The Neiman Marcus Group, Inc. Business Information, Profile, and History

Company Perspectives:

Our mission is to be the leading specialty retailer of fine merchandise to discerning, fashion-conscious consumers from around the world. We will strive to exceed customer expectations for service, quality and value as we build upon our longstanding tradition of excellence.

As we pursue this mission, we are guided by the following important values. We will maintain an uncompromising commitment to quality and the highest levels of customer service in all of our businesses and endeavors. We will adhere to the highest levels of integrity and ethical standards in dealing with all constituencies, including customers, suppliers and employees. We will aspire to achieve a leadership position in every one of our operating businesses. Our management decisions will emphasize long-term benefits to the value of our businesses, not short-term gains. We will employ capable, motivated people; follow sound management practices; utilize new technology efficiently; and reinvest earnings and additional capital as required to grow our businesses and maintain the corporation's financial health. We will strive to maximize the potential of all employees and maintain a professionally challenging work environment. We will be socially and environmentally responsible and support worthwhile causes, especially in those communities in which we operate.

History of The Neiman Marcus Group, Inc.

The name Neiman Marcus is practically synonymous with upscale retailing in the United States. In the early 21st century, The Neiman Marcus Group, Inc. operated through two main segments. The specialty retail stores segment included the 33 stores bearing the famous Neiman Marcus name and Bergdorf Goodman, another high-end retailer with two stores in Manhattan. The Neiman Marcus Direct segment included the Neiman Marcus catalog as well as two other catalog operations--Horchow and Chef's Catalog--and e-commerce web sites for all three brands. In addition, the group held majority control of Kate Spade LLC, maker of upscale designer handbags and accessories, and Gurwitch Bristow Products, LLC, maker of Laura Mercier cosmetics. Throughout much of its nearly 100-year history, Neiman Marcus has been the clothing store of choice for many of the nation's most fashion-conscious people.

Early History: The First Neiman Marcus Store

From the very beginning, the founders of Neiman Marcus aimed high. The original store was opened in Dallas in 1907. Its proprietors were Herbert Marcus, his sister Carrie, and Carrie Neiman's husband, Al Neiman. All three were working in various retail positions in the Dallas area around 1900. Frustrated by their dead-end jobs, Marcus and Neiman decided to strike out on their own. The pair moved to Atlanta in 1905 to start a sales promotion and advertising business. The venture was quite successful, and they were offered a lucrative buyout deal after only two years of operation. Given the choice between $25,000 cash or the Missouri franchise for Coca-Cola and some stock in that young company, they opted for the cash. In retrospect, that decision cost them a fortune, as Coke went on to become the Real Thing. In taking the cash, however, they acquired the seed money to launch the first Neiman Marcus store.

Neiman and Marcus returned triumphantly to Dallas in 1907 and immediately set out to open a store that sold the finest women's clothing money could buy. The store was lavishly furnished and stocked with clothing of a quality that was not commonly found in Texas. Within a few weeks, the store's initial inventory, mostly acquired on a buying trip to New York made by Carrie, was completely sold out. Oil-rich Texans, welcoming the opportunity to flaunt their wealth in more sophisticated fashion than was previously possible, flocked to the new store. In spite of a nationwide financial panic set off only a few weeks after its opening, Neiman Marcus was instantly successful, and its first several years of operation were quite profitable.

In 1913 the original Neiman Marcus store, and most of its merchandise, was destroyed by a fire, the first of several in the company's history. Within about two weeks, however, the store reopened at a temporary site nearby, and construction was quickly begun on a new permanent location. With capital raised through the sale of stock to a handful of manufacturing companies, the new building was ready for business by the autumn of 1914. In its first year at the new building, Neiman Marcus recorded a profit of $40,000 on sales of $700,000, nearly twice the totals reached in its last year at the original location.

Business at Neiman Marcus got better and better over the next several years, as money from oil, cattle, and cotton continued to flow into Texas. Throughout this period, the store maintained its commitment to extravagance, lining the aisles with the fanciest merchandise that could be found. Gradually, the store's reputation expanded beyond the borders of Texas, and soon glamorous types from Hollywood, New York, and even Europe were making special trips to Dallas to shop at Neiman Marcus.

