Inside Neiman Marcus’s $500 million tech investment

After a bankruptcy filing amid a pandemic, Neiman Marcus Group, the luxury US department store owner, is making a $500 million bet that investing in technology can turn it around. Neiman Marcus plans to spend the sum during the next three years on new tech, updating its stores and speeding up delivery times. Bob Kupbens, Neiman Marcus Group’s new EVP and chief product and technology officer, who joined in February and had previously worked with Apple and Ebay, is leading the investment. He will be working with the e-commerce team, the “Connect” app and the innovation team, where experimental projects across both Neiman and Bergdorf Goodman are planned. “People love Neiman Marcus,” Kupbens says in an interview. “So how can we create an even deeper emotional connection? Our selling associates do that so well every day, so how do we invest in technology that enables them to do that more — and then bring a deepening of people's perceived value and integration with the brand?” Technology to improve personal relationships with customers is key, making services such as recommendations, one-to-one communications and store visits better, faster and more scalable. Crucially, it’s the top clientele who are set to benefit. The goal is what the company calls “integrated luxury retail”, which translates to personalised services for a small subset of customers, says Kupbens; 40 per cent of the retailer’s business is from customers who spend more than $10,000 a year, and about 35 per cent of the group’s revenues comes from the retailer’s credit cardholders. $500 million is a considerable investment, underscoring the work that the US department store has to do to make up for lost time, catching up with changed customer behaviours and a new retail environment. Neiman Marcus Group, which consists of Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call and Horchow, has been through a challenging period, and has been operating under a “crushing amount of debt” for the past five years, notes Mark Cohen, director of retail studies at Columbia University's Business School. In May 2020, the group filed for bankruptcy, citing the pandemic as the catalyst. It cancelled $4 billion of its more than $5 billion debt by restructuring and giving control to creditors. It permanently closed most of its off-price Last Call stores and its new Hudson Yards store, and has reopened all 43 Neiman Marcus stores and two Bergdorf Goodman stores. During the pandemic, luxury department stores in the US — after years of playing a crucial role in brand distribution strategies — gave up ground to online early adopters and to brands that found DTC channels offered more control and higher margins. For Neiman Marcus Group to successfully recover in an environment that finds department stores facing increased competition requires “a ruthless focus on stores and customer service (which includes delivery)”, Cohen says. “You have to ask yourself: ‘What are they capable of now and where do they have to go to be as world class as their customers expect them to be?’” “You do it through a connection to a real person,” Krupbens says, adding that digital information can help inform recommendations for new categories, brands, events or services that hopefully deepen that personal relationship. “I don't think that in luxury, anybody's really solved that. What you see is other folks vacate the space — some folks who are leaning more toward pure play or leaning more toward mass. This space of what's truly differentiated — integrated retail, luxury focused, unique experiences — is a place that we can really win.” Building out NM Connect Neiman Marcus’s tech investment will shake out in the form of building tools internally as well as acquisitions and partnerships with tech providers. In June, NMG announced it was acquiring Stylyze, a software company that uses machine learning to make outfit recommendations based on what customers have looked at or purchased. Neiman Marcus has worked with the company since 2018, and integrated it into NM Connect, the proprietary tool introduced two years ago that associates use to communicate with customers. Through NM Connect, Stylyze can ingest Neiman’s assortment to help sales associates create looks for customers. Two months after the technology was rolled out to nearly 5,000 associates, it resulted in $60 million in incremental sales, in addition to revenue from NeimanMarcus.com. Neiman Marcus was using the technology “so aggressively”, Kupbens says, that it made sense to bring Stylyze in-house. Since the launch of Connect, the company says associates have completed more than 5,000,000 “engagement sessions” and placed hundreds of thousands of orders on the platform. Styling and providing recommendations is core to the value that sales associates provide daily, he says. “When the [Stylyze] AI builds a look, it's actually a compelling look. It’s really easy to build an ugly look, but it takes some real work and talent and a good team and years of investment to create a look that feels compelling.” Plus, he says, acquiring Stylyze was faster than building from scratch, and helped the company remain competitive. He hints that there could be more acquisitions like this going forward. The AI styling might provide an advantage over online retailers with vast assortments who don’t have large store sales staff. “Bigger is not necessarily better for consumers. They don't want to have to wade through thousands of products — they want more curated selections,” luxury retail consultant Robert Burke says. “Neiman Marcus has a