Using the article provided below, what is another "fear" Neiman Marcus has to contend with besides Chinese consumers' desire to shop in store, and the full price issue? Please explain how Neiman Marcus could address each (3) of these challenges, besides the solutions offered in the text.
Neiman Makes Web Push to Lure China Shoppers
Neiman Marcus Group Inc. plans to become the latest luxury name to dive into the Chinese market. But the splash it hopes to make will be online—an unusual move for a market where high-end shoppers favor brick-and-mortar buys over the click of a mouse.
The Dallas-based retailer is paying $28 million for a stake in Chinese fashion website Glamour Sales Holding Ltd., marking its first international foray. Neiman hopes the deal will help it roll out its own site to sell luxury clothing and accessories to Chinese shoppers by the end of the year, said Chief Executive Karen Katz in an interview. Neiman didn't disclose the size of the stake.
The move is an attempt to take advantage of the booming Chinese appetite for luxury goods, but without the risk and investment of opening physical stores.
"Anyone who sells luxury has to be looking at China today," Ms. Katz said, noting that Neiman hasn't yet decided if it will sell in China under its namesake brand or its Bergdorf Goodman brand.
U.S.-based luxury retailers like Neiman Marcus have benefited from the resurgence of spending among the wealthy, who have returned to shopping en masse amid the stock market rally. During its most recent quarter, Neiman posted $1.3 billion in revenue and said its profit rose 91% to $40 million.
China is poised to become the No. 1 luxury market overall by sales by 2020, with sales of $101 billion, according to estimates from brokerage CLSA Asia-Pacific Markets. In 2010, luxury spending in Greater China, including Hong Kong and Macau, ranked third globally after the U.S. and Japan, according to research by Bain & Co.
Sales of luxury fashion and accessories to Chinese buyers at home and abroad totaled about $40 billion last year, up 33% from the year before, according to consulting firm Boston Consulting Group, which calculated the estimate based on a survey of the top five luxury brands in China and 1,000 Chinese consumers. Louis Vuitton, Chanel and Gucci—all of which Neiman Marcus carries—were the top three desired luxury brands in China in 2011, according to Bain.
Meanwhile, Chinese e-commerce is also booming. Sales from all online shopping transactions, excluding business-to-business transactions, jumped to 770 billion yuan ($122 billion) in 2011, up 68% from a year earlier, according to market research firm iResearch.
Shipping to China allows Neiman to test international waters without much risk. Neiman won't have to enter real-estate contracts or grapple with local customs. Online sales tend to be higher margin than retail sales because of fewer overhead costs.
But, so far, China's luxury market and e-commerce have had little overlap. In 2011, China's online luxury sales accounted for just 3% of Chinese luxury sales, up from 1% a year earlier, according to Boston Consulting. That compares to 12% in the U.S., where overall luxury sales totaled roughly $45 billion last year.
"Luxury purchases need to become more everyday before online can take off," said Vincent Lui, a Hong Kong-based partner at Boston Consulting.
Chinese luxury shoppers prefer to buy in stores, where they can learn about the products, feel them and then flaunt them as they walk out of store, said Ben Cavender, a senior analyst at China Market Research Group. Chinese shoppers are also fearful that the products sold online are more likely to be fakes, said Mr. Cavender.
Ms. Katz said she believes that will change. Neiman launched e-commerce in the U.S. in 1999, when few were buying, she said.
Analysts say that another challenge luxury brands face online in China is selling at full price. Most consumers head to the Web for sales and Glamour Sales itself has amassed a loyal consumer base in China, where it rolled out in 2010, with flash sales of discounted goods. Neiman will sell its goods at full price on the site, Ms. Katz said.
Under Ms. Katz's leadership, the department store, which opened its first door in 1907, has worked to become more accessible and target new shoppers at the entry level of affluence. Entering China now could help further her goal by capturing more newly affluent consumers who can grow with the company.
The Neiman's and Bergdorf Goodman names aren't well known in China, but Ms. Katz said the company will aim to educate consumers through online and event marketing.
Neiman will also give Chinese consumers access to exclusive content, including behind-the-scenes videos with industry experts and insiders, Ms. Katz said.
Rival Milan-based Yoox YOOX.MI +0.66% SpA, the first foreign company to launch luxury sales online in China in 2010, attaches radio-frequency tags on products to track the delivery and ensure that the real goods don't get swapped for fakes en route. It also sends goods with a shopping bag of the brand and a reusable, durable gift box made of sturdy cardboard with a magnetic clasp in which the customer can display the goods.
Competition for the small number of online Chinese buyers is also mounting. Earlier this month, U.K. online luxury retailer Net-a-Porter, which sells brands such as Alexander McQueen and Jimmy Choo, launched in China. Many Chinese homegrown sites, such as Wooha and ihaveu.com, have also started popping up over the past few years.
- Another fear that Neiman Marcus must address in addition to the full price issue and the preference of the Chinese to shop in-store where they know goods are authentic is that of partnership. For, any time that a company partners with another--even though the two companies enter into contracts--there can be a trust problem that develops, disagreements about marketing procedures can also occur, and personality conflicts at the highest levels which endanger the partnership can evolve.
- Also, since "Neiman Marcus did not disclose the size of the stake," there exists always the fear that profits will not be great enough to justify the investment ("stake") for this company.
- Yet another fear is that online sales will not reach expected goals since "Chinese shoppers are also fearful that the products sold online are more likely to be fakes."
SOLUTIONS TO THE CHALLENGES
- Public relations departments can work with Neiman Marcus executives and the partner company's executives in order to maintain mutually beneficial relationships.
- The marketing department of stores always gather information on what sales, etc. and adjust advertising and the production of goods to fulfill demands as well as cut those items that do not move, so this area of Neiman Marcus can make the necessary adjustments in order to continue profits.
- In order to bolster online sales, there are a number of marketing strategies that can be employed. For example, the company can offer discounts if customers purchase a Neiman-Marcus credit card--say, 15% off the total order, as well as notification of discounts and exclusive sales by email for registering for the credit card. These discounts usually profit the company because studies show that store charge card holders are more likely to shop with a company as well as purchase more than they would if they did not have this card because they feel they are saving with their discount.