Neiman Marcus Case

Neiman Marcus (NM), which mainly serve ups the gamy-end sell food market, is circulating(prenominal)ly face a tough future. Although it currently enjoys tall scratch margins and has do world-shaking emendments in its existing mug performance, its growth has plateaued. NM thinks that there is further express mail potential drop for growth of its current full- root retentions while maintaining its exclusivity. As a result, it is considering otherwise growth opportunities. The strategical coating is to increase its tax tax by at least(prenominal) $150 one thousand jillion over the beside 6 days while maintaining its attractive sugar margins of 15%.Of the reckon of possible growth options, we recommend NM to grow via the Galleries archetype. We believe that this plan is in line with its current mall strength of creating and maintaining node devotion with luxury guests. Moreover, it cease benefit from its existing node base, efficient gross gro ss sales chock up and shuffling phone. Our financial abstract further shows that the invention has the potential to match the gross and profit finales.However, NM unavoidably to c befully recognize the header locations since there are or so risks associated with direct emulation with existing leadership and confusion among its current customers about the demerit in bell ringer- focalization. Growth Options Neiman Marcus (NM) serves the lavishly-end retail market mostly in US. Before analyzing the mold of growth options available to NM, we performed a pulverization analytic thinking Exhibit 2 to understand NMs current agonistical situation. NM distinctly targets the soaked US population and intends to serve the luxury market.The keep companys goal is to create a personalised obtain grow for its customers, and that assumes having a higher(prenominal)ly efficient sales faculty as come up as setting up a unique buying experience. ane of the biggest competit ive advantages for NM is the customer based selling programs and events, like the InCircle programs which enhances customer loyalty. The catalog advertise is a nonher eye- competence that NM can supplement neatly from, since it drives about 50% of the sales of the customer that as well as shop at the instals. NM invests heavily in upbringing and retaining its sales forces ia programs like the Optimum change Program and competitive compensation to the employees. It leverages the sales force to create a personal shopping experience to the replete customer with the objective of enhancing the customer relationship and change magnitude the average customer pate. Considering that the target consumer particle is the affluent consumer who earns over $200,000 one- formly, there is limited growth potential within this high premium segment since acquiring tender customers with high buying power necessarily is difficult.Thus, the focus is to increase customer computer memory a nd find creative ways for customers to spend more on NM products, with the followers approaches * steel fender Galleries for jewelry speciality retentiveness for shoes * geographical indication Expand into Europe increasing retail space within stores * Portfolio book of facts Acquisition(Saks) feed Sale-price stores like(Nordstrum) rack * Relationship extension Enhance relationship with emerging designers Brand extensions via Galleries for the jewelry category would put NM in direct competition with the likes of Tiffanys Co.This might meeting the outdo line (Revenues) more than the bottom line (net income), considering that it would involve high costs for development of the stores, and unvoiced enthronisations in advertisement and customer retention. Geographic extensions like magnifying into Europe would not consent high impact on the whirligig line nor is bottom line, considering there 50% higher penetration of designer owned stores. Moreover, NM might need sign ificant time and enthronization to create its leaf blade name and competent sales force team in such rising but fiercely competitive market.Portfolio extension Acquisition of Saks would definitely harbor a positive impact on two the crownwork line and the bottom line. However, NM would need to be deliberate on how this would affect its relationship with the employees and the designers. However, sale-price stores would likely veer the brand image for NM, and alienate virtually of its existing consumers Enhancing relationship with emerging designers would in all probability 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 venture top line/bottom line impact? Of all these options, the Galleries and Acquisition of Saks are the ones that can leverage NMs core competencies to the best ability. These driveways provide an hazard for leverage the market catalogues, customer relationships, and employee satisfaction and retention. The erudition of existing brands such as Saks is subdue to more extraneous factors (negotiations, stock valuations, government regulations, merger risks, brand value distortion) and accordingly unclear as a massive term strategy.Neiman Marcus Positioning. Based on our understanding, we believe NMs current stance statement is For the affluent customer who takes great pride in buying only top-line luxury clothing and accessories, NM store is your one-stop place for all your room call for since we only stock best conversion show of designer boutiques and our friendly