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Expanding Net: Neiman Marcus Online Sales to Top $200M

Neimanmarcus.com is the driving force behind NM Direct, the e-commerce and catalogue division of Neiman Marcus Group. Here’s an update

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IRVING, Tex. — Neiman Marcus Group is weaving a bigger Web, driven by neimanmarcus.com.

The four-year-old neimanmarcus.com is part of NM Direct, the e-commerce and catalogue division of Neiman Marcus, which expects to see online sales this year pass $200 million, compared with $150 million in 2003. The bulk of that growth will come from neimanmarcus.com. The division also operates two additional Web and catalogue businesses — Chef’s Catalog of cooking tools and the Horchow Collection of lush home furnishings.

The revenue jump in Internet sales will rank neimanmarcus.com among the chain’s top three stores in volume, said Karen Katz, president and chief executive of Neiman Marcus. Perhaps more importantly, the Web site has become an effective tool for luring new customers to Neiman’s stores and mail-order business.

“Over 50 percent of our online business comes from outside our trade area,” noted Brendan Hoffman, president and ceo of NM Direct. “They come in through the Web site and then become multichannel shoppers. They’ll print pages from the Web and bring them into the store.”

At NM Direct’s offices on a quiet, suburban campus with a 700,000-square-foot pick-and-pack facility, the first sign of success is an exterior one — workers are finishing the landscaping around the newly expanded parking lot. Inside, executives are preparing to hire more buyers over the next 12 months for the Neiman Marcus brand, both in stores and online, so that all merchandise planning will be under one roof.

“Our biggest challenge is coming to grips with having inventory,” Hoffman said. “We’re consolidating all the buying here — previously, the stores bought some and we bought some. It was very hard to manage. This is such a different way of buying. We buy items deep rather than a wide assortment.”

To illustrate the kind of demand the Web can generate, Hoffman noted that, in February, the site was flooded with 20,000 visitors within an hour of an e-mail to customers touting an online gift-with-purchase beauty promotion. “Twenty-thousand people in a store at one time is unlike anything we’ve ever seen,” he marveled. “We think we can better capture the demand that’s out there.”
Hoffman hopes to build on a stellar year in which the division’s comparable-sales gains outperformed its sibling stores for nine of the 12 months through February, hitting a record 27 percent jump in December. He attributed the holiday surge to Neiman’s ability to ship Christmas gifts right up until Dec. 24 when most competitors stopped four or five days earlier.

“We had a big push the last 10 days [before Christmas], and it was millions in incremental business,” Hoffman noted.

Neiman’s has gotten more aggressive about courting Internet users and building its e-mail database. Last spring, it launched a newspaper ad campaign in Birmingham, Mich.; Carmel, Calif., and Cleveland to lure new customers to its Web site. Since then, Neiman’s each season has run similar ads in three or four different cities, plus the local and national editions of The New York Times. The ads typically feature a single product, such as a Marc Jacobs handbag, and offer free shipping.

“Historically, advertising for direct sales was useless because they had to call for a catalogue, so you missed the moment of seduction,” Hoffman pointed out.

The publicity is working — Neiman’s online shopper database is growing by 40 percent each year, he said. And the company is talking to that group more frequently with twice-weekly e-mail communiqués. “We found people looked at the e-mails as editorial — what’s on the ‘in’ list now,” he observed, noting that the company did not want to besiege its customers with junk mail.

This month, Neiman’s will begin tailoring its site to match the browsing patterns of its shoppers with five or six different home pages, such as a men’s page for male visitors and a handbag home page for accessories shoppers.

“We think by getting you closer to what you want to see it will raise our conversion rate,” Hoffman explained. Currently, two and a half to three out of 10 [visitors] make a purchase, and if we raise that even one-tenth of a point, that is tens of millions of dollars.”

Neiman’s also is working to develop links with the corporate Web sites of key resources. It currently has electronic ties to Kate Spade, Anne Klein, Lilly Pulitzer and David Dart. A link to manoloblahnik.com is expected in a few months.
The online merchandise array resembles a highly edited version of the fashion and home furnishings in a Neiman’s store. The company at first tried to put an entire virtual store online, but discovered it was confusing for the customer and too costly to photograph and warehouse. So the number of stockkeeping units has been whittled down over the last two years to about 10,000.

