Inside Neiman Marcus' 'Courageous' Decision To Say Last Call On Its Outlets

Neiman Marcus surprised the retail world when it announced plans last week to close most of its 24 U.S. Last Call discount locations and cut more than 700 jobs.

Traffic was trending up, and off-price retailers like Last Call have outperformed department stores in recent years, and have been seen as a hedge against future downturns.

Yet, analysts covering luxury retail say Neiman’s had only two roads to take in today’s hardscrabble retail landscape — either waste money on the cratering middle-class retail segment or go full-blown luxury.

Dallas-based Neiman's decided to take the luxury path. 

“The world has bifurcated, the middle [retail segment] no longer works. You are either a luxury brand or you are T.J. Maxx and Ross,” Luxury Institute CEO Milton Pedraza said. 

Pedraza believes Neiman’s went the way of other luxury brands this past decade by assuming they needed to hedge their bets against rough economies and e-commerce by reaching out to off-market consumers, who could then shop for lower-priced Neiman’s products or overflow from the stores at the Last Call outlets. Its competitors have launched similar programs, such as Saks Fifth Avenue’s Saks Off 5th outlets and Nordstrom’s Nordstrom Rack retail outlets.

But Pedraza sees Neiman’s Last Call closures as correcting those mistakes. 

“I would say that Neiman Marcus is just doubling down on what its origins are — luxury,” Pedraza said. “I think what they are trying to say is, 'we may have a smaller footprint, but we are going to try to make it a profitable footprint; and we are going to be a luxury brand,' which is courageous because most of these brands and most of their executives always hedge for whatever reason. Somebody told them hedging is good, although it is unprofitable.”

The news of the closings hit as Neiman’s is dealing with ongoing debt issues, the emergence of e-commerce and the coronavirus keeping visitors away.

The store closings are not necessarily a sign of failure. 

Last Call locations actually saw their traffic increase 3.5% year-over-year in February 2020 and 4.5% year-over-year in January of this year, Placer.ai spokesperson Ethan Chernofsky told Bisnow. 

Placer.ai is an analytics and intelligence platform with the ability to trace traffic patterns for retailers and businesses. 

“When you look at the data, we don’t see anything that indicates this tremendous failure,” Chernofsky told Bisnow.

“So I think what we are going to learn in the coming months is that one or two things happened: Either the customers weren’t responding the way Neiman Marcus wanted them to, or they wanted to really focus on what they do well, which is that high-end sector.”

Rent alone can make the outlet business a burden for luxury retailers built more on reputation and relationships with the wealthy than on mainline retail competition, Pedraza said.

“Rent expenses and a lot of [other] expenses make it unprofitable to be in the outlet business,” he said. “Brands do it because they are afraid to make a decision, but I think this is courageous.”

Chernofsky said he believes Neiman's simply faced too much competition in the mainline discount segment. 

“The competition in that space of off-price retail is incredibly intense,” Chernofsky said.

There are many gold standards in the discount segment that Neiman's had to compete against while also focusing on its luxury clients. 

“These other players like Marshalls and TJMaxx really cater to that audience and do it so well,” Chernofsky noted. 

As for where Neiman’s goes from here, Pedraza sees it taking the path of luxury London retailer Harrods and becoming the holistic service and retail site of the well-heeled buyer to ensure profitability and growth.

Harrods offers everything on-site for wealthy shoppers from beauty services to plastic surgery.

“I expect Neiman Marcus will up the ante and start going for services that are high-end that will really pay off, whether it’s wellness, medical or beauty,” Pedraza said.