalog”, a catalogue/magazine hybrid targeted to its luxury customers.
-An important communication tool. Helped engage customers. Vendors charged as much
as $50000 a page to be featured in the book.
Events: to draw & strengthen customer relationships. Over 3000 events in 1997 alone.

Sales Associates:
-Professional salesforce built close relationships with its customers. Commission based –
6%-9% commission on sales
-Recorded customer preferences, new collections updates , mailed Thank you and
Birthday cards to stay in touch.
-Motto – “Relationship first – Selling would come later”.
-Optimum Selling Program – encouraged sales associates to sell in every department.
Churn Ratio – Lowest in the industry, 20%.
 CASE SNAPSHOT
OBJECTIVES
- To provide a significant revenue growth vehicle for neinman marcus over next
5 -7 years annually.
- To create strategy for neiman marcus to access lucrative markets that were not
likely able to support full line store
- Enhance the presence and awareness of the neiman marcus brand both
domestically and internationally
-To expand and capitalize on the most attractive elements of the neiman marcus
franchise

OPTIONS
-Expansion through specialty stores - galleries to enhance their strategy and
meet their financial goals
-Expansion through Specialty stores for shoes
-Expansion in Europe
-Sale price stores
-exploring close financial relationships with designers
 GALLERIES OF NEIMEN
MARCUS

- Galleries store - specialty store would be around 10000sq ft.

Compared to full time marcus store that averaged 135,000sq ft.
-Focus on designer , semi precious & precious jewelry and
decorative giftware and apparels
-High gross margins (given in table B)
-Precious jewelry (40.5%)
-Fashion jewelry (48.9%)
-Gifts (44.7%)
-women’s apparel (better apparel) (45.3%)
-men’s apparel (42.8%)
- leather accessories (46.3%)
 COMPETITION

APPARELS
THE COMPETITOR-- SAKS 5TH AVENUE ( MERCHANDIZE)
Developed different store formats
- 41 full line stores, 5 main street stores & 41 off 5th stores - for upscale
branded clothing and home furnishings at exceptional prices
- SAKS acquired by PROFFITT’S (traditional department store)

MARCUS STRATEGY
- Saks acquired by PROFFITT’s - a traditional department store player in mid
size cities
- If SAKS moved downscale to being it in line with its existing store then
MARCUS can rule the luxury segment
- If SAKS stays in Luxury segment –MARCUS specialty stores “NEIMEN
MARCUS GALLERIES”
 COMPETITION

APPARELS
THE COMPETITOR - NORDSTROM( SERVICE)
-Sold 36% in women’s apparels ,20% shoes, 18% men’s apparels, 20% women’s
accessories
- Service - Sales associates stayed in close contact with customers , sent thank you notes,
provided regular updates on new merchandize arrival
MARCUS STRATEGY
-continue with existing marketing programs to build extensive customer relationships
( Incircle program, The book , Events )
-Using sales associates in optimum selling program

THE COMPETITORS -DESIGNER BOUTIQUES

-dedicated stores & presentation of designer assortments
MARCUS STRATEGY
- Seek out emerging designers & trends in markets
- Design offices in new york , paris , milan & london
 COMPETITION

JEWELRY - TIFFANY ( MERCHANDIZE)

- National upscale jeweler, trademarked with BLUE MERCHANDIZE BOX 3 Channels of
distribution
-48% sales from company stores in US & wholesale sales to independent retailers
-10% sales from direct marketing , B2B sales and catalog sales
-42% international retail sales ( company stores, independent retailers)
- Significant relationships with generation of families

MARCUS STRATEGY
- Tiffany’s have traditional jewelry (engagement rings , chains etc.) , Macus has more
designer products
-MARCUS specialty stores will have more focused assortment with distribution
specialists
- Specialty stores have advantages of speed and scope – more recent data on
customer purchases and expectations
 The Galleries – Revenue Estimation

Option A Based on Current performance

Current Revenue of The Neiman Marcus Group $ 2,373,347,000.00
% age - Contribution of Neiman Marcus Stores 77%
Net $$ contribution $ 1,827,477,190.00
Total Store Space (sq ft) 4,417,000

Revenue Per Square Foot $ 413.74

Option B Comparing with a similar store type

Revenue per Sqaure Foot of Saks Main Street Stores $400 - $500

Option C Based on direct competition - Tiffany's

Tiffany - Revenue $ 1,107,616,000.00
% age - Contribution of Tiffany Retail Stores 48%
Net $$ contribution $ 531,655,680.00

No. of Stores 29

Average Store Space (sq ft) 12,500

Total Store Space (sq ft) 362,500

$
Revenue Per Square Foot 1,466.64
 The Galleries
Calculating IRR and Break-Even periods

  1999 2000 2001 2002 2003 2004 2005

Assumptions

Revenue per sq ft 450 Revenue 3.1031 3.1651 3.2284 3.2930 3.3588 3.4260 3.4945
   
Store Selling Area 7500
Capital Expenditure 3.25  
Working Capital 2.50 2.55 2.60 2.65 2.71 2.76 2.82
Revenue per store 3,375,000.00    

Inflation 2%
Net Cash Flow (2.65) 0.62 0.63 0.64 0.65 0.67 0.68

Target Population   -46.03% 24.12% 24.12% 24.12% 24.12% 24.12% 24.12%

Growth 2%
Discounted
Discount rate 10% Cashflows ($2.41) $0.51 $0.47 $0.44 $0.41 $0.38 $0.35
IRR 12%            
 The Galleries – Revenue Estimation

Option A Based on Current performance

Current Revenue of The Neiman Marcus Group $ 2,373,347,000.00
% age - Contribution of Neiman Marcus Stores 77%
IRR 12%
Net $$ contribution $ 1,827,477,190.00
Total Store Space (sq ft) 4,417,000
Break Even 6-7 yrs

Revenue Per Square Foot $ 413.74

Option B Comparing with a similar store type IRR 31%

Revenue per Sqaure Foot of Saks Main Street Stores $400 - $500
Break Even 4-5 yrs
Option C Based on direct competition - Tiffany's
Tiffany - Revenue $ 1,107,616,000.00
% age - Contribution of Tiffany Retail Stores 48%
Net $$ contribution $ 531,655,680.00
IRR
No. of Stores 29

Average Store Space (sq ft) 12,500

Break Even
Total Store Space (sq ft) 362,500

$
Revenue Per Square Foot 1,466.64
 Future Projections

17 years : Sales per square feet should be above $ 400, to cross hurdle
rate.
7 years : Sales per square feet should be above $ 425, to cross hurdle rate.
 Declining Population Growth
30
20
10
0
0 2 4 6 8 10 12 14 16 18
YoY profit %

-1
-2
-3
-4
-5
-6

Years
 CLOSING COMMENTS

#WILL THE GALLERIES ENHANCE THEIR STRATEGY AND MEET THEIR

FINANCIAL GOALS
-YES (AS JUSTIFIED ABOVE)
#SPECIALTY STORE OPPORTUNITY FOR SHOES
YES ,as MARCUS got nearly $100 million in shoes & so there is potential
for growth with specialty stores
#EXPANSION IN EUROPE
-designer boutiques already have a 75% market share
-expansion can be done by international retail sales through independent
retailers & corporate wholesale sales
#SALE PRICE STORES
- Will not prime well with the brand image
-Also target customer segment is not price sensitive , so foster better
relationships
#EXPLORING CLOSE FINANCIAL RELATIONSHIPS WITH DESIGNERS
-yes, helps pick up latest trends and so MARCUS can appeal to the
younger customers
THANK YOU