A Conversation with Karen Katz, CEO, Neiman Marcus
Please note: We interviewed Karen as part of the Retail@250 series, several months before Neiman Marcus announced plans to look for an investor.
Some industry insiders have cast doubt on the future of retail’s luxury segment, saying consumers are becoming less brand loyal and less obsessed with stuff, and suggesting that brands are losing cachet as luxury items become ubiquitous. Yet Karen Katz, CEO of Neiman Marcus, remains deeply confident, as she pursues a strategy attuned to the times.
Karen spoke with us about the future of luxury, the tremendous change facing all corners of retail, and how to structure the organization of the future. She is certainly an informed observer. Karen was executive vice president of marketing, strategy and business development at Neiman Marcus before being named CEO in 2010.
Some of the leaders we’ve interviewed for Retail@250 suggest that the current environment is essentially normal, because retail has always been in the throes of change. In contrast, Karen believes we’re in the midst of a truly revolutionary transition.
“There is near chaos in the industry because of the amount of transformation that needs to take place,” Karen said. “It’s all happening at such a rapid pace. The challenge and the opportunity is to get your leadership team to view what’s happening three dimensionally. The three dimensions are making sure we excel across customer, product and engagement in the present, staying fully alert to what could shift in the near term, and envisioning just how different the entire picture might be a decade from now. We need to keep one hand on the steering wheel focused on today and tomorrow, but we also have to keep an eye on the future. We have to apply what we are learning today to what could be unfolding 10 years from today.”
Karen believes retailers can find their way through the chaos by keeping their eyes fixed on their core consumer.
“We start with the customer and think about the ways she feels about service, pricing and experience, and then we figure out how we deliver that in a way that is technologically sound, digitally easy, and really delivers on the service component. That’s what our customer expects,” she said.
Among the most significant changes shaping the luxury industry, Karen told us, is what she calls “the phenomenon of athleisure.”
“There continues to be a push towards a much more casual lifestyle, even from customers who buy the best of the best,” she said. “For example, we’re now selling men’s sneakers at luxury prices. I think we have just scratched the surface of this casual luxury. It will continue to grow. We’re only in the first or second inning of this trend.”
Another big change: how to grapple with millennials, who many industry insiders believe are not brand loyal and don’t value stuff as much as their parents. Karen disagrees with this generalization.
“For people who sell luxury, it’s not yet clear what Gen Y and Gen Z are going to need because they are not yet in their power earning years,” she said. “There’s been a lot of analysis whether they only want experiences versus things, but in my mind it’s going to be an equal amount of both. Now she may want a different luxury buying experience than her mother’s. So that story will really play itself out in 2026, when these younger shoppers are at the height of their careers. We are watching all this very carefully, and we do know from our data that Gen X is acting very similarly to baby boomers in the way they shop, although they are more digitally focused.”
Soulful, Experiential, Social and Personal
Karen is also more optimistic about the future of stores than are some others in the industry.
“I would not count stores out,” she said. “We have 70 percent of our business in brick and mortar, and we are believers that stores are going to make a difference. But stores need to be reinvented. They are going to need a more pronounced social interactive quality, with more emphasis on the service experience in the store.”
Karen thinks the U.S. market has too many stores, and that many are too big—especially department stores.
“You can walk most of the big department stores and they feel so vast and soulless, with way too much product,” she said. “If you make stores smaller and inject a few things that give them more intimacy and soul, I think people will want to come to a store. At Neiman Marcus, we have small stores. And we want people to enjoy themselves while they are shopping, so we offer experiences, with restaurants and spas. We put a Champagne bar in the shoe department of the Beverly Hills store. We have a world-class art collection on display. We have memory mirrors; you stand in front of the mirror and it takes a 360-degree video of all the different outfits you try on that you can share with your friends, so it can be a very social activity. It all adds to the ‘OMG, you thought of me!’ factor.”
Karen says digitally connected experiences will be critical to any in-store initiative.
“Digital has become an integral part of the store shopping experience,” she said. “A large percentage of our customers do research online first and then come into the store. Or they’re receiving information from our sales associates who are all powered up with iPhones and our internally developed sales associate apps. Or they are receiving texts and emails from our sales associates with product suggestions based on what they have bought in the past.”
This level of personalized experience, Karen says, is essential to continue to deliver on Neiman Marcus’ brand promise—high-quality service and personal relationships in the digital age. So the company is exploring how to take personalization to the next level.
“We’re not selling commodities, we’re selling emotion,” Karen said. “So we’re thinking about how to satisfy emotional needs via data analytics. There are so many ways you can become more present in your customers’ lives. Imagine, based on the permission you give us to be in your life, that your alarm goes off on your iPhone, and the first thing you get is a text message from Ken Downing, our fashion director, who is so well known with our customers, suggesting what to wear that day. How can we do this? We have access to the weather in your zip code and access to your calendar, so we know what your day looks like. And we have a pretty good idea of what you’ve bought at Neiman Marcus. That level of personalization is not that far off. Customers trust Neiman Marcus and they want us to help them dress distinctively, with expert insight into what’s fashionable, and what goes with what. It’s just a matter of time before they allow us to have a much bigger part in their lives.”
Karen say a major strength of Neiman Marcus is its organizational structure, which is customer-focused above all else.
“Our head of e-commerce leads every touch point, in store and online,” she said. “We work to have this perfect connection between everything digital and everything in the store. No one is territorial, because we all share one purpose. We look at customer spend from a 360-degree perspective, and apply that to everything, from what we buy across channels to evaluating inventory. We have a head of customer experience to provide a channel-agnostic ultimate customer experience.”
The reason Neiman Marcus has made these organizational decisions is Karen’s belief that much of the company’s business is digital-first, and that will continue to grow.
“I believe that the starting point for our customers is our site,” she said. “Mobile sites have to be really strong because that’s where she starts with our brand. We hope it excites her to engage with the product or bring her into the store if she lives in one of our markets.”