Target, She's Out of Your League
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Either Target (NYSE: TGT) is a genius or they have one of Neiman Marcus' loved ones tied up in a basement somewhere. The recent announcement that Target and Neiman's is teaming up to offer a 50 item holiday collection from 24 CFDA (Council of Fashion Designers of America) designers, ranging from classics like Oscar de la Renta to the more modern Rag & Bone, is a major feather in Target's "accessible design" cap. The arrangement, in celebration of the 50th anniversary of the CFDA, will be identical at both stores and will be set apart from other items. Ranging in price from $7.99 to $499.99, most items will retail for under $60 and will be "must-have" gifts (of course), according to Karen Katz, CEO of Neiman Marcus Group.
Upon first seeing this story in the Wall Street Journal, I immediately thought that Neiman Marcus must truly be getting desperate. After being acquired for $4.7 Billion in 2005 at the height of the private equity party by TPG and Warburg Pincus, Neiman's has struggled to grow. The owners are probably getting restless to sell, given their typical three to five year timeframe, and consistent IPO rumors. A rough valuation using enterprise value/EBITDA with Nordstrom (NYSE: JWN) and Saks (NYSE: SKS) as comps would suggest a Neiman Marcus enterprise value at around $4 to $4.1 Billion, a pretty sizable loss for the owners. The owners could be thinking this deal with Target could be just the mass-market appeal (and the increased sales that come with it) they need to justify an exit.
But, will the arrangement actually achieve what is intended? Target will certainly get the prestige and design street cred they keep pushing, but I don't see customers flocking to Neiman Marcus in droves under the auspices of a more approachable luxury experience. Once the masses pick over the $12 Target items they might browse around the other items; but when they see the $900 sweaters and $150 eye cream they will go right back to more affordable stores. Though Karen Katz is making headway in making Neiman's more mass-market friendly by doing things like allowing forms of payment other than Amex and cash, she has a long way to go to catch up to a company like Nordstrom. Nordstrom has been flexible with pricing during the aftermath of the recession and helped to launch lower priced lines of high-end designers; The Wiglaf Journal expounds on this, "[Nordstrom] introduced a new exclusive line of Elie Tahari professional women’s clothing priced 30% lower than Elie Tahari’s main collection. [They] also introduced the under-$100 Easy Money jean brand." Though they still offer the expensive stuff, there is at least a choice to go cheaper.
Neiman's, on the other hand, has tried the more affordable route with their Cusp concept. Cusp exists as a "store within a store" at all Neiman locations and as 6 stand alone boutiques around the US. Though it is a noble attempt, a quick perusal through the online store shows the price point is still out of the grasp of all but a very select few. The Target deal could help to make the Neiman Marcus name seem less stuffy and expensive in people's minds, but until prices actually start coming down the only winner I see in this is good ole' Target.
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