5 Things Learned From Neiman Marcus' IPO Filing

Neiman Marcus, the luxury retailer known for its opulent Christmas Book full of “fantasy gifts” and a mythical cookie recipe, filed last week for an initial public offering.

The Dallas retailer has spent roughly a decade under private equity ownership, reportedly generating a 150% profit for its first set of owners, Warburg Pincus and TPG Capital. Ares Management and the Canada Pension Plan Investment Board agreed to pay $6 billion for Neiman’s in 2013.

Here are a few things we learned perusing Neiman’s IPO filing:

#1: Growing Means Going Global

Anticipating that the luxury fashion market is going to expand exponentially faster in the next few years throughout Asia, the Middle East and Africa, Neiman said it could expand through international acquisitions and the opening of new stores in Europe, the Middle East and Asia under the Neiman Marcus, Bergdorf Goodman and MyTheresa brands.

Neiman’s acquisition of MyTheresa, executed not long after its sale to Ares and CPPIB, was its gateway into Europe. The retailer notched revenue of 136 million euros during the twelve-month period ended June 30, a 38% increase over the prior twelve-month period.

Neiman also is increasing its exposure in its core U.S. market, with plans to open 100,000 square foot store in the redeveloped Roosevelt Field Mall in Long Island, and a flag ship store–its first in New York City–in Hudson Yards.

#2: Neiman’s Customers are Well-Heeled

Neiman describes its customers as “educated, affluent and digitally connected.” Nearly 80% of its shoppers are female, and about 48% of its customers are 50 or younger. Nearly 40% of customers have a median household income of over $200,000.

#3: Black is the New Black

Neiman was in the black through the 39 weeks ending May 2, after generating a loss for the 2014 fiscal year ended Aug. 2, 2014.

While under the ownership of TPG and Warburg Pincus, Neiman posted a profit in FY 2013, 2012 and 2011. It also paid those sponsors $10 million annually for consulting and management services, and a one-time $48.6 million “success fee” upon its sale to Ares and CPPIB.

The global financial crisis cut deeply into the high-end retail market, but Neiman’s has steadily increased sales since 2010, recording $4.84 billion of revenue for the fiscal year ended Aug. 2, 2014. The retailer plans to use proceeds from the offering to pay down some of its $4.74 billion of debt.

#4: Fashion Risks

The luxury market is crowded and Neiman sees competition from all sides: boutiques, retailers, specialty apparel stores, online retailers and others.

Similar to other retailers, it walks a fine line with its offerings. Order too much of a product and it will end up heavily discounted. Order too little and risk losing the loyalty of customers.

Neiman has worked to shore up that loyalty by encouraging a close knit relationship between its sales staff and customer base- equipping associates with smartphones and encouraging them to maintain digital ties to shoppers via text, email and mobile apps. It also has a loyalty program, InCircle. The chain says about 40% of its revenue in fiscal year 2014 came from InCircle members who achieved reward status.

#5: Breaches Are a Pain in the Breeches

Neiman’s was one of a number of retailers that suffered a cyber-attack in 2013 which exposed customers’ credit card information.

The scale of the attack was much smaller than the breach at Target Corp., where data for an estimated 40 million credit or debit card accounts was stolen, but it has still been a headache for the retailer.

Our colleagues at CIO Journal reported in July that a U.S. appeals court recently reinstated a class-action suit seeking $5 million in damages over the breach, which exposed credit card data for 350,000 customers.

In its filing Neiman says it has taken steps to strengthen security, but similar to many other retailers, it acknowledges “there can be no assurance that we will not suffer a similar criminal attack in the future.”