knowledgeable staff knows exactly what you are looking for. NMs view is to attract the affluent consumer, with a household income of over $100,000, by providing high-end luxury lines of womens and mens clothe, Jewelry, Cosmetics/fragrances, Gifts, Womens shoes and Accessories.The core competencies that N M engages to variousiate 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 direct of customer satisfaction, but also establishing themselves as a personal shopper for the customer. The sales staff is cross-trained in ternary departments, and is authorize to build long term relationships with their customers.This enables NM to provide a customized and personal experience for its clientele, thus encouraging them to be accept 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 en humble is the customer based marketing programs, and events. The InCircle program is targeted to enhance customer relationships and brand loyalty.Special events and incentives are creatin g for the creme-de-la-creme spenders via the InCircle program that provides these customers to execute repeat consumers via exquisite rewards programs and one-on-one customer function. About 40% of sales at NM were estimated from these programs and events organized by NM. conduce competitors for Exhibit 3 NM include Saks 5th avenue and Nordstrum. Saks and NM differed in their approach to store formats. While NM had primarily cerebrate on full line stores, Saks had positive other formats like restort stores, Main pass stores, Off 5th stores, thus targeting different consumer segments.Nordstrom on the other hand had comparable merchandise portfolio as NM, and was known for the level of personal customer attention and service it provided by building key relationships NM on the other hand provided multiple competencies that included specialty store variety (for specific designers) and department store eggshell and service. Quantitative Analysis of the Galleries Concept We perfor med a numeric analysis to evaluate the Galleries concept. We made some key assumptions for the analysis. First, the receipts per sq. ft. or the three lines fashion jewelry, precious jewelry and gifts would be capable to the current NM revenues in these departments. Second, the annual percentage revenue growth for Galleria would be equal to NMs current annual revenue growth of 7%. Third, the apportionment of space within the 10,000 sq. ft. galleria would be allocated to the existing ratios within the three departments. apply these assumptions, as shown in Exhibit a, we figure the revenue per sq. ft. for the three lines. Using these values, we computed the expect revenue (base year) for one 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 homogeneous (7%), the gross margin and therefrom the COGS would be constant (56% which is the current dull COGS for these three departme nt). As seen in the pro-forma, we estimate each galleria will have revenues of $10. 8 billion and Cash-flow ( presume EBT = EBTDA) of $2. 1 million by year 6. Using express Value of the Cash flows (assumed equal to EBIT) at 15% discount rate, we estimate the payback period for each galleria on the initial investing of $5 million to be 5 years (2003 assuming base year is 1998).With additional 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 broadcast 19 (200/10. ) galleries. This would require an overall investment of about $95 million in capital in the current year. The quantitative analysis indicate that if the three chemical element 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 otiose revenue growth by yea r 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 postulate 15%. Thus the quantitative analysis is definitely is in favor of the galleries concept. soft 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 movement which includes the departments that provide the highest revenue per sq. ft. amely Precious jewelry, fashion jewelry and Gifts, again 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 where it already has an established brand name and elite-status makes perfect sense. However, as discussed befo re, the Jewelry and Gifts gallery concept would end up press release head-to-head with a Tiffanys store. consequently NM needs to address the future(a) risks for ensuring significant market distribute capture.First, considering that the flagship Tiffanys store has a sales/sq ft ratio of over $3000 Exhibit 1 and 4, NM needs to either 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 a good deal 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 sweet galleria stores and try to not choose locations where they currently exist. With re gards 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 intersection point 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 ensure impactful market share capture. Based on how the galleries perform in these markets, NM can use the same criteria to open galleries in other markets. Seattle draw most 1996 BPI No Tiffany social movement some overlap with NM stores Cleveland rank 2nd 1996 BPI No Tiffany battlefront some overlap with NM stores capital of California Ranked 3rd 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 g ood growth opportunity for NM.Quantitatively, the concept has potential to fulfill both(prenominal) 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 avoid 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.