Online bestsellers mimic those in stores, led by shoes, handbags and contemporary sportswear. Top handbag collections, for instance, are Gucci, Prada, Kate Spade and Burberry, and the site had an exceptional response to the launch of Luella Bartley this spring.

“Price point is not an issue online like it is in the catalogue,” Hoffman said, noting the average online sale is 25 percent higher than through the catalogue.

One of his big pushes online is to sell more designer clothing — the site’s fastest-growing category. Neimanmarcus.com launched Narciso Rodriguez successfully this spring, and Armani Collezioni will debut this fall. The site currently sells 19 designer clothing labels, including Roberto Cavalli, Chloé, Donna Karan, Etro, Marc Jacobs, Michael Kors and Ralph Lauren Black Label.

“It’s taken some time to get vendors to feel comfortable,” Hoffman reflected. “There was a perception that the Web was discount and concern that it would reflect their brand and Neiman Marcus’ image. Now they are comfortable because they can see the business they can do. In many cases, it’s their number one store.”

Aeffe USA does a substantial business with NM online with Jean Paul Gaultier, Moschino Jeans and Moschino Cheap & Chic, and is developing sales of Narciso Rodriguez and Alberta Ferretti.

“The business has grown considerably over the past couple of years,” said Michelle Stein, president of Aeffe USA. “None of the other stores has pushed their online business to the extent that Neiman Marcus has. If the last few seasons are any indication, there is no stopping it.”

Neiman’s had expected the Web site to cannibalize some business from its 50 annual catalogues, which happened at first. But in the past nine months, the traditional mail-order business has strengthened.

“We are having double-digit growth in the catalogue, and six months ago I would not have been able to say that,” Hoffman explained. “The catalogue business is such an important driver to the Web site you won’t see us pull back there. The two channels coexist nicely and reinforce each other. We clearly see an uptick on the Web based on when we mail.”
Neiman’s also is benefiting from the overall expansion of e-commerce. Shoppers are becoming more comfortable with online transactions and the proliferation of broadband connections makes it faster, noted Graham Mudd, an e-commerce analyst with ComScore Networks in Chicago.

UBS analyst Linda Kristiansen described Neiman Marcus’ online direct strategy as “proactive.” Moreover, the retailer is a well-positioned player in the market.

“Direct used to compete a little with the stores,” Kristiansen said. “Now, I think the whole business is trying to be synergistic.”

So how viable is the channel for the company in the long term? “I think it’s a channel I don’t see peaking any time soon for anyone,” Kristiansen said. “We went through this period when the Internet was kind of out of favor. But the strongest players have turned out to be those with a catalogue operation. Neiman is ideally positioned.”

The company is working to build synergy between the stores, its catalogues and the Web through a showroom in Neiman’s stores that displays linens and furniture sold through the Neiman’s and Horchow catalogues and Web sites. Sales associates are on hand to help shoppers.

After one year in business, the 2,000-square-foot Showrooms within Neiman’s stores in Plano, Tex., and Oakbrook, Ill., have been so successful that a third is planned to open in the store on Michigan Avenue in Chicago this month and Katz plans to add the showrooms to more stores.

In addition, a stand-alone showroom will be tested next to the Neiman’s in Scottsdale, Ariz., beginning in June. “If it works, it will give us the ability to go into a lot of new malls,” Hoffman pointed out.

The division relaunched its Neiman Marcus home collection last fall with more merchandise, including furniture. Surprisingly enough, the Web has sold $11,000 sofas, a $5,000 leather sectional sofa and a $2,129 mirrored buffet.

Neiman’s hopes to further build its catalogue business with the reintroduction of a children’s version this spring and plans for its first ever men’s apparel book for holiday or spring. Hoffman, a former divisional merchandise manager of men’s wear at Bergdorf Goodman, got the idea from the success of men’s apparel online, which is growing at a faster rate than the overall pace of the site. Even if the men’s catalogue is not profitable, he believes it will lure men to the Web site.
“We have found that the more channels the customer shops, the more loyal they are and the more they spend at Neiman Marcus,” Katz pointed out. “Our goal is to drive as much traffic as possible through the three channels.”

— With contributions from Ross Tucker, New York
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