Inside Neiman Marcus’s $500 million tech investment

1 year ago 171

After a bankruptcy filing amid a pandemic, Neiman Marcus Group, the luxury US department store owner, is making a $500 million bet that investing in technology can turn it around.

Neiman Marcus plans to spend the sum during the next three years on new tech, updating its stores and speeding up delivery times. Bob Kupbens, Neiman Marcus Group’s new EVP and chief product and technology officer, who joined in February and had previously worked with Apple and Ebay, is leading the investment. He will be working with the e-commerce team, the “Connect” app and the innovation team, where experimental projects across both Neiman and Bergdorf Goodman are planned.

“People love Neiman Marcus,” Kupbens says in an interview. “So how can we create an even deeper emotional connection? Our selling associates do that so well every day, so how do we invest in technology that enables them to do that more — and then bring a deepening of people's perceived value and integration with the brand?”

Technology to improve personal relationships with customers is key, making services such as recommendations, one-to-one communications and store visits better, faster and more scalable. Crucially, it’s the top clientele who are set to benefit. The goal is what the company calls “integrated luxury retail”, which translates to personalised services for a small subset of customers, says Kupbens; 40 per cent of the retailer’s business is from customers who spend more than $10,000 a year, and about 35 per cent of the group’s revenues comes from the retailer’s credit cardholders.

$500 million is a considerable investment, underscoring the work that the US department store has to do to make up for lost time, catching up with changed customer behaviours and a new retail environment. Neiman Marcus Group, which consists of Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call and Horchow, has been through a challenging period, and has been operating under a “crushing amount of debt” for the past five years, notes Mark Cohen, director of retail studies at Columbia University's Business School. In May 2020, the group filed for bankruptcy, citing the pandemic as the catalyst. It cancelled $4 billion of its more than $5 billion debt by restructuring and giving control to creditors. It permanently closed most of its off-price Last Call stores and its new Hudson Bay store, and is now in the process of reopening its 43 Neiman Marcus stores and two Bergdorf Goodman stores.

During the pandemic, luxury department stores in the US — after years of playing a crucial role in brand distribution strategies — gave up ground to online early adopters and to brands that found DTC channels offered more control and higher margins. For Neiman Marcus Group to successfully recover in an environment that finds department stores facing increased competition requires “a ruthless focus on stores and customer service (which includes delivery)”, Cohen says. “You have to ask yourself: ‘What are they capable of now and where do they have to go to be as world class as their customers expect them to be?’”

“You do it through a connection to a real person,” Krupbens says, adding that digital information can help inform recommendations for new categories, brands, events or services that hopefully deepen that personal relationship. “I don't think that in luxury, anybody's really solved that. What you see is other folks vacate the space — some folks who are leaning more toward pure play or leaning more toward mass. This space of what's truly differentiated — integrated retail, luxury focused, unique experiences — is a place that we can really win.”

Building out NM Connect

Neiman Marcus’s tech investment will shake out in the form of building tools internally as well as acquisitions and partnerships with tech providers.

In June, NMG announced it was acquiring Stylyze, a software company that uses machine learning to make outfit recommendations based on what customers have looked at or purchased. Neiman Marcus has worked with the company since 2018, and integrated it into NM Connect, the proprietary tool introduced two years ago that associates use to communicate with customers. Through NM Connect, Stylyze can ingest Neiman’s assortment to help sales associates create looks for customers. Two months after the technology was rolled out to nearly 5,000 associates, it resulted in $60 million in incremental sales, in addition to revenue from Neiman Marcus was using the technology “so aggressively”, Kupbens says, that it made sense to bring Stylyze in-house. Since the launch of Connect, the company says associates have completed more than 5,000,000 “engagement sessions” and placed hundreds of thousands of orders on the platform.

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