Now that the Neiman Marcus deal is done and Texas Pacific Group and Warburg Pincus LLC have acquired the luxury chain, they will need to develop competitive strategies to capture greater market share among their target audience of super-affluent luxury consumers, according to Pam Danziger of Unity Marketing.
By "super-affluent luxury consumer", Danziger refers to those with household incomes of US$150,000 or more per year - those who make up the top 5% of US households when ranked by income. "Nordstrom is the competitor that Neiman Marcus has to beat now," explained Danziger, president of Unity Marketing and author of the book 'Let Them Eat Cake: Marketing Luxury to the Masses as well as the Classes'. In Unity Marketing's latest Luxury Tracking study of luxury consumer purchases (among 731 luxury consumers) Nordstrom was found to be ahead of the competition.
Brand awareness
While brand awareness of Nordstrom and Neiman Marcus were found to be almost identical at the top end of the luxury consumer market, the actual percentage of luxury consumers who reported making a luxury purchase at Neiman Marcus in the first quarter of 2005 was 14%, compared with 33% at Nordstrom.
Democratic luxury
Danziger added: "One of Nordstrom's secrets of success is not only that it offers great luxury brands and provides customer service that's a best-practice benchmark in the retail industry, but it is a democratic luxury leader that caters not only to the top 5% of US shoppers but to luxury consumers at more moderate income levels from US$75,000 to US$149,999 - another 22.4 million households."
"Nordstrom draws customers from a wider base, while Neiman Marcus focuses more on the 5.6 million super-affluent consumers," said Danziger. "Despite the fact that the super-affluents spend two to three times more in most categories than lower income affluents, the large number of households at US$75,000+ means that the total luxury market potential is greater among the US$75,000 - US$149,999 market segment."
Less money but more worth
In fact, Unity found that the lower group of affluent consumers are potentially worth some US$498.1 billion compared to US$349.2 billion among super-affluents - a 43% difference in favour of targeting the lower affluents (based on annual luxury spending data from 2004).
"The numbers seem to favour the luxury retailer with a strategy that leans toward democratic luxury," Danziger concluded. A while paper on the luxury market, entitled 'Eight Things Every Marketer Needs to Know about the Luxury Market', has been made available for download from Unity Marketing's web site.
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