The fifth sign of the Apocalypse: Neiman-Marcus goes discount

Neiman-Marcus, suffering from plummeting profits over the last year, has announced a major change in its marketing approach. Rather than positioning itself as a price-is-no-object retailer, it will now begin offering lower-priced goods and promotional marketing events. By doing so, the company hopes to attract some of its cash-strapped former customers who currently are flocking to discount retailers.

Neiman-Marcus isn't the only top-tier store that has recently decided to take this approach. As the past few months have demonstrated, the main problem with über expensive retail is that its key assumption is flawed. Many companies have spent years under the misapprehension that a department store can stay in business by solely appealing to obscenely wealthy customers.
However, as Saks, Neiman-Marcus, and Barneys have all learned, even stores that cater to high-end consumers are subject to the whims of the middle class. While aspirational consumers only buy a few items at a time, their regular patronage keeps these stores afloat; in an economy where middle class "discretionary spending" is nonexistent, even upper class stores will feel the pinch.

Or, to put it another way, revenues in high-end stores trickle up...not down.

With this in mind, it's not surprising that top-tier retailers and designers have gone forth in search of the elusive middle class buck. For example, Barneys -- which was sold in 2007 -- has been opening more of its "Co-op" discount stores, even as it closes some of its regular stores. While Carrie Bradshaw would be scandalized, it seems likely that this move will help preserve the business.

Even venerable old Saks Fifth Avenue has been working to change its tune. In 2009, sales at stores open for over a year fell by at least 23% every month. The company has announced plans to open several of its "Off 5th" outlet stores in upscale venues across the country, and CEO Steven Sadove has announced that, even in its primary stores, the company will skew more toward affordable merchandise.

Perhaps the most radical move has been Max Azria's decision to work with Wal-Mart. Although the clothing designer is not in the top tier of expensive brands, his MAXAZRIABCBG tops generally retail in the $100-$200 range. However, his new line, Miley Cyrus/Max Azria will top out at $20 per item. This is an interesting move: with Isaak Mizrahi out of Target, Azria may well become thego-to discount retail designer.

As Neiman and Saks, Barneys and Nordstrom go in search of long-term economic sustainability, it seems likely that they will help develop something that has been sorely lacking for a while: middle class chic. Not to fault Abercrombie & Fitch or The Gap, but it's been a while since average consumers could afford to dress in real style!
Read Full Story