With Neiman Marcus filing Chapter 11 and the specialty channel in flux, ultra-prestige beauty brands are exploring their options.
By Jenny B. Fine on May 15, 2020 // WWD, Beauty Inc.
Chanel. La Mer. Sisley. La Prairie.
When the Neiman Marcus Group filed for Chapter 11 protection late last week, the top 20 unsecured creditors included four beauty (or beauty-related, as with Chanel) brands. Further down the list of the top 50 creditors were more, including Tom Ford Beauty and Carven Lux Perfumes.
That the filing came as a surprise to no one in the industry doesn’t mitigate the potential impact on business. Add in recent events like Nordstrom’s decision to permanently shutter 16 stores in the U.S., Hudson Bay Co.’s privatization in February, the bankruptcy and subsequent liquidation of Barneys New York late last year and Macy’s ongoing woes (including reportedly putting the Bluemercury business on the block), and the viability of the specialty store channel is now in question.
“This is another example of a business model not adapting to the change in consumer tastes and a different competitive environment,” said one source, the chief executive officer of a top 10 global beauty company, who requested anonymity. “It means for the industry that this brick-and-mortar model of high-fixed costs and exclusive or semi-exclusive presentation of luxury brands is disappearing. When digital is taking a big chunk of the volume that these stores were making and you still have the same fixed costs, the economics don’t work.
“The question then becomes,” continued the source, “where do you sell prestigious, expensive beauty or fashion brands in the U.S.? It is not obvious.”
While the pandemic didn’t cause the demise of the department store, it has certainly exponentially accelerated it. “We knew that a lot of these retailers were struggling. This crisis has exploded the situation,” said Wendy Liebmann, ceo and chief shopper of WSL Strategic Retail. “If you’re a luxury beauty company and you’re not already sitting there with scenario A, B, C, D and maybe E on your virtual whiteboard, you’re going to be in really big trouble.”
“If you’re a luxury beauty company and you’re not already sitting there with scenario A, B, C, D and maybe E on your virtual whiteboard, you’re going to be in really big trouble.”
Liebmann predicts a major culling in the number of department and specialty stores post-pandemic in the U.S. “We’ve got 50 states. If you think that maybe there will be one or two high-end stores in each major city, and maybe one in a secondary city, you’re talking about a couple of hundred stores,” she said. “Granted, they may be your best stores. But where is the rest of your volume coming from?”
That question is especially vexing for beauty’s super-luxe segment. “You have to think about the expression of a luxury positioning outside of what used to be considered a luxury distribution channel,” said Elana Drell-Szyfer, ceo of RéVive. “If a brand doesn’t want to shrink, it has to think about doing business in other ways. That includes your own dot.com as well as other beauty pureplays that you might not have considered in the past. The reality is that the business has moved online incredibly quickly during this period.”
In terms of beauty pure plays, one platform generating a lot of chatter is Amazon’s upcoming ultra-luxury play. As WWD reported in January, the e-commerce giant is said to be launching a U.S.-based platform sometime in the first half of the year, starting with fashion and accessories. Beauty is said to be phase two of the plan, with sources indicating that pre-pandemic the launch timing was said to be October.
Amazon declined to comment on plans or timing, but sources said that the platform is by invitation only, that it will be mobile- and app-based, and that Amazon has said it will respect the major concerns of prestige beauty firms in terms of discounting and brand presentation.
What is known is that sites like LookFantastic and its satelline, SkinStore, both owned by The Hut Group, are said to be doing very well with luxe beauty. Sephora and Ulta are doing well online, also, but whether or not they’re the right environment for a $510 La Prairie Skin Caviar cream is questionable. “It could be an option, even if for only part of a brand’s collection,” said Leibmann.
That’s not to write off Neiman Marcus completely. The company has not yet shared any plans in terms of reopening stores and does hope to emerge from bankruptcy as a going concern, although 10 doors are offering curbside pickup service.
Drell-Szyfer said one bright spot has been Neiman’s online business, and that its promotional strategy combined with having a beauty adviser for NeimanMarcus.com has been successful. “We attribute a good deal of how well the business has done during this period to the type of personalization the beauty adviser has been able to give,” said Drell-Szyfer, noting that she has a book of existing customers but is also notified when someone comes online and is searching for the brand.
Drell-Szyfer added that the conversion rates are higher with this type of program than with virtual consultations, adding it could be a model for other retailers moving forward. “A virtual consultation is not an immediate sale. It’s more of a product introduction and education,” she said. “The sale comes after, when there is follow up.”
That level of clienteling is what Neiman’s is best known for, said Janet Gurwitch, the investor and founder of Laura Mercier, which the retailer launched back in 1996 and which acquired 51 percent of the brand in 1998 before selling it to Alticor Inc. in 2006. It’s also the aspect that will be most difficult thing to replicate, particularly in a category like prestige skin care. “They offered great service, where you could sit down and someone would explain why you were paying a lot for, say, a caviar cream. They would sell you a regimen, not just an item,” Gurwitch said. “Saks may do the same, but Sephora and Ulta are not built that way.”
But the shopper has changed, too. And unless Neiman Marcus can figure out a way to attract Millennial consumers, not just their mothers, the prognosis is grim.
“There is a prestige shopper today, and an opportunity to get the shopper back in the store,” said Gurwitch, “but you have to invest and do something innovative. They have to do something different and I don’t know what that is.”
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