Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Remember that mantra from Mom and Dad about not doing something just because all your friends are doing it? Neiman Marcus would be wise to heed that advice.

Flash Sale
Neiman Marcus bonds are down 12 percent in the last three months
Source: Bloomberg

Bloomberg News on Wednesday reported a new partnership between Neiman Marcus Group and Rent the Runway, the online clothing-rental service popular with young women who don't want to shell out hundreds or thousands of dollars for a formal dress only to wear it for one event. For many women, once a dress worn to a wedding or gala has been captured on Instagram or Facebook, it's not like it can be worn again.

Rent the Runway, which has slowly been rolling out physical locations, will open a 3,000-square-foot boutique in Neiman Marcus's San Francisco branch Friday. It will open more locations in 2017. 

I get why Neiman Marcus is doing this. Sales at the the once-ritzy department store have cratered in the past year. It posted a $407 million loss in its latest quarter. It has waved goodbye to its long-rumored IPO, leaving investors who paid dearly for the company in a leveraged buyout back in 2013 holding the bag. 

Discount Rack
Neiman Marcus lost $407 million in its most recent quarter, as sales growth plummets
Source: Bloomberg

Meanwhile, it's trying to make itself more accessible and desirable to younger customers. The problem is, its efforts to seem hip and cool and millennial-like are merely alienating its current crop of older customers, who no longer see it as a luxury shopping destination. Younger customers, meanwhile, are increasingly shopping online or in smaller chains and boutiques that seem more authentic than a big department-store chain.

Rent the Runway co-founder Jennifer Hyman told Bloomberg that dress rentals don't replace purchases -- a statement anyone who has ever rented a dress from the company knows is off-base. Rentals will certainly bite into sales at Neiman Marcus, one of the last remaining brick-and-mortar locations where customers can try on and buy formal dresses.

Neiman Marcus should know better. It has seen what happens to other competitors who have tried similar tactics, spending money on startups in hopes of attracting a younger customer and juicing sales. 

Just last week, Nordstrom Inc. wrote down $197 million of the value of Trunk Club, saying its expectations for growth and profitability at the online clothing subscription service -- which it bought for $350 million in 2014 -- were a lot lower than initially predicted.

And earlier this month, Saks Fifth Avenue owner Hudson's Bay Co. said its recent C$250 million purchase of flash-sale website Gilt Group hurt its overall sales, which fell 3.6 percent in the latest quarter from a year ago. Sales would have been down 3.2 percent without Gilt. Digital sales, which rose 5.4 percent in the quarter from a year before, would have risen by 13.5 percent without Gilt. Hudson's Bay plans to essentially merge Gilt with the discount chain Saks Off 5th.

Fortunately, Neiman Marcus won't spend anywhere near those dollar figures on its partnership with Rent the Runway.

Here's hoping the tie-up is limited to a test in a select number of markets, from which Neiman Marcus can learn and move on. Otherwise, the chain could see its own runway for growth cut short. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net