In 1926 Al and Carrie Neiman were divorced, and Neiman's interest in the store was bought out by the Marcus family. The Marcuses remained at the top of the company's management for the next 60 years. Stanley and Edward Marcus, two of Herbert's sons, joined the company in 1926. A big expansion project at the store was completed in 1927, following the acquisition of some property next door. As a result, the store's capacity was nearly doubled. Neiman Marcus added men's clothing to its offerings with the 1928 opening of the Man's Shop. By 1929, the store's net sales had reached $3.6 million.

Adding Lower-Priced Merchandise in the 1930s and 1940s

The onset of the Great Depression forced Neiman Marcus to shift its strategy. During the 1930s, the company began to include less expensive clothing lines in its inventory in hopes of keeping customers whose fortunes had taken a turn for the worse. At the same time, the store continued to stock the pricier, high-end items that made it famous, and it continued to attract wealthy Texans. Company lore from this era tells of a barefoot teenage girl walking confidently into the store and ordering thousands of dollars worth of merchandise. Her father had just struck oil, and her first impulse was to head straight for Neiman Marcus. By striking a balance between upper-crust fashions and more moderate ones, Neiman Marcus was able to maintain its elite reputation while also broadening its customer base. This successful transition to a more democratic clientele enabled the company to sustain its impressive growth rate, and by 1938 annual sales had broken the $5 million mark. Along the way, the store's Man's Shop was expanded, first in 1934 and again in 1941.

The move to include lower-priced merchandise accelerated during the 1940s. World War II brought hundreds of high-paying defense manufacturing jobs to the Dallas area. To the female workers and the wives of their male counterparts, shopping at Neiman Marcus was like a dream come true. The Marcuses were quick to stock their store with merchandise that was affordable to this new wave of middle-class customers. Between 1942 and 1944, sales at Neiman Marcus grew from $6 million to $11 million. Still, the company was able to cultivate its special relationship with the super-rich, and the store took on a sort of split personality. This trend increased even further at the war's end, as more companies opened offices in Dallas, and young families with junior executive salaries settled in.

The immediate postwar years saw many changes at Neiman Marcus. Shortly after the war's end Marcus's two other sons, Herbert, Jr., and Lawrence, joined the company. In 1946 Neiman Marcus suffered the second major fire in its history. Despite substantial damage to both the building and its merchandise, the store was closed for only five days. Even with the loss of those peak Christmas shopping days, the store recorded its best season to date that year. Herbert Marcus, Sr., died in 1950, and Carrie Neiman died just two years later, leaving Stanley Marcus in charge of the company's operations.

Postwar Expansion

Stanley Marcus led the company through a period of rapid expansion during the 1950s. In 1951 a second store was opened at Preston Center in the suburbs of Dallas. In 1952 a new service building was opened to handle merchandise for both stores. The following year a major renovation project added a fifth and a sixth floor to the Dallas store. In 1955 Neiman Marcus made its move into the Houston market. Rather than take on the expense of a new building, the company merged an existing store, Ben Wolfman's, into its operation. The company's reputation for lavish display grew along with its stores, as the company inaugurated the annual Neiman Marcus Fortnight in 1957. The Fortnight was a presentation of fashions and culture from a particular country, held in late October and early November of each year. Another popular annual publicity stunt was launched in 1960. Beginning that year, an extraordinary His and Hers gift selection was included in each Neiman Marcus Christmas catalog. His and Hers gifts over the years have included such spectacular items as submarines, dirigibles, and robots.

Another generation of Marcuses came on board in 1963, when Stanley's son Richard Marcus joined the company as a buyer. The following year, fire devastated the main Dallas store, again during the peak Christmas shopping season. Once again, the store was reopened quickly, and the repair work included improvements to the store's appearance. In 1965, with the population of suburban Dallas growing by leaps and bounds, the Preston Center store was closed, and a new store, more than twice as big, was opened at NorthPark Center, also in the Dallas suburbs. Another branch was opened in nearby Fort Worth around that time as well. By 1967 the four Neiman Marcus stores in operation were generating annual sales of $58.5 million, and the company's profit for that year was in excess of $2 million.

