Neiman Marcus Case

Neiman Marcus (NM), which mainly serves the senior high school- hold back retail securities industry, is up-to-dately facing a tinder future. Although it lively enjoys high profit margins and has do signifi stinkert improvements in its living rat fulfilance, its ageth has plateaued. NM reckons that in that respect is plainly limited electromotive force for result of its current effective- get out stores while maintaining its exclusivity. As a result, it is mooting impudent(prenominal)(a) fruit opportunities. The strategic final stage is to subjoin its tax receipts by at to the lowest degree $150 one million million million oer the bordering 6 socio-economic classs while maintaining its dinky profit margins of 15%.Of the number of manage sufficient growth options, we recommend NM to grow via the G entirelyeries invention. We cogitate that this concept is in take up with its current core strength of creating and maintaining client loyalty with luxury nodes. More all oer, it can put on from its existing client base, efficient gross(a) sales force and fool name. Our financial digest further shows that the concept has the possible to react the receipts and profit goals.However, NM quest to cargonfully rent the gallery locations since there ar some risks associated with set competition with existing leaders and wateriness among its current clients close the shift in brand-focus. evolution Options Neiman Marcus (NM) serves the high-end retail market mostly in US. Before analyzing the range of growth options open to NM, we performed a SWOT analytic thinking Exhibit 2 to reckon NMs current warring situation. NM clearly cans the blotto US population and intends to serve the luxury market.The accompanys goal is to make water a personal shopping bring forth for its clients, and that involves having a highly efficient sales supply as well as scope up a unique get experience. One of the biggest competitive advantages for NM is the guest based marketing programs and events, equivalent the InCircle programs which promotes client loyalty. The catalog advertising is an some other core-competency that NM can leverage greatly from, since it drives about 50% of the sales of the customer that wishwise shop at the stores. NM invests heavily in training and retaining its sales forces ia programs like the Optimum Selling Program and competitive compensation to the employees. It leverages the sales force to create a personal shopping experience to the affluent customer with the objective of enhancing the customer alliance and increasing the average customer throw. Considering that the aspire consumer incision is the affluent consumer who get tos over $ two hundred,000 annually, there is limited growth potential at get across this high premium segment since acquiring new customers with high purchasing agent necessarily is difficult. olibanum, the focus is to join on customer ret ention and find imaginative ways for customers to spend more on NM products, with the following approaches * Brand adjunct Galleries for jewelry Specialty store for lieu * Geographical extension Expand into europium increasing retail space inwardly stores * Portfolio extension scholarship(Saks) Open Sale-price stores like(Nordstrum) standpoint * Relationship extension Enhance kin with rising occasions Brand extensions via Galleries for the jewelry phratry would put NM in send out competition with the likes of Tiffanys Co.This baron meet the top variant (Revenues) more than the furnish line (net income), considering that it would involve higher be for development of the stores, and heavy enthronisations in advertisement and customer retention. Geographic extensions like expanding into atomic number 63 would not wee-wee high electric shock on the top line nor is privy line, considering there 50% higher perceptiveness of designer owned stores. Moreover, NM re adiness need significant time and coronation to create its brand name and competent sales force team in much(prenominal) new but ferociously competitive market.Portfolio extension Acquisition of Saks would unquestionably have a positive shock absorber on both the top line and the bottom line. However, NM would need to be c beful on how this would furbish up its affinity with the employees and the designers. However, sale-price stores would potential dilute the brand photograph for NM, and alienate some of its existing consumers Enhancing relationship with emerging designers would probably impact NM most on the bottom line than on the top line, considering it would be able to leverage purchasing power with the emerging designers, and extract higher margins from the merchandise. do we need to estimate top line/bottom line impact? Of all these options, the Galleries and Acquisition of Saks are the mavens that can leverage NMs core competencies to the best ability. These avenu es stick out an opportunity for leveraging the marketing catalogues, customer relationships, and employee satisfaction and retention. The acquisition of existing brands such as Saks is subject to more outside factors (negotiations, storage valuations, government regulations, merger risks, brand value distortion) and therefore unclear as a pertinacious term strategy.Neiman Marcus Positioning. ground on our understanding, we believe NMs current lieu statement is For the affluent customer who takes great pride in buying totally top-line luxury clothes and accessories, NM store is your one-stop place for all your contrive ineluctably since we only stock best assortment of designer boutiques and our pally erudite staff knows exactly what you are looking for. NMs positioning is to attract the affluent consumer, with a category income of over $100,000, by providing high-end luxury lines of womens and mens ap comparisonel, jewellery, Cosmetics/fragrances, Gifts, Womens raiment and Accessories.The core competencies that NM engages to differentiate itself in the marketplace are exclusive high-end designer merchandise, personable, knowledgeable and highly competent sales staff that aims at not only achieving a high level of customer satisfaction, but alike establishing themselves as a personal shopper for the customer. The sales staff is cross-trained in multiple surgical incisions, and is empowered to build long term relationships with their customers.This enables NM to provide a customized and personal experience for its clientele, thus back up them to be repeat customers and increase their spend at NM. NM utilizes another core-competency of catalogs for direct marketing, thus creating avenues to increase spend by the customers. One of the differentiators for NM, an un-imitable competency that creates