Retail Site Pushes Web Envelope

Neiman Marcus taps multimedia apps to extend merchandising strategy

Neiman Marcus hopes to build a strong Internet presence with technology that's as fashionable as the $1,000-plus articles of clothing it peddles.

The tony retailer is following up a $24 million Web site investment with new multimedia applications that promise to make the online shopping experience more realistic.

Neiman Marcus also will add 1,400 products to its online stock of 2,600 by November to capitalize on the Christmas rush.

There's evidence that the e-commerce strategy--which relies heavily on outsourcing--is working. In the past year, the average age of a Neiman Marcus customer is down by three years, to 42, suggesting that the retailer is reaching more desirable and Web-savvy demographics. The company first launched online sales last October.

Neiman Marcus Direct, the business unit that includes catalog and Web operations, posted 12.6 percent higher revenue of $77.4 million in fiscal year 2000. Like most other retailers, Neiman Marcus doesn't break out online sales.

In total, Neiman Marcus recorded 14 percent higher earnings of $134 million in fiscal 2000 on 13 percent higher revenue of $2.85 billion. Its shares have climbed to the $35 range in recent weeks, from less than $20 in late March.

Big-Ticket Products
Rather than rely on promotions like most retailers, Neiman Marcus sells goods at full price, whether through the Web, in conventional stores or at Bergdorf Goodman, the company's two-store chain in New York. Most of the clothing, jewelry, shoes and other accessories sell to consumers with incomes of more than $100,000, a spokeswoman said.

"Our growth continues to be driven by trading up our merchandise mix to more profitable categories and narrowly distributed brands, and away from widely distributed brands, which tend to be more promotional and less profitable," said Neiman Marcus co-CEO Brian J. Knez.

Given the type of merchandise the retailer sells, it should count on continuing to make hefty profits online, said Yankee Group analyst Christine Loeber.

"Neiman Marcus's margins are big wherever they go because they're not selling commodity items," Loeber said.

"That doesn't change moving online, where they're selling the same type of product to the same type of people."

The challenge now is for Neiman Marcus to extend that merchandising success online, analysts say. To do so, it has turned to outsiders with greater Web expertise, while the company's internal staff focuses on supporting brick-and-mortar catalog and store merchandising.

Neiman Marcus hired consulting firm Digitas Inc. to build its Web site. Digitas steered Neiman Marcus toward display technology called RichFX Environments from RichFX Inc. and Zoom from MGI Software. Combined, the tools give the site a virtual-reality feel, with far greater detail than the static online displays used by retailers such as Banana Republic and JC Penney. Company officials say the technology is vital to give shoppers a life-like feel for the merchandise.

Late last month, Neiman Marcus became the first Web site to use RichFX Environments, which features a streaming 3-D shopping interface to display Neiman Marcus's line of Manolo Blahnik shoes. The software enables Neiman Marcus to provide an interactive "boutique," where shoppers look at shoe displays almost as if they're strolling into a store on Fifth Avenue. A RichFX encoder compresses 3-D video so it can be transmitted through a dial-up modem connection.

Zoom was selected for its ability to show fine details of products, said Karen Katz, CEO of Neiman Marcus Direct. As consumers pan around specific items, Zoom serves only the fraction of the 3,000 x 3,000 pixel image the consumer has selected to magnify, minimizing the amount of bandwidth consumed.

If the Web enhancements are successful in luring buyers, they'll continue the company's online momentum.

Many of the retailer's most profitable stores are in the country's most wired geographic areas.

"It's not far-fetched when you have these people spending $7 million on a house--and many of them are from Silicon Valley--to think they'll shop at Neiman Marcus online," said Hurwitz Group analyst Carol Baroudi.

Still, the challenge of selling expensive, tactile goods through a 2-D medium is daunting.

Yankee Group's Loeber said Neiman Marcus would be better off concentrating on areas where many online retailers fail, rather than adding sophisticated new display technologies for items with eye-popping prices.

"They've created a novel experience, but they didn't really improve the ability of online shoppers to shop for their products," Loeber said. "They're better off focusing on the core of service."

More important items the site should address include detailed product descriptions and the ability to view apparel items in all the colors offered, she added.

Its $24 million investment not-withstanding, there are other signs that Neiman Marcus has a long way to go before it gets its virtual house in order. For example, the company does not own the www.bergdorfgoodman.com URL. That Web address is registered by an unaffiliated entity calling itself B.G. Internet Services. The same organization owns the URL www.newyorktimes.com.