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The Biggest Trend in Premium Retail

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We all know that bricks-and-mortar retail is undergoing a major renovation -- one that will oust age-old names and brands we have seen in our malls for decades. But through the retail revolution, high-line shops and brands seemed to have not only survived, but thrived. One would think that, because of their consistent success, premium retailers don't have to worry about the massive upheaval that is taking place in the retail industry. But it looks like even the fancy shops are making moves to protect themselves in an ever-changing retail landscape.

Solid reports, shifting trends
Let's talk about a company that isn't public but whose moves are very important to the premium retail business. Neiman Marcus, which is owned by private equity firms, recently reported its fourth-quarter numbers. The retailer, which in the last year has been rumored to be going public soon, saw chunky gains in revenues and EBITDA, with a 10% gain in sales to push the company over $1 billion. Same-store sales were up an impressive 7.9%, and operating income went from $17.5 million a year ago to $25.5 million.

The company owns and operates several dozen department stores, as well as the iconic Bergdorf Goodman store in Manhattan. It is one of the major premium department stores, along with Saks Fifth Avenue (NYSE: SKS  ) and Nordstrom (NYSE: JWN  ) .

What is most interesting about Neiman's earnings release, though, is that one-fifth of its profits came from online sales. While many consider premium retailers to be immune from the shift to e-tailers, it is clear from Neiman's results that this is not the case. Management agrees, and recently made a nearly $30 million investment in a Hong Kong-based-e-commerce site, where it intends to launch a Web-based Chinese store in 2013.

Premium clothing and accessories retailers, such as Coach (NYSE: COH  ) , have been pushing their concepts in Asia for a few years now, though it has largely been through branded stores and distribution partners. Neiman's move suggests a different path to success in the region, and a greater trend overall.

Watching closely
Saks and Nordstrom are without a doubt keeping a close eye on Neiman's progress on the Web front. Saks' CEO, Steve Sadove, recently said in an interview that his company's online sales have been increasing at a 30% clip for the last few years, and show no sign of slowing down. The company recently launched a flash-sale site to compete with Web startups such as Gilt. Sadove also made a point of saying that there won't be too many more Saks stores going up, considering the growth of its mobile and Web businesses.

So, even though the rich will always be rich and should have no problem dropping four grand on a cocktail dress, it seems that the move to e-commerce is as prevalent in high-end retailers as it is for low-end.

The trend comes amid massive changes in the industry, with companies like J.C. Penney (NYSE: JCP  ) taking drastic measures to ensure their own longevity. J.C. Penney moved away from its discount model, though when sales plummeted, new CEO Ron Johnson chose to reintroduce some of the sales strategies while pushing forward with new product initiatives and partnerships.

The problem is...
It seems the issue for many retailers, premium or otherwise, is having too much physical space in today's retail landscape. It is simply too hard to ignore the efficiency and profitability of Web-based retailing. Lower-end department stores, like J.C. Penney, struggle to get people through the door, while the higher-end stores seem to be shifting focus even while same-store sales are rising.

While the retail landscape transforms, it will be interesting to see who leads in innovation while maintaining the classic appeal of department-store shopping. Perhaps one day soon, we will walk into a Neiman's, a Saks, or a Nordstrom, and be faced with a computer instead of a tuxedo-wearing piano player.

Want to know which companies our analysts think will be the new cash kings of retail? Check out this special free report. In it, you'll learn about which retailers you should no longer be focusing on in your investments -- and which ones are poised to take over the industry.

Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter @MikeyLewy. The Motley Fool owns shares of Coach. Motley Fool newsletter services have recommended buying shares of Coach. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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10/28/2016 4:00 PM
COH $35.72 Up +0.20 +0.56%
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