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The Competition for Luxury Dollars Heats Up

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Last month, Neiman Marcus decided that it wasn't interested in joining up with Saks  (UNKNOWN: SKS.DL2  ) . Today, it turns out that the high-end department store is going to go it alone, filing paperwork for an IPO with the SEC. The company currently operates 41 Neiman locations, and last year it took a stake in a Chinese online retailer to expand its geographic horizons.

The sale wouldn't generate any cash for the department store itself, as the stock is being sold by the current operators, who purchased the company eight years ago. Even so, a return to the market would give the company a future path to raising equity to fund expansion, and it could represent a great opportunity for investors.

The competitive landscape
Last quarter, Neiman Marcus grew comparable sales by 3.6% year over year. That brought total sales to $1.1 billion, which was a 3.7% increase over the same period. For comparison, Saks grew comparable sales by 5.9%, and Nordstrom's (NYSE: JWN  ) comparable sales grew 2.7%. All three high-end chains have benefited from strength in the luxury market, though that strength is now in jeopardy.

Recently, analysts have seen weakness in the luxury market, brought on by a change in the way people view fashion or possibly by changing economic winds in China. Either way, Neiman Marcus will need to reassess the way it works within the department store space.

Some of the strongest performers, for instance, have not been at the high end of the spectrum. Macy's (NYSE: M  ) , in particular, has seen excellent growth by focusing on the middle ground. The company grew comparable sales by 3.8% year over year in its last reported quarter. Luckily, Neiman Marcus isn't just the pretty face that comes with its main brand.

The many faces of Neiman Marcus
In addition to the Neiman Marcus stores, the company operates Bergdorf Goodman and the Last Call brand. Bergdorf is more in line with the Macy's brand, while Macy's Bloomingdale's brand is in competition with Neiman Marcus. The different facets of both brands give them an advantage over companies like Saks, which mainly operate at one level.

While Nordstrom is further toward Macy's than it is toward Neiman Marcus, I see it as the main competitor in this space. Nordstrom has spent a small fortune making its store more dynamic, by adding mobile checkout counters and updating its website for smartphones to advance its omnichannel plans. That focus on customer experience is going to make a huge difference when the luxury market slows, and Neiman Marcus is going to need to approach that level of experience if it wants to keep ahead of the competition.

Right now, the IPO doesn't help the company with its immediate operations. As such, it may make sense for investors to let the hype die down a bit before jumping in with both feet. On the other hand, if you love the Neiman brand, the company has all the pieces it needs to grow over the next few years, so getting in on the ground floor might be just the thing. Either way, I'll be keeping an eye on the IPO and the stock as it fights off the competition.

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Related Tickers

9/30/2016 4:02 PM
JWN $51.88 Up +0.40 +0.78%
Nordstrom CAPS Rating: ****
M $37.05 Up +1.00 +2.77%
Macy's CAPS Rating: **
SKS.DL2 $0.00 Down +0.00 +0.00%
Saks, Inc. CAPS Rating: *