Subject:  Investors to Buy Neiman Marcus for $5.1 Billion |
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John Paul
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Date Posted: 20:38:36 05/02/05 Mon
Investors to Buy Neiman Marcus for $5.1 Billion
By Michael Barbaro
Washington Post Staff Writer
Tuesday, May 3, 2005; Page E01
A struggling Sears, Roebuck and Co. snatched up by Kmart Holding Corp. A weak May Department Stores Co. swallowed by Federated Department Stores Inc. A wobbly Toys R Us Inc. grabbed by a consortium of investors. It would be easy to mistake the crush of retail deals over the past six months for a series of expensive rescue operations.
But not in the case of Neiman Marcus Group Inc., which yesterday announced its sale to two private equity firms for $5.1 billion. The luxury retailer is on a tear, with soaring sales and profit and a stock price that has more than doubled over the past year.
Neiman Marcus has enjoyed success catering to affluent and loyal shoppers. (By John Gress -- Reuters)
The chain's consistent growth, and the high price paid by its suitors for the 35-store franchise, highlights the runaway success of the luxury goods market, which also has boosted the fortunes of high-end competitors Nordstrom Inc. and Saks Inc.
"This deal is not about salvation," said Marshal Cohen, chief industry analyst at NPD Group, a market research firm. "This is about taking advantage of a very strong appetite for luxury." NPD estimates that the luxury goods market, with sales of $400 billion in 2004, is growing 16 percent a year.
Dallas-based Neiman Marcus, which operates two stores in the Washington region, one at Mazza Galleria in Northwest and the other at Tysons Corner II, seems well positioned to capture that market. The chain's high-fashion merchandise, lavish customer service and immaculate, marble-tiled stores have made it synonymous with American luxury.
Executives at Warburg Pincus LLC and Texas Pacific Group, which agreed to buy Neiman Marcus, emphasized the chain's loyal high-end clients, who routinely spend up to $10,000 a year at the store.
"We think luxury is as good a place as any over the next five to 10 years," Warburg managing partner David A. Barr said in an interview. He defined Neiman's "core customer" as between the ages of 45 and 60 with a household income of $200,000 or more.
For chains that cater to just about everyone else, Neiman's success has been hard to match. Squeezed between discounters like Wal-Mart and specialty stores like Gap, mid-priced department stores have struggled for profit. At Hecht's, for example, sales have fallen for three years in a row.
But by zeroing in on higher-end shoppers with a taste for $2,000 pearl broaches and $5,000 designer cocktail dresses, Neiman Marcus has escaped the brutal price wars that have forced competitors to trim service and cut back on fashion. In 2004, the chain's revenue rose 14 percent, to $3.55 billion, and profit jumped 87 percent, to $204.8 million.
When it comes to same-store sales, a crucial measure of a retailer's health, Neiman Marcus consistently beats out both Nordstrom and Saks.
Retail analysts credit Neiman's dominance to unabashed commitment to the luxurious, which the chain reinforces with glamorous touches like 18-karat gold credit cards for its best customers and an over-the-top Christmas catalogue featuring a $20,000 custom-made suit of armor, complete with sword-fighting lessons.
Retail analysts predict Neiman's buyers will push the chain to open stores in overlooked U.S. markets such as Seattle and Long Island while encouraging executives to invest in cost-saving technology.
http://www.washingtonpost.com/wp-dyn/content/article/2005/05/02/AR2005050201435.html
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