longer-term history of having the customer experience and personal shopping, as does Nordstrom, as does Saks. That’s a huge competitive advantage.” Stylyze uses machine learning to understand products and then find similar or coordinating items. It helps associates scale their capabilities to make product and outfit recommendations. This technology has the potential to be combined with proprietary customer data, such as location, shopping habits or preferred brands, to generate personalised experiences and offers. Even in store, an associate could use the software to fill a dressing room with client favourites, or make coordinating recommendations. The group currently uses Stylyze’s technology in remote and digital selling, but plans to integrate it into e-commerce, mobile apps and one-to-one messaging channels like text and chat. Stylyze is a first of “several future investments”, according to the company. “The fact that Neiman Marcus is investing in digital is great; it is never too late to develop better digital strategies,” says Jane Hali, chief executive of investment research firm Jane Hali & Associates Jane Hali & Associates. “All of this data needs to be mined to build a relationship with the consumer. Customer preferences can change quickly, and direct-to-consumer relationships can expedite the chance to service those preferences.” Clienteling technology that scales and improves associate capabilities has been on a tear: Farfetch, for example, in an effort to ramp up its abilities to provide personal recommendations, has partnered with personal styling service Wishi. Saks and The Webster are using Seer, a Y Combinator startup that increased its funding round due to retailer interest. Klarna recently acquired customer service startup Hero for an estimated $160 million. Still, Columbia University's Cohen has doubts about how long customers will want these types of recommendations. “[Retailers] do have associates with treasured books, but that is probably an interaction that is on the downswing, not upswing. The customer today is increasingly sophisticated and less likely to be led by the nose by an advisor who will dress them.” The strategy going forward Perhaps more challenging than personalising online interactions is creating that same dynamic in stores. Cohen says that of the areas in which Neiman Marcus plans to invest, the store upgrade is probably the most critical. “[The company is] an up-market, top-tier luxury player who has to have pristine and perfect stores. It can’t get away with the sloppiness of Macy’s. Neimans is operating in a rarefied space.” He also is sceptical of how much tech can help. “The world is full of new tech headlines, but at the end of the day, if you don't have a great-looking store and can't fulfil orders, no amount of tech will keep your lights on.” Kupbens rejects the notion of tech for tech’s sake. “There are a lot of really gimmicky things that I just reject — like I don't want a bunch of screens in a store for the purpose of having screens. I don't want facial recognition; it just feels like it's not any more luxurious. I'm very much in the service of the customer experience, and whatever is going to make that seamless.” Going forward, he may offer the ability to log into an app in store to access extra information or experiences that require identifying the customer, similar to the types of perks found online. To develop these ideas, Kupbens has built a team that includes a mix of people both from luxury and other industries, and told them that they are free to experiment. “We've allocated capital to them without as much clarity on the roadmap, because we want to give them the freedom to truly understand our customer. Sometimes you have to prototype it and put it in front of her to say, ‘does this feel like an elevated experience?,’”he says. For example, placing all of your online favourites in a fitting room. “That’s a sample of an experience that nobody else is going to do.” Kupbens anticipates that while acquiring, building and partnering with tech companies are strategies on the table, the latter has been the most common way to introduce new tech. “There are lots of companies who bring in partners and it actually creates chaos. You've got data that has to talk to each other and you've got 14 views of the customer, one each for each of these partners. We've actually created a core capability around integrating those partners into a singular experience for the customer.” Already, NMG has implemented technology from more than 25 companies. His ultimate hope is creating a new version of luxury that is “thoughtful, connected, integrated, retail” that is less about the channel and the mechanics and more about the experience. “I love places where we get to invent, and I love places that have leadership teams that are willing and interested in making investments in the customer experience. This is a brand that's going to live on for a very long time.” Of course, that’s a goal shared by many, so most analysts are in “wait and see” mode: “Five hundred million dollars is a lot, but it’s a little too late — or perhaps not enough, too late,” luxury consultant Burke says. “I’m still optimistic. But it won’t be easy.” To become a Vogue Business Member and receive the Technology Edit newsletter, click here. Comments, questions or feedback? Email us at feedback@voguebusiness.com. More on this topic: Post-pandemic playbook: Reviving US department stores Out of bankruptcy, Neiman Marcus plans a comeback A bankruptcy filing doesn’t spell the end for retailers

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