Neiman Marcus Case

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Neiman Marcus (A)
Analysis of Growth Strategies

Executive Summary
Neiman Marcus (NM), which mainly serves the high-end retail market, is currently facing a tough future. Although it currently enjoys high profit margins and has made significant improvements in its existing brand performance, its growth has plateaued. NM believes that there is only limited potential for growth of its current full-line stores while maintaining its exclusivity. As a result, it is considering other growth opportunities. The strategic goal is to increase its revenue by at least $150 million over the next 6 years while maintaining its attractive profit margins of 15%. Of the number of possible growth options, we recommend NM to grow via the Galleries concept. We believe that this concept is in line with its current core strength of creating and maintaining customer loyalty with luxury customers. Moreover, it can benefit from its existing customer base, efficient sales force and brand name. Our financial analysis further shows that the concept has the potential to match the revenue and profit goals. However, NM needs to carefully choose the gallery locations since there are some risks associated with direct competition with existing leaders and confusion among its current customers about the shift in brand-focus.

Growth Options
Neiman Marcus (NM) serves the high-end retail market mostly in US. Before analyzing the range of growth options available to NM, we performed a SWOT analysis [Exhibit 2] to understand NM’s current competitive situation. NM clearly targets the affluent US population and intends to serve the luxury market. The company’s goal is to create a personal shopping experience for its customers, and that involves having a highly competent sales staff as well as setting up a unique buying experience. One of the biggest competitive advantages for NM is the customer based marketing programs and events, like the InCircle programs which enhances customer loyalty. The catalog advertising is another core-competency that NM can leverage greatly from, since it drives about 50% of the sales of the customer that also shop at the stores. NM invests heavily in training and retaining its sales forces via 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 relationship and increasing the average customer spend. Considering that the target consumer segment is the affluent consumer who earns over $200,000 annually, there is limited growth potential within this high premium segment since acquiring new customers with high buying power needs is difficult. Thus, the focus is to increase customer retention and find creative ways for customers to spend more on NM products, with the following approaches * Brand extension :“Galleries” for jewelry; Specialty store for shoes * Geographical extension: Expand into Europe; increasing retail space within stores; * Portfolio extension: Acquisition(Saks); Open 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 Tiffany’s Co. This might impact the top line (Revenues) more than the bottom line (net income), considering that it would involve higher costs for development of the stores, and heavy investments in advertisement and customer retention. Geographic extensions like expanding into Europe would not have high impact on the top line nor is bottom line, considering there 50% higher penetration of designer owned stores. Moreover, NM might need significant time and investment to create its brand name and competent sales force team in such new but fiercely competitive market. Portfolio extension: Acquisition of Saks would definitely have a...
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