NEIMEN MARCUS CASE

SUBMITTED BY GROUP 3

Deepak Raut , Ekta Kamdar , Porag Dutta , Sharad Shukla ,Sumit Singh & Vaishali Singh

Neiman Marcus

The CompanyOperated 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 SNAPSHOTOBJECTIVES

- 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

APPARELSTHE 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 assortmentsMARCUS 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 performanceCurrent 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 typeRevenue per Sqaure Foot of Saks Main Street Stores $400 - $500

Option C Based on direct competition - Tiffany'sTiffany - 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

1999 2000 2001 2002 2003 2004 2005

Revenue 3.1031

3.1651

3.2284

3.2930

3.3588

3.4260

3.4945

Capital Expenditure 3.25

Working Capital 2.50 2.55 2.60 2.65 2.71 2.76 2.82

Net Cash Flow

(2.65) 0.62 0.63 0.64 0.65 0.67 0.68

-46.03% 24.12% 24.12% 24.12% 24.12% 24.12% 24.12%

Discounted Cashflows ($2.41) $0.51 $0.47 $0.44 $0.41 $0.38 $0.35

IRR 12%

Assumptions

Revenue per sq ft 450

Store Selling Area 7500

Revenue per store 3,375,000.00

Inflation 2%

Target Population Growth 2%

Discount rate 10%

Calculating IRR and Break-Even periods

The Galleries – Revenue Estimation

Option A Based on Current performanceCurrent 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 typeRevenue per Sqaure Foot of Saks Main Street Stores $400 - $500

Option C Based on direct competition - Tiffany'sTiffany - 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

IRR 12%

Break Even 6-7 yrs

IRR 31%

Break Even 4-5 yrs

IRR

Break Even

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

0 2 4 6 8 10 12 14 16 18

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

Years

YoY

profi

t %

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