Neiman Marcus IPO: Time to Cash In & Get Out

Only two years after acquiring Neiman Marcus from private-equity firms, TPG and Warburg Pincus LLC, its new owners, Ares Management PPC and the Canada Pension Plan Investment board, have announced an IPO to take Neiman Marcus Group public.

The timing looks prescient, since the stock market continues on a roll and the company can report strong sales growth, in the range of 4-5%, since the new owners took over.  But the last quarter ending May 2, 2015 marks a change, with revenues up only 2.2%.

My guess is that the Neiman Marcus owners want to get out while the getting is good.  As a research firm focused on the affluent consumer market, which is the prime target for Neiman Marcus Group, Unity Marketing’s latest assessment of affluent consumer confidence, the Luxury Consumption Index (LCI), dropped nine points in 2Q15 and now is only 8.7 points above its lowest point in 4Q08 during the depths of the recession.  As a forward-looking indicator of affluent’s propensity to spend on luxury and high-end purchases, the latest LCI signals an extremely challenging environment for luxury retailers like Neiman Marcus through the rest of the year and beyond.

This doesn’t mean the affluent, especially the wealthy ultra-affluents at the top 2-3% with incomes $250k and above, will turn off the spigot, but the mass-affluentHENRYs (high-earners-not-rich-yet with incomes $100k-$249.9k) which comprise the majority of affluents surveyed to calculate the LCI are retreating from luxury indulgences.

The HENRYs while they are doing better than 78% of all Americans feel middle-class, hardly luxury class, which is one reason that the off-price Neiman Marcus Last Call stores are reputedly contributing more than their fair share of growth for the company.   Today there are as many Last Call stores (43) as full-priced luxury stores (also 43) in the Neiman Marcus Group portfolio.

Luxury Drought is setting in

Unity Marketing’s LCI, as well as demographic trends, predict an extended dry spell for luxury-goods marketers like Neiman Marcus.  This ‘Luxury Drought’ is likely to last through 2026-2029, when the Millennials on the road to affluence will reach their highest-earning years (age 35-54) that corresponds to a strong acquisitive appetite for luxury goods as a material expression of wealth and status.

Until 2026 or so, the consumer segment in this prime age range for luxury-goods brands are the GenXers, which is far smaller in size than the two generations on either side of them, the mature Boomers and young Millennials.  Boomers, today aged 51-69 years, have largely matured beyond this acquisitive life stage for luxury goods, while the Millennials, 15-35 years, haven’t reach it yet.

Understand the competitive environment for brands like Neiman Marcus

Looking to the future luxury drought, Neiman Marcus and its direct competitors will find growth primarily by taking market share from others.  Part of that strategy for Neiman Marcus is aimed at building connection with the lower-income, mass-affluent HENRYs, who are much more likely to venture into a Last Call store than to a Neiman Marcus, which is known in some circles as “Needless Markup.”

Retail brands aiming to attract the affluent top 20% to their stores can’t afford to rely solely on their own internal CRM data to assess how well they are doing with the customers they have.  They need to understand the broad competitive environment and the customers that walk by their store fronts and into the competitors.

Unity Marketing has just published a new study of the affluent shoppers in department stores, like Macy’s, JC Penney and Dillards, and luxury department stores, including Neiman Marcus, Saks 5th Avenue, Bloomingdales, Lord & Taylor, as well as the off-priced retailers operated by some of those brands.

Entitled Affluent Shopper Snapshot Report:  Department Stores & Luxury Department Stores, including websites, this concise report examines the affluent shopper and the who, what, where and why of affluents that shop specifically in department stores and luxury department stores, including the websites of these brands.

Through this report marketers will gain new insights about the affluent department store and luxury department store shoppers.  It includes data and insights about:

  • What motivates affluent shoppers?
  • How to create experiences that encourage affluents to shop in your store, to shop more often and to spend more money?
  • How to capture customers shopping in other places?
  • What important shopping experiences you may be missing out on?

Plus the Affluent Shopper Snapshot report provides inspiration drawn from case studies of specific retailers that are doing a top notch job targeting the affluent shopper.

Affluent shoppers with discretionary income to spend are the key to driving sales and delivering profits to your department store or luxury department store door. Understanding their mindset is key to designing retail experiences that attract them to the retail destination.

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