Though much was accomplished during her seven years as chief executive officer, Karen W. Katz retires from the Neiman Marcus Group leaving behind some unfinished business for her successor, Geoffroy van Raemdonck.
The company continues to report losses, but they’re narrowing and sales are improving. There’s the burden of bolstering the balance sheet and servicing the $4.4 billion in long-term debt, but Katz has repeatedly stated the company is not capital constrained — although the debt is junk rated.
And Neiman’s must elevate its level of exclusivity and appeal to a younger demographic influenced by social media. Millennials have spending attitudes and service expectations different from Neiman’s core base of mostly middle-aged and older, affluent customers.
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For the incoming van Raemdonck, who starts his new job as ceo of Neiman Marcus Group on Feb. 12, it’s a matter of getting the 110-year-old company in better shape so it can reclaim the mantle it once held as the nation’s leading luxury chain and enable NMG’s owners — Ares Management and the Canada Pension Plan Investment Board — to execute a long-hoped-for exit strategy. The owners paid $6 billion for NMG in 2013 and want to recover their investment.
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More than two years ago, as business dragged, NMG called off an initial public offering. Last year, the owners unsuccessfully tried to sell the company, including to Hudson’s Bay Co., which owns Saks Fifth Avenue and Lord & Taylor.
Katz, while declining to comment on the possibility of Saks and Neiman’s merging in the future, did discuss during an exclusive interview the challenges facing her successor and her motivations for leaving Neiman’s after 33 years with the company, at this time.
Among the things van Raemdonck must consider is the changing luxury consumer. As Katz observed, “People are very discriminating how they buy and what they buy. They really want bespoke experiences. The next frontier is how we develop true relationships with customers online. There’s a continued evolution to modernize the process, the tools and the data to meet our evolving customers. We have to make it easy for them” to shop, receive deliveries and receive a more personalized experience. “That’s where technology and data analytics come in.”
Asked whether in a post-recession economy there’s been less demand for luxury products, Katz replied: “We are not seeing that. There are segments of Millennials that are very interested in luxury but the way they shop for luxury may be different. They are so influenced by social media.”
Brands like Ralph Lauren, Vince and Michael Kors are reducing their distribution, impacting companies like Neiman’s and Saks. “Absolutely, in some cases, there is an overdistribution,” said Katz, adding, “the most important luxury brands recognize the situation.…One of the key initiatives of our ‘digital-first’ strategy is to make sure we continue to differentiate the product.”
On the brick-and-mortar front, van Raemdonck will see through the opening of Neiman’s first New York City store, scheduled to bow in March 2019 in the massive Hudson Yards mixed-use project under development on Manhattan’s West Side. Plans for the three-level site were finalized in the fall, putting it at 190,000 square feet, about 10 percent less than originally projected. Katz recently said the technology, art and design of the store and its merchandise will “surpass existing shopping experiences.” Costs will surpass the $400- to $500-a-square foot Neiman’s typically spends to build a store.
“In the near term, it’s really about making sure Hudson Yards has an amazing vendor lineup, though most of that is completed,” Katz said during the interview. “The store will have elements of things that really capture the imagination of the customer. The timing of it couldn’t be better. New York is rebounding and with the dollar weakening, we will see more international tourists.” Still, Hudson Yards is in effect creating a new neighborhood and for any retailer, it’s uncharted territory.
Crosstown, at Bergdorf Goodman on Fifth Avenue and 57th Street, there’s also some unfinished business. “Geoffroy definitely plans to name a new president,” Katz said. “It’s got to be on top of his [to-do] list.” Jim Gold, president and chief merchandising officer of Neiman Marcus, has been serving as president of Bergdorf’s since Joshua Schulman last April became president and ceo of the Coach brand.
Bergdorf”s is well into a five-year overhaul of its selling floors, and already redid the main floor for fine jewelry and handbags, as well as some women’s floors. Offices were relocated to add two selling floors to expand the assortment. “We’ve spent a lot of capital over the last few years” on Bergdorf’s, Katz noted. “We are still thinking through what we want to do in the re-layering process” to determine how the merchandising plays out.
At upscale competitors such as Saks and Bloomingdale’s, leased shops, particularly from European-based brands, are proliferating, while Neiman’s has taken a back seat. “Geoffroy will have to get well-educated on what the best situations are in terms of leases and concessions,” Katz said.
It’s been Neiman’s policy generally to exclude leased shops in their doors, with some exceptions such as Louis Vuitton. Neiman’s emphasis on service, enabling associates to sell to their clients throughout the store, is sometimes disrupted by leased shops, which have their own approach to service and provide a different experience. “We have always believed there is a place for concessions. Some of our partners work beautifully with us,” Katz said.
Van Raemdonck, formerly group president at Ralph Lauren Corp. for the Middle East, Europe and Africa, as well as global travel retail, was not available Thursday to discuss his vision for the $4.7 billion, Dallas-based NMG.
