Nordstrom recently disappointed Wall Street when it announced a 4.1% decline in sales during its fourth quarter covering November 2022 through January 2023. It started Fiscal 2022 strong, with sales up 18.7%, then with each successive quarter, sales slowed.
It followed a pattern seen widely across the luxury market and reported here. Luxury brands far and wide experienced a slowdown in sales as 2022 progressed.
Then there is Neiman Marcus Group (NMG) with its 36 Neiman Marcus stores and Bergdorf Goodman flagship in New York City. While its sales also slowed through the year, it ended November through January on a positive note, with comparable sales up 3% over last year.
And even more telling, its most loyal customers increased their spending by 8%. Its top customers drop some $10,000 on average in its stores.
CEO Geoffrey van Raemdonck told WWD, “There is a luxury customer that continues to buy and remains very engaged with us. There is a customer out there who wants to spend more than last year.”
Those customers are the wealthy few who account for about 70% of luxury brand revenues. They can spend regardless of which way the economic wind blows.
NMG understands this customer better than most and operates under the luxury business model that goes contrary to the mass-market model ruled by the economic law of supply and demand.
The luxury business model doesn’t sit comfortably in a culture where equity and inclusion are sacrosanct because it recognizes wealth is not spread equitably and exclusivity – being for the few, not the mass many – is a core principle.
Nordstrom straddles mass-market and luxury business models that don’t work well together. It’s invested much in its affordable Rack franchise with 241 U.S. stores compared to its 94 luxury Nordstrom stores. Yet last year, Rack accounted for only about one-third of its $15.1 billion in sales, growing only 1.1% versus 6.6% for Nordstrom proper.
NMG clearly understands which side its bread is buttered on, making its 2020 decision to shutter the off-price Last Call stores a good call as it pivoted to grow its luxury customer base and drive full-price selling.
That strategy is paying off. “Neiman Marcus is thriving because it is focusing on building high performance, humanistic and personalized client relationships with their best customers,” Milton Pedraza of the Luxury Institute shared.
“They are building trust and joy with associates and clients that translates into conversion, high-value purchases, retentions and referrals,” he continued.
Brand loyalty is the Holy Grail in retail, and Neiman Marcus has attained it.
“Neiman Marcus ranks in the top ten for brand loyalty among affluent consumers, putting it on the same playing field as the leading brands in the game, including Louis Vuitton, Four Seasons, Rolex and Tiffany,” reported Chandler Mount, founder of the Affluent Consumer Research Company. His firm conducts ongoing surveys among affluents heavily weighted toward high-net-worth (HNW) consumers with $1+ million in wealth, making up 70% of its sample.
“Management’s decision to focus on its top, loyal customers is well advised,” he continued. “Affluent consumers like how Neiman Marcus offers a consistently high experience (88%) and strives to meet their individual needs (73%).”
And the later – meeting individual needs – is part of the luxury business model’s exclusivity paradigm. Neiman Marcus understands it must be a special destination for its highest-potential/highest-performing customers, and by doing so, it breeds passionate brand loyalty.
“The retailer’s ability to provide personalized service to its top clientele is what makes them loyal,” Mount affirmed.
And that loyalty will see Neiman Marcus through as the economy goes sideways. “The current volatility has resulted in a slowdown of new customers,” van Raemdonck shared with me.
“During this time, we are focusing additional efforts on deepening relationships with the customers whose resilience fuel our long-term profitable growth,” he continued.
He described NMG as first and foremost a relationship business and he and his team work hard to nurture lasting relationships with its exclusive luxury customers and the brands they desire.
Its expression of exclusivity is not about excluding anyone – “We welcome all customers to experience luxury at NMG,” van Raemdonck said – but about being that special place that means something special to those special people who value its true luxury shopping experience.
Making Dreams Come True
Neiman Marcus is a source of inspiration for its customers or as Professor Jean-Noël Kapferer wrote,“Luxury brand building is about creating and remaining the dream of the target consumer.”
And NMG makes their dreams come true through carefully curated selections of luxury’s best brands and by presenting them in dream-like settings, what the company calls retail-tainment experiences.
“One way we are cultivating relationships with customers is by collaborating with our brand partners to create unique expressions of their brands, offered exclusively for our customers,” van Raemdonck shared.
He also noted that last year the majority of the company’s top 20 brands sponsored exclusive activations in its stores, which is part of the company’s strategy to “revolutionize luxury experiences.”
Most recently, it hosted a poolside party in its Dallas NorthPark store to launch an exclusive “A La Piscine” summer collection from Christian Louboutin.
With prices starting at $190 for a stainless steel tumbler, $350 for a pair of flip-flops and handbags up to $1,990, it’s a collection for those special someones who love the Louboutin brand and can afford it. Neiman Marcus delivers them.
Thus NMG creates a virtuous circle that builds stronger relationships with its 2,000+ brand partners and luxury customers who love the brands the company showcases.
While the concept of exclusivity doesn’t sound agreeable in conversation, luxury consumers fully understand and appreciate it in the abstract. And it’s a concept that luxury brands must be comfortable with.
Professor Kapferer explores the tension in his luxury branding paper cited above, where he described the anti-laws of marketing luxury.
He explained the dichotomy between inclusion and exclusion. “Luxury brands must look at being accessible in order to sell their products, yet remain only for the chosen few,” he wrote.
Restricting supply and distribution is one way to balance the two, and never discounting is another, “for you are selling timeless value.”
Exclusivity also requires balancing accessibility and inaccessibility. “Too many accessible products create sales but kill brand equity, dream and pricing power,” he wrote.
It can be achieved by maintaining objective rarity through the level of craftsmanship and scarcity of materials, like Hermès bags, or through what he frames as “virtual rarity,” such as limited editions available only at certain retailers, like Neiman Marcus, or within specified time frames.
Exclusivity can’t be a dirty word in the luxury vocabulary. It upholds an essential premise on which the luxury business model is based.
“Luxury is not a set of techniques, or codes; it is a complete culture, everything the brand does should aim at making it incomparable, from the products themselves, the stores, the service, each single act of communication,” he wrote.
Thus the luxury brand becomes exclusive, not in the commonly understood definition of excluding certain people from partaking, but in the sense of being that one-of-a-kind brand that is unique, incomparable and elevated above the rest. That’s a good exclusive that every luxury brand should aspire to be.