Neiman Marcus ceased being a family business in 1968, when the company was merged into Broadway-Hale Stores, Inc., a West Coast retail chain with 46 stores and revenue of $457 million. The merger enabled Neiman Marcus to expand at a much faster pace than would have been possible as an independent entity. Over the next decade-and-a-half, the chain grew at a rate of about one store a year. With the opening of stores in California, Florida, and several other states during the 1970s, Neiman Marcus became a coast-to-coast operation. Atlanta; St. Louis; Northbrook, Illinois; Washington, D.C.; and White Plains, New York, were among the other places to receive new Neiman Marcus stores during this period. Although this quick proliferation lessened Neiman Marcus's exclusive image in the eyes of some customers, the major loss of luster that some feared would accompany its marriage to a less ritzy chain did not occur.

Meanwhile, changes and expansion were taking place at Neiman Marcus's Texas strongholds, too. The Dallas service center was dramatically enlarged in 1973, and in 1977 a new store at Ridgmar Mall replaced the previous Fort Worth location. In 1975 Stanley Marcus became executive vice-president of Carter Hawley Hale Stores, Inc. (formerly Broadway-Hale), in charge of its specialty store division, which included Neiman Marcus. Son Richard was named chairman and CEO of Neiman Marcus in 1979. By 1980, the year the company opened its first store in the Northeast, annual sales were in the neighborhood of $350 million.

Emergence of The Neiman Marcus Group in the 1980s

The nationwide expansion of Neiman Marcus proceeded most quickly between 1979 and 1984, when the chain doubled in size to 21 stores. By 1984, however, it was clear that not all of the new stores were performing as well as expected against such rivals as Bloomingdale's and Saks Fifth Avenue. At that point parent Carter Hawley Hale pulled in the reins on the chain's growth. In 1984 a hostile takeover bid for Carter Hawley was launched by retail chain The Limited, which offered to buy the company for $1.1 billion. In battling against the takeover, Carter Hawley found a white knight in General Cinema Corporation, a company whose $1 billion in revenue came from soft drink bottling and movie theaters. General Cinema bailed Carter Hawley out by purchasing 38.6 percent of the company's voting stock.

Two years later, The Limited teamed up with shopping center magnate Edward DeBartolo to launch a second attempt at Carter Hawley. This time, the defense involved a corporate restructuring (completed in 1987) that included spinning off Carter Hawley's specialty store division into an independent, publicly traded entity called The Neiman Marcus Group, Inc. In exchange for its Carter Hawley stock, General Cinema was awarded 60 percent interest in the new company, which consisted of not only the Neiman Marcus stores, but also of exclusive New York retailer Bergdorf Goodman and the 200-store Contempo Casuals chain. Neiman Marcus stores contributed about three-fourths of the group's sales power. The Neiman Marcus Group expanded further in 1988 with the purchase of Dallas-based Horchow Mail Order, a cataloger specializing in upscale home furnishings, linens, and tabletop decorative items.

As General Cinema sought to return Neiman Marcus to its dominant position among upper-end specialty retailers, Allen Questrom was named president and CEO of Neiman Marcus Stores, replacing Richard Marcus and drawing the final curtain on the Marcus dynasty. By 1990, The Neiman Marcus Group, led by Neiman Marcus Stores, was General Cinema's most important money-maker, contributing about 90 percent of General Cinema's $92 million in operating profit. Questrom resigned his position in February of that year and was succeeded as president and CEO of Neiman Marcus stores by Terry Lundgren.

A new round of expansion began at Neiman Marcus under Lundgren. New stores were opened in Denver in 1990; Minneapolis and Scottsdale, Arizona, in 1991; and Troy, Michigan (a Detroit suburb), in 1992. In 1993 Lundgren was given the title of chairman, while remaining CEO. Gerald Sampson, formerly with The May Department Stores Company, was named president and chief operating officer of Neiman Marcus Stores. For that year, the company recorded revenues of $1.45 billion, a 12.7 percent jump over the previous year. Part of this success during a tough retail climate resulted from an increased emphasis on big-name designer labels, such as Calvin Klein, Georgio Armani, and Donna Karan. General Cinema, meantime, was renamed Harcourt General, Inc. in 1993.

