$5.1B Neiman Marcus Deal Reflects Strength of Luxury Market

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The $5.1 billion deal in which private equity firms Texas Pacific Group and Warburg Pincus will acquire Neiman Marcus differs from other recent retail deals on two fronts.

For one, unlike Kmart's merger with Sears or Belk's acquisition of Saks' regional department stores, the Neiman Marcus deal is upscale all the way.

Neiman Marcus, Dallas, is considered one of the premium luxury retailers in the country and also includes in its stable that emporium of expensive wares Bergdorf Goodman. With the luxury market on the upswing in general and showing no sign of weakness, Neiman Marcus makes an attractive addition to any investor's portfolio.

"The play for us is a long-term play on the continued spending in the luxury segment. This is more a play on luxury than retail," Warburg Pincus partner Kewsong Lee was quoted as saying in the May 2 Wall Street Journal.

It's not just brick-and-mortar luxury that is doing well. Online luxury sales are also strong, said Lauren Freedman, president of the E-tailing Group, Chicago, an e-commerce consultancy.

This trend hasn't been lost on Neiman Marcus. Freedman said the retailer's "Web initiative is one of the strongest specialty store Web initiatives online." The site has enabled Neiman Marcus -- which has an older customer base in its stores -- "to reach out to a wider and younger audience."

Neiman Marcus launched a Web site in April devoted exclusively to its InCircle Rewards customer loyalty program. When InCircle began 21 years ago, it was the first-ever retail customer loyalty program, according to Neiman Marcus. Participating customers get one InCircle Rewards dollar for every dollar spent using their Neiman Marcus charge card. Customers are eligible to redeem points for gifts after earning 5,000 points in a calendar year.

The new site, incircle.com, features details about the program, the 2005 Wish Book and exclusive online offers.

That highlights the other way this deal differs from other recent retail acquisitions: Neiman Marcus is basically a healthy company. Sears' and Kmart's difficulties have been well documented while Saks is unloading its underperforming regional stores -- Profitt's and McRae's -- to raise much-needed capital.

So what can Neiman Marcus' buyers bring to the table? According to The Wall Street Journal, Texas Pacific and Warburg Pincus want to build five to 15 new stores and expand the company's Internet and catalog operations.


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