US: Neiman Marcus suffers from declining loyalty

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By: RickFerguson |

Posted on December 15, 2016

Loyalty Marketers have long held Neiman Marcus's long-running InCircle program as the gold standard of retail loyalty programs. The program, launched in 1985, sees members spend 11 times more than non-members, and 36 percent of the retailer's overall revenue flows through the program. And yet Neiman Marcus CEO Karen Katz recently told Wall Street analysts that "customer disloyalty" is to blame for the retailer's declining sales. This comment makes us wonder: Can any loyalty program, no matter how successful, provide a hedge against a systemic change in customer behavior?
The news is dire: Fortune reports that the luxury department store revealed on an investment call this week that comparable sales declined 8 percent in its most recent fiscal quarter. Total sales fell to $1.08 billion from $1.16 billion, and the retailer reported a net loss of $23.5 million compared to $10.5 million a year ago. Neiman has now suffered five straight quarters of declining comps.
These are the kind of losses that get CEOs replaced. The mitigating factor: Neiman Marcus's problems are indicative of a larger problem of declining sales plaguing the luxury retail sector; rivals Nordsrom and Saks Fifth Avenue are also struggling. During the investor call, Katz directly blamed declining customer loyalty for the drop in sales. Money quote:
"'They continue to shop for the best deal and the lowest price,' Neiman Marcus CEO Karen Katz told Wall Street analysts on conference call. 'Our core customer is visiting us a little less frequently and customers in general are a little less loyal to any one retailer.'...Katz said that the internet has made prices transparent to shoppers and made it easier to hop from one brand to the next. What's more, shoppers are impatient and want to "buy now, wear now," a behavior that is particularly difficult for department stores that typically get merchandise many months after shoppers see it on a runway."
As Katz says, Neiman's problems are largely systemic; headwinds driven by technology, legacy operational models, and changing consumer habits are crippling the department store sector overall, and luxury retailers in particular. Neiman's average customer is 51 years old with household assets of $1 million or more, and younger customers - even affluent ones - are not stepping up to replace the spend of older customers who are entiring their retirement years. While it's never a good idea to generalize demographic behaviors, there is a strong sense amongst retail analysts that Neiman Marcus and its ilk are stores built by Baby Boomers, for Baby Boomers, and that they have yet to figure out the magical elixer of operational changes, marketing, and experience delivery that will help them compete against younger and more agile competitors.
Wither, then, the Neiman Marcus InCircle program? The retailer continues to cite the program as one of its core competitive assets, but it reportedly only comprises 150,000 members. Despite the program's success at driving revenue, Katz hints that even this group is shopping less frequently. While their core customer remains loyal, the program seems unable to prevent the slowing of their spend. If InCircle can't prevent those steep sales declines, then what options are left to Neiman Marcus?
Nordstrom responded to a similar decline by earlier this year doubling down on its own Rewards program, expanding the program to accept all tender types and setting a goal of adding 5 million new members in the next year. Neiman Marcus might do the same; the retailer could expand the program, perhaps adding a tier for lower spenders to attract the demographic that Unity Marketing calls HENRYs (high earners not rich yet). Comprised of an estimated 24 million households made up of high-earning Millennials, HENRYs have household incomes between $100,000 and $250,000 and will likely see their incomes grow.
Neiman might also follow the route of other luxury retailers such as Restoration Hardware, which has placed most of its marketing muscle behind a fee-based program designed to build a walled garden around its most valuable customers. The retailer might also seek partnerships with complementary brands to help add value to the existing program.
None of these changes will in themselves prevent those systemic market forces from impacting customer behavior. But expanding InCircle might help complement Katz's stated operational moves, such as stocking more exclusive merchandise and working with manufacturers to get new product on the shelves more quickly. That combined effort might see a reborn Neiman Marcus that functions more like an exclusive, high-end membership club for a new generation of affluent shoppers. There is a way forward for high-end retailers - and if any company can help forge that path, it's Neiman Marcus.
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.