As the 1990s rolled on, Neiman Marcus continued its attempts to attract new, younger customers, while maintaining its commitment to meet the needs of its core, upscale clientele. Toward this end, NM Workshop boutiques that focused on career wardrobes were added at several Neiman Marcus locations. In addition, construction was begun on a new Neiman Marcus store in Short Hills, New Jersey, in 1994, and other stores in New Jersey and Pennsylvania were planned. The year 1994 also brought another reshuffling among executives. Lundgren left the company for a position at Federated Department Stores, Inc. in February. The vacated chairman and CEO spots at Neiman Marcus stores were filled by Burton Tansky, who formerly held those titles at Bergdorf Goodman. Continuing as CEO of the parent company, Neiman Marcus Group, was Robert J. Tarr, who assumed the CEO position in 1991 and was also the CEO of Harcourt General.

In July 1995, in a move designed to enable the group to focus more fully on the upscale Neiman Marcus and Bergdorf Goodman businesses, the money-losing Contempo Casuals chain was sold to Wet Seal, Inc. for $1 million in Wet Seal stock. By mid-1996 the number of Neiman Marcus stores had grown to 29, and the chain had its best year ever during fiscal 1996, posting record operating earnings of $134 million on record sales of $1.6 billion, the latter being a 12 percent increase over the previous year. Also in 1996 came the debut of the Book, a so-called magalog that combined the selling features of a catalog with the editorial content of a magazine; by mid-1997 monthly circulation of the book had ranged from 675,000 to 1.2 million. Late in 1996, Tarr resigned unexpectedly from his positions at both Neiman Marcus Group and Harcourt General. Richard A. Smith, the chairman of both companies, was named CEO of The Neiman Marcus Group. Smith's son, Robert A. Smith, was named president and COO of Neiman Marcus Group.

Late 1990s and Beyond: Expanding, Gaining Independence from Harcourt

Expansion was on the agenda in the final years of the 1990s. In early 1998 the group's direct mail operation, Neiman Marcus Direct, was bolstered through the acquisition of the Chef's Catalog for $31 million in cash. Founded in 1979, the Chef's Catalog offered gourmet cookware and high-end kitchenware. Running out of the types of large markets that are able to support a Neiman Marcus store, the group developed a concept extension that could be introduced into smaller markets. Dubbed The Galleries of Neiman Marcus, these stores initially ranged in size from 9,000 to 12,000 square feet (the average size of a Neiman Marcus store was 141,000 square feet) and featured precious and designer jewelry, gifts, and decorative home accessories. To test the new concept, three Galleries stores were opened, in Cleveland, Ohio, in November 1998; in Phoenix, Arizona, in December 1998; and in Seattle, Washington, in October 1999. The third avenue of expansion in the late 1990s stemmed from a trend in the industry in which top designers, such as Ralph Lauren, Gucci, and Prada, were opening up their own retail outlets and thereby beginning to compete with Neiman Marcus, Bergdorf Goodman, and others (although the brands continued to be sold in these and other upscale retailers). In late 1998, Neiman Marcus Group launched a plan to spend as much as $200 million over the succeeding few years taking stakes in up-and-coming brands sold at the group's retail stores. In November 1998 the group spent $6.7 million for a 51 percent stake in Gurwitch Bristow Products, LLC, maker and marketer of the Laura Mercier cosmetic line. Launched in 1996 by Janet Gurwitch, a former executive vice-president of merchandising at Neiman Marcus, the Laura Mercier line was generating about $9 million in annual revenues at the time of the purchase. Then in February 1999, Neiman Marcus Group paid $33.6 million for a 56 percent interest in Kate Spade LLC, a maker of high-end designer handbags and accessories with 1998 revenues of about $27 million. Finally, in October 1999, neimanmarcus.com was launched as the chain's e-commerce web site.