Before Ralph Lauren, the 45-year-old van Raemdonck served as ceo at St. John Knits International Inc. for a year. Prior to that, he held executive slots at Louis Vuitton, including president of the South Europe region, and at L Brands Inc. He began his career at Boston Consulting Group,where he spent nearly a decade developing and implementing growth strategies for consumer and brand-driven clients.
While the choice of van Raemdonck was somewhat of a surprise given his relative low profile in the retail industry, it generally received a thumbs up from observers. “Geoffroy has a great background to take on this role — luxury from LV, consulting from BCG and best-in-class business retail training from Les Wexner and L Brands,” said Kirk Palmer of Kirk Palmer Associates, an executive search firm that did not handle the Neiman’s search (that was done by Russell Reynolds Associates). “The Ralph experience further rounded his general manager skills and he is truly a global citizen with a global knowledge base. He has strong consumer and brand centricity, knows how to fix businesses and happens to have an outstanding personal communication style. He may not be a household name in the industry, but the search community has known about Geoffroy’s potential for a long time.”
“The board conducted an extensive search to fill my role,” added Katz. “Geoffroy has a unique mix of senior-level experience at luxury brands and world-class retailers, large and small. He’s great on executing on strategy. I met him over the years when he was running St. John. His true strength lies in the way he can bring people together around ideas, really thinking about appropriate strategies.
“My guess is that he is going to continue with the strategy that we have put together over the last year, but of course, as any ceo does, I am sure he and the team could very well tweak the strategy. I am going to remain on the board. There will be that continuity. I will be around to support Geoffroy and the team.”
Aside from being the ceo, Katz was also president of the corporation. Van Raemdonck was not given that title, leaving open the possibility that someone else gets it. It’s not unusual for new ceo’s to make management changes.
“Karen was ready for a change now that there’s been somewhat of a turnaround at the company,” said an industry source. “She had enough and the owners were ready to bring in someone with a fresh perspective.”
“I had a big birthday a number of months ago,” Katz said, referring to her 60th. “I recognized that it was really time to start thinking about what was next. I’ve been with the company for over 33 years. I had an amazing career at the Neiman Marcus Group beyond what I could ever have imagined when I started there as a young woman.
“The board and I started discussing succession planning a number of months ago,” she said, giving Katz time to implement some key strategies including “Digital First” and the NMG One merchandising system, which had a rocky first year filled with glitches impeding ordering, pricing and information exchange with vendors, causing millions in lost sales. By last fall, NMG One, which provides visibility of all products so teams across channels can see each other’s inventory, was fixed and helping the business, though it was a longer-than-expected repair job.
“We had a very good first quarter. I can’t speak a lot about the holidays, but I think it’s going to come out in a positive way,” Katz said. “It’s a good time to turn over the reins. We have accomplished a tremendous amount in the last number of years in spite of a challenging retail environment.”
Katz’s retirement agreement gives her $2.5 million next month, and another $1 million next year. She also gets a pro-rate annual incentive bonus for the company’s 2018 fiscal year, to be determined by the board’s compensation committee, and other benefits. As a director, Katz will earn $50,000 annually and she gets medical coverage continued, among other benefits.
Katz is credited with pioneering luxury selling online and pumping up Neiman’s 20-year-old digital business so it represents more than 30 percent of NMG’s total annual volume. Katz estimated that Neiman’s digital sales could exceed 40 percent of the total.
She also guided Neiman’s through the recession, and orchestrated the purchase of the Mytheresa.com luxury web site based in Germany, giving Neiman’s its first international presence aside from an earlier ill-fated joint venture in China. During her tenure, there were several key Neiman’s openings, including the first Long Island store, which is in the Roosevelt Field mall.
Katz, considered feisty and open-minded, began her retail career in 1978 in the training program of the now-defunct Foley’s department store chain in Houston. She joined Neiman’s as assistant manager of the Houston store in 1985. She rose up the ranks, becoming divisional merchandise manager of handbags, general manager of the North Park store in Dallas, one of the chain’s biggest volume units, and then senior vice president and director of all stores in 1996. She became an executive vice president in 1998, president and ceo of Neiman Marcus Direct in 2000 and ceo of Neiman Marcus Stores in 2002. In October 2010, she became president and ceo of the entire company.
Asked if it was her decision to leave Neiman’s, Katz responded, “Let me make it very very clear: The equity owners and I are very good partners and I stay in very close touch with them. This has been a real partnership in terms of the succession. It was well-orchestrated. We knew exactly what we wanted.
“I am starting to think about what my next chapter is going to look like,” Katz said. Taking on additional board seats or possibly joining another company in an executive role are possibilities, she said. She will stay in the Dallas area, but is moving from a house to an apartment.
“I’m a little bit scared to death about what is next. Most of my adult life was at Neiman Marcus. At the same time, l love change. That’s who I am. I may very well do something else. I still feel very young and energetic.
“The best thing is I feel like I am leaving at a great time. The company is in much better shape than a year ago.”