Store Wars!
A short time ago, in an upscale retail world not so far away, Neiman Marcus reigned supreme—especially in Texas. Now Saks Fifth Avenue is coming to the Houston Galleria to challenge Neiman’s on its own turf. How will the empire strike back?
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DESPITE THE HEAVY TRAFFIC AT Neiman’s or Saks on an average day, a store’s success is based on the purchases of a small group of customers. Retail experts say that about 80 percent of the merchandise in a specialty store is bought by only 20 percent of the store’s customers. And there is no doubt about who most of those customers are: women 35 to 55 with lots of disposable income. They are the ones who drop in for a shopping spree and buy not only their clothes but also their shoes, cosmetics, and accessories and even their husbands’ apparel (50 percent of men’s apparel at a specialty retail store is bought by women). It is a remarkably thin market: Retail sources say that about 90,000 people nationwide participate in the frequent-shopper program at Neiman’s, meaning they spend at least $3,000 a year on their store charge card, while about 100,000 frequent shoppers at Saks are spending at least $2,000 a year. Accordingly, if just a couple thousand high-dollar shoppers at one store begin to make some of their purchases at another store, the first store’s profits can drop like a rock.
That is why, for all its elegance, specialty retailing is one of the most anxiety-ridden industries in America. Every three months a new batch of upscale apparel arrives at the store, and if the women don’t buy it, then the store is in trouble. “If you lose your focus on your customer for just an instant, you’re in danger of losing everything,” says Burt Tansky. “The retail graveyard is littered with great names who forgot that simple lesson.”
When Herbert Marcus, his sister Carrie, and her husband, Al Neiman, opened Neiman Marcus in Dallas on September 10, 1907, they seemed destined for that graveyard. The three of them were only in their twenties and had little retail experience; there was not even evidence that Texans of that rugged era knew what fine apparel was. But the trio was convinced that if they built a store, people would come. They became obsessed with finding the best apparel, and they didn’t hesitate to charge what it was worth.
What happened next was retailing’s version of Microsoft’s unveiling of Windows 95. Hundreds of shoppers lined up outside the store an hour before it was to open on its first day. Within weeks wealthy people were arriving from all over the state—and not all of them were particularly sophisticated. According to a company history, a barefoot young woman wearing a sunbonnet and a worn calico dress once walked in, bought almost $10,000 worth of clothes, and paid with large bills she pulled “from her bosom.”
No other institution taught Texans more about elegance than Neiman Marcus, and no other institution, at least in the first half of the twentieth century, brought Texas such national recognition. Herbert’s eldest son, Stanley, who came to work for the company in 1926 after graduating from Harvard’s business school, made Neiman’s the first store outside New York to advertise in national fashion magazines, in part because he knew it would intrigue the insular New York fashion world. He also started the Neiman Marcus Award for Distinguished Service in the Field of Fashion, which he presented to international designers like Christian Dior and Coco Chanel. “What we learned was that the collective glamour of a specialty store could sell a lot of merchandise,” says 92-year-old Marcus, who retired from Neiman’s more than two decades ago to start a consulting business he still runs today. “If you don’t have that glamour, you don’t last.” That glamour finally captured the attention of Vogue, whose editors proclaimed in 1953 that despite its location in far-off Texas, Neiman Marcus “belongs easily in that small aristocracy of fashion.”
There was another store, of course, that belonged in that small aristocracy: Saks Fifth Avenue. In 1924 Horace Saks and Bernard Gimbel, two leading New York retailers who were already operating their own department stores, had decided to join forces in opening what they called a “dream store” filled with the finest fashions. When New Yorkers started flocking to the store, the owners took their show on the road, opening Saks stores in Palm Beach in 1926, Chicago in 1929, and Beverly Hills in 1938. By contrast, because the Marcus family thought that much of their success was the result of staying on top of the highly personalized operation of buying and selling, they waited until 1951 to open their second store, in North Dallas. In 1963 they opened a third store, in Fort Worth. Eventually, however, Stanley Marcus became convinced that if the nation’s wealthy shoppers were given a choice, they would go with Neiman’s, so the company undertook a national expansion. Needing capital, the Marcus family sold a majority interest in the company to Carter Hawley Hale Stores, a national retailing firm. In 1971 Neiman’s made its first move out of Texas, opening in Bal Harbour, Florida—where, significantly, Saks already had a store. Saks responded in 1974 with its first Houston store. The war was on.
After Stanley Marcus left Neiman’s in 1975, Carter Hawley Hale stunned the industry by going outside the company and hiring a 37-year-old executive at Lord and Taylor, Philip Miller, as president. At around the same time, Saks—which had been sold by the Gimbel family to British-American Tobacco in 1973—also began bringing in younger blood, including Burt Tansky, who previously had been at I. Magnin, the specialty retail chain in California. Unlike old-style retailers who grew up in the business, Miller and Tansky were not to the manner born. Miller was in a pre-med program at Johns Hopkins University when his wife at the time became pregnant; needing a job, he accepted a full-time sales position in the men’s clothing department of a Baltimore store called Hamburger’s. Tansky, who graduated from the University of Pittsburgh with a liberal arts degree, took a position in the executive-training program at Kaufmann’s, a Pittsburgh department store, only because it was the best job offer he had. The two men first met in the sixties, when they worked together at Filene’s, a respected specialty retail store in Boston. Tansky was a store manager and Miller was a divisional merchandise manager. “Even back then,” Miller says, “we were already competing with one another.”
Except for their appreciation of fine apparel and their desire to get stores opened around the country, the two men were polar opposites. Tansky was known as an intense, sometimes abrasive leader who was blunt in his dealings with manufacturers. “He says what he thinks and doesn’t mince words,” Chanel’s president, Arie Kopelman, once said. “It’s not a game of subtlety with him.” Tansky rarely granted interviews with the press, and when he did, he said little. (One newspaper reporter would later write that Tansky “recoils at the slightest suggestion of personal revelation.”)
Miller, on the other hand, relished playing the showman. “He could charm the bark off a tree,” says Keith Nix, a former Neiman’s vice president. “People were captivated by him. When he’d walk into a room, it was like there was a light on him.” When designer Karl Lagerfeld arrived from Paris for a Houston fashion show in 1979, Miller had a high school marching band and a drill team on the runway to greet his private plane. After the show Miller took Lagerfeld to Gilley’s, the country and western bar. While the urban cowboys gaped, Lagerfeld walked around, fanning himself with a large multicolored fan the size of a Ping-Pong paddle.
Miller admits that he left Neiman’s in 1983 for Marshall Field because he was dismayed that Carter Hawley Hale had named Marcus’ son, Richard, then the vice chairman in charge of running the company’s business operations, as CEO. In 1986 Carter Hawley Hale sold Neiman’s to General Cinema (called Harcourt General today), which asked for Marcus’ resignation so it could bring in an outsider to be chief executive.
Regardless of who was running the company, Neiman’s had the upper hand in the battle with Saks throughout the eighties. Yet instead of maintaining an air of exclusivity, Saks responded by adding more lower-priced lines to draw customers. “It wasn’t Tansky’s fault,” says Alan Millstein, the publisher of Fashion Network Report and one of the country’s most respected retail consultants. “British-American Tobacco was getting ready to sell Saks, and they wanted cheaper merchandise to get a fatter bottom line. They stopped investing any capital into Saks’ stores. And as a result, Neiman’s started eating Saks’s lunch.” Indeed, in places like Beverly Hills, where shoppers demanded exclusivity, Saks could only manage $39 million in annual sales, versus more than $100 million at Neiman’s.
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