Also in October 1999, Harcourt General ended its majority control of The Neiman Marcus Group by spinning off the bulk of its stake to its shareholders. Following the transaction, Harcourt held a 10 percent interest in the group. On the store development front, the 31st Neiman Marcus opened in Honolulu, Hawaii, in 1998. Florida was the next expansion area, with a store opening in Palm Beach in 2000 and one in Tampa in 2001. Two more--in Coral Gables and Orlando--were slated to begin operating in 2002. In addition, a replacement store was opened in Plano, Texas, in 2001, and there were plans for new Neiman Marcuses in San Antonio, Texas, and Atlanta, Georgia, as well.

In May 2001 Tansky was named CEO of Neiman Marcus Group. He also remained head of Neiman Marcus stores as well, at least on an interim basis, following the departure in January 2001 of Hugh Mullins, who had headed up the chain for only ten months. The group posted record revenues of $3.02 billion for the fiscal year ending in July 2001, but sales flagged during the first half of the following year as high-end retailers were hit particularly hard, first by a stumbling economy and then by the severe cutback in consumer spending that came in the wake of the events of September 11, 2001. The Harcourt General era of Neiman Marcus's history came to an end in April 2002 with the former company's announcement that it had liquidated its entire remaining stake in Neiman Marcus Group.

Stanley Marcus, another important link to the company's past, died in January 2002 at the age of 96, having served as chairman emeritus since 1975. In his 1974 book Minding the Store, Marcus asserted that a company's quality standards inevitably decrease as its number of branches increases. Since that time, Neiman Marcus has managed to thwart its longtime leader's axiom through both good and bad economic periods. Despite its geographic spread and the more populist range of its merchandise, Neiman Marcus's reputation as the store of choice for the elite remained more or less intact.

Principal Subsidiaries: Bergdorf Goodman, Inc.; Bergdorf Graphics, Inc.; Chef's Catalog, Inc.; Ermine Trading Corporation; Gurwitch Bristow Products, LLC (51%); Kate Spade LLC (56%); NEMA Beverage Corporation; NEMA Beverage Holding Corporation; NEMA Beverage Parent Corporation; NM Direct de Mexico, S.A. de C.V.; NM Financial Services, Inc.; NM Nevada Trust; NM Office, Inc.; NM Visual, Inc.; Neiman Marcus Funding Corporation; Neiman Marcus Holdings, Inc.; Neiman Marcus Special Events, Inc.; Quality Call Care Solutions, Inc. (Canada); Pastille by Mail, Inc.; Worth Avenue Leasing Company.

Principal Competitors: Federated Department Stores, Inc.; Saks Incorporated; The May Department Stores Company; Dillard's, Inc.; Nordstrom, Inc.

Chronology

• Key Dates:
• 1907: First Neiman Marcus store, specializing in upscale women's clothing, is opened in Dallas by Herbert Marcus, his sister Carrie, and her husband, Al Neiman.
• 1928: Men's clothing is added to the store's offerings with the opening of the Man's Shop.
• 1951: Second Neiman Marcus store is opened in a Dallas suburb.
• 1955: Expansion outside Dallas begins with the opening of a store in Houston.
• 1968: Company merges into Broadway-Hale Stores, Inc. (later Carter Hawley Hale Stores, Inc.), aiding further expansion.
• 1984: The Limited attempts a hostile takeover of Carter Hawley; General Cinema Corporation steps in as white knight, acquiring a 38.6 percent stake in Carter Hawley.
• 1987: Second hostile takeover attempt leads to spinoff of Carter Hawley's specialty store division as a publicly traded firm called The Neiman Marcus Group, Inc.; General Cinema (later Harcourt General, Inc.) holds a 60 percent stake in the new firm, which includes the Neiman Marcus stores, Bergdorf Goodman, and the Contempo Casuals chain.
• 1988: Neiman Marcus Group acquires the Horchow catalog operation.
• 1995: Contempo Casuals chain is sold to Wet Seal, Inc.
• 1998: Chef's Catalog is acquired; first Galleries of Neiman Marcus stores open; Neiman Marcus Group acquires a 51 percent stake in Gurwitch Bristow Products, LLC, maker and marketer of the Laura Mercier cosmetic line.
• 1999: A 56 percent interest in designer handbag maker Kate Spade LLC is acquired; Harcourt General ends its majority control of The Neiman Marcus Group, reducing its stake to 10 percent.