At the tender age of 112, Neiman Marcus is a newbie again.
The Dallas-based high-end department store chain is opening its first full-fledged store in New York on Friday. The 188,000 square foot store will anchor the retail component of Hudson Yards, a sprawling new $25 billion multi-use development on Manhattan’s far West Side that includes office towers, apartment buildings and even a cultural venue. The Neiman store will occupy floors five through seven of the retail complex.
Neiman Marcus is pulling out all the stops to stand out in an increasingly crowded luxury market. Some of the touches include services relatively new for Neiman—renowned for its beautiful stores hawking hyper expensive clothes, shoes, and handbags. For instance, on the lower floor there is an epicurean demonstration kitchen, and on the middle floor an event space called Neiman Marcus Live that can hold up to 100 people where it will hold events like mini-fashion talks and Q&As with designers.
Neiman, which operates 45 restaurants at its 42 other stores, is ramping up its foodie cred for the New York store. In addition to a Zodiac Room that also graces most of its other locations, the store has a bar named “Stanley” with stunning views of the Vessel structure, the centerpiece of the Hudson Yards complex, and of the Hudson River.
The retailer is also bringing some flavor from home. It’s hosting a shop for the Texas-based handmade cowboy boot brand Lucchese. And in a nod to the growing cohort of younger shoppers Neiman covets and the popularity of second-hand luxury clothing, the store will be home to an outpost of Resurrection Vintage.
Some of the new touches have become basics for Neiman and its most direct rivals Nordstrom, Saks Fifth Avenue, and even Macy’s: digitized dressing rooms that allow to ask a sales attendant to bring you a different size or even checkout, personal stylists, new spa services, and counter-free beauty areas.
Neiman is no stranger to New York despite the absence of a physical presence. Shoppers in the five boroughs spent about $100 million on its website last year, and double that when you include the suburbs where Neiman already has four stores. Its parent company Neiman Marcus Group operates Bergdorf Goodman, the ne plus ultra in New York luxury department stores.
Yet even in this era of e-commerce—Neiman gets more than 36% of its sales online—a brand needs stores to interact with the digital to hit its full potential. “We haven’t given the customer the chance to come and visit us in a physical environment,” says Neiman Marcus Group CEO Geoffroy van Raemdonck, the former Ralph Lauren (RL) executive who took the reins early last year.
That physical environment can’t just be all lavish chandeliers and pieces of art—though the Neiman store does boast pieces by Roy Lichtenstein and Matisse. Neiman’s most direct competitors are bringing their A game to fight for a piece of what is estimated to be a $20 billion luxury personal goods market. As one Nordstrom executive expressed it last year, “New York doesn’t need another store.” (Bain & Co estimates the total U.S. market for personal luxury goods rose 5% to $85 billion in 2018.)
Nordstrom is also opening its first ever full size store in New York in September, an emporium that will be almost twice the size of Neiman’s. Though not as typically high end as Neiman Marcus, the New York Nordstrom will likely expand its high luxury offerings. Nordstrom’s executives have said they see a $700 million opportunity in the region, fueled by the Manhattan store and the increased digital sales they hope it stokes. Like Neiman, Nordstrom’s sales growth at its department stores has slowed.
Saks Fifth Avenue—a fixture of Manhattan shopping since 1924—isn’t resting on its laurels. The grand dame of New York retail is in the midst of conducting a $250 million overhaul of its 650,000 square-foot flagship to spectacular results, both aesthetically and sales wise. Even Barneys New York, a much smaller retailer, opened a second Manhattan location a few years ago.
Tons of opportunity, tons of peril.
The sheer size of New York’s luxury market is no guarantee of success. Hudson’s Bay Co. recently closed a Saks store near TriBeCa—home to the 5th richest zip code in the U.S. and an area teeming with tourists—after only two years, showing how even an incumbent can struggle in this crowded market.
All these stores have one thing in common: In the age of e-commerce and growing digital rivals like Net-à-Porter and Farfetch, stores are about much more than laying out merchandise in a pretty setting and selling stuff. As van Raemdonck puts it: “It’s retail theatre. It’s not about the transaction, it’s about experience.”
Neiman Marcus was hurt earlier this decade by its own unforced errors. The company—which was bought in 2014 by private equity firm Ares Management and Canada Pension Investment Board—botched an inventory management systems migration and also failed to adapt to luxury shopping’s changing ways. Van Raemdonck’s predecessor had complained a few years ago that Neiman’s shoppers were less loyal and visiting stores less frequently.
Sales plummeted in 2016 and 2017, and operating losses in the last five and half fiscal years have come to a almost quarter of a billion dollars. (It turned an operating profit in its most recent quarter.) What’s more, Neiman’s long term debt amounts to $4.8 billion, almost the same level as total annual sales, raising concerns about its ability to invest as much as its financially healthier competitors do. Van Raemdonck dismisses those worries, saying that Neiman has spent $150 million on the Hudson Yards store and has plenty of cash on hand.
The company last week reached a deal with creditors to extend the maturities of $2.8 billion that were coming due in 2020. But last year as it sought to placate lenders, Neiman said it could get to an annual adjusted profit of $700 million on revenue of $5 billion, a peak it hit in 2015, within five years.
The Manhattan store is a bold bet to attract the type of clientele Neiman enjoys in other markets. Its core customers spend an average of $16,617 a year there. And they are well heeled: some 31% of Neiman customers are in a household with a net worth above $1 million.
The choice of the Hudson Yards development, located a few blocks West of Madison Square Garden, is a daring one. It’s an unproven retail area and geographically far from Fifth Avenue where the likes of Bergdorf Goodman, Saks, and Barneys rein over luxury shopping.
What’s more, while the Neiman will have an express elevator from street level, it may be a challenge to get passers-by to go up five flights in contrast to the ease of just stepping into the Saks, Bergdorf or Barneys stores from the street.
The mall itself features many new innovative retailers, but it is also home to standard chains like Banana Republic and H&M. It remains to be seen how much of a draw it will prove to be for famously mall-averse New Yorkers.
But it’s Hudson Yard’s stark contrast with Fifth Avenue that appealed to Neiman Marcus. The 28-acre multi-use massive site—mixing retail, restaurants, office towers, cultural venues and luxury condos— has much much more common with developments in Asian megacities and the Gulf than North America. That made it irresistible, says van Raemdonck.
“If you’re building the business for the future you have to be where the future is going,” he says. And no doubt, where he hopes shoppers are going, too.