barriers of entry is the customer based marketing programs, and events. The InCircle program is targeted to enhance customer relationships and brand loyalt y.Special events and incentives are creating for the creme-de-la-creme spenders via the InCircle program that provides these customers to become repeat consumers via nice rewards programs and one-on-one customer service. About 40% of sales at NM were estimated from these programs and events organized by NM. Direct competitors for Exhibit 3 NM allow Saks fifth avenue and Nordstrum. Saks and NM differed in their approach to store formats. While NM had primarily focused on full line stores, Saks had developed other formats like restort stores, Main street stores, Off 5th stores, thus targeting different consumer segments.Nordstrom on the other hand had similar merchandise portfolio as NM, and was known for the level of personal customer attention and service it provided by construct mark relationships NM on the other hand provided multiple competencies that included strong point store variety (for circumstantial designers) and department store scale and service. Quantitative an alysis of the Galleries concept We performed a quantitative analysis to evaluate the Galleries concept. We made some key assumptions for the analysis. First, the revenue per sq. ft. or the triple lines fashion jewelry, extraordinary jewelry and gifts would be friction match to the current NM revenues in these departments. Second, the annual percentage revenue growth for genus Galleria would be equal to NMs current annual revenue growth of 7%. Third, the allocation of space in spite of appearance the 10,000 sq. ft. genus Galleria would be allocated to the existing ratios within the three departments. Using these assumptions, as shown in Exhibit a, we calculated the revenue per sq. ft. for the three lines. Using these values, we computed the evaluate revenue (base year) for one genus Galleria (Exhibit b).We next constructed the pro-forma (Exhibit b) for one galleria for the next 6 years. We assumed that the revenue growth would be the same (7%), the gross margin and hence the C OGS would be uniform (56% which is the current weighted COGS for these three department). As seen in the pro-forma, we estimate for each one galleria will have revenues of $10. 8 million and immediate payment-flow (assuming EBT = EBTDA) of $2. 1 million by year 6. Using Present Value of the Cash flows (assumed equal to EBIT) at 15% discount rate, we estimate the retribution limit for each galleria on the initial investment of $5 million to be 5 years (2003 assuming base year is 1998).With superfluous revenue per galleria in Year 6 estimated at $10. 8 million, to achieve a financial goal of $200 million in additional revenue from the galleries by Year 6, NM would need to open 19 (200/10. ) galleries. This would engage an overall investment of about $95 million in capital in the current year. The quantitative analysis register that if the three constituent departments of the galleries can perform at least at par with current levels (mainly in terms of revenue per sq. ft. and gross margins) , NM is very likely to fulfill the goal of $200 million in surplus revenue growth by year 6.In fact, since the payback period (at 15% discount rate) is 5 years, the IRR return from the investment is expected to be more than the required 15%. Thus the quantitative analysis is definitely is in favor of the galleries concept. Qualitative Analysis of the Galleries Concept The Galleries concept is to aimed to expand the per-customer spend of the target affluent consumer, by providing specialty stores for specific merchandise category. One of the viable options is to consider a Gallery which includes the departments that provide the highest revenue per sq. ft. amely Precious jewelry, fashion jewelry and Gifts, once more targeting the same affluent customer segment. This concept makes sense for NM since it can leverage from its current strengths loyalty program, dedicated and knowledgeable staff, and its existing brand value. Moreover, expanding the gallery concept in US wh ere it already has an conventional brand name and elite-status makes perfect sense. However, as discussed before, the Jewelry and Gifts gallery concept would end up going head-to-head with a Tiffanys store. Therefore NM needs to address the following risks for ensuring significant market share capture.First, considering that the flagship Tiffanys store has a sales/sq ft ratio of over $3000 Exhibit 1 and 4, NM needs to each increase the retail space for precious jewelry to improve from the overall expected $721 / sq. ft revenue (this is because precious jewelry in current NM stores earn a much higher $1669/ sq ft), or decrease the store gross selling space for the gallery. Second, expanding the number of Galleries excessively might rebrand NM in the minds of customers as jewelry focused company and might affect the sales of its other flagship products such as womens apparel and shoes in original NM stores.Therefore, NM needs to be careful in choosing the locations of these new gall eria stores and try to not choose locations where they currently exist. With regards to the locations of the new Gallery stores, we believe that NM needs to choose locations that are not competitively served (by Tiffanys) in the Jewelry category, and also locations that do not have heavy coincide with its current locations. It is also important not to deviate from the target affluent consumer with high buying power index. Thus, we recommend the ollowing top 3 locations for NM to open the initial Gallery stores to tick off impactful market share capture. ground on how the galleries perform in these markets, NM can use the same criteria to open galleries in other markets. Seattle Top most 1996 bpi No Tiffany presence some convergency with NM stores Cleveland Ranked 2nd 1996 bits per inch No Tiffany presence some overlap with NM stores Sacramento Ranked third 1996 BPI No Tiffany presence high overlap with NM stores Conclusion Based on the analysis of NMs current positioning and its core competencies, we believe the Galleria concept presents a penny-pinching growth opportunity for NM.Quantitatively, the concept has potential to fulfill both of NMs current goals revenue growth ($150-$200 million revenue growth over 6 years) and profit margin (Payback period for initial investment is under 6 years at desired 15% cost of capital). However, NM needs to be careful in choosing the locations for two reasons to turn away head-to-head competition with existing jewelers such as Tiffanys and to avoid confusion of its brand focus in the minds of its existing rich customer base.