IN AN EXCERPT FROM HIS 1974 tome Minding the Store, Neiman-Marcus Chairman Emeritus Stanley Marcus offers a behind-the-scenes look at how a Dallas-based specialty store became one of the world's most recognized luxury merchants.
Although he retired from active involvement in Neiman-Marcus in 1977, the influences of the philosophies of business Stanley Marcus developed remain an important part of the training of Neiman-Marcus personnel. Those basic principles — best exemplified by his belief in his father's business philosophy — are the reasons Neiman-Marcus is today recognized as a leader in good taste in American retailing. Marcus died this January, but not before he witnessed the triumphant 90th anniversary of his family's retail dynasty. Copies of Minding the Store are available from the University of North Texas Press.
Weathering the Depression
Skirts became longer in 1929 and the stock market crashed, not that the two have any demonstrable connection. The Depression was around the corner, but not until the fall of 1930 did we begin to feel the effects of severe economic dislocation. Declining sales made it necessary to curtail purchases and to institute salary deductions, first for executives, but later for all employees. With prices falling at wholesale, our prices at retail reflected the changes, but at no time did we ever yield to the temptation, as did some other retailers, to lower our quality standards to bring in more sales. My father, burdened with a larger store and a backbreaking personal bank loan, stood firm, and exhorted his buyers not to succumb to the temptation of cheaper inferior goods just to get badly needed sales. He urged them, time and time again, to maintain the standards of quality our customers had learned to expect from us.
Painful as the experience of the Depression was, I've always felt a degree of regret that my younger colleagues, especially since World War II, never had to go through the tempering ordeal of the period, and thus to learn some lessons in how to operate in adversity, when every dollar spent was important, when every customer had to be treated as if she was the last one you would see. I'm glad my education covered this span in economic history.
During the Depression, one of our customers inquired if we could give his daughter a job since he was not in a financial position to send her to college as he had planned, and he figured that the next best substitute for a college education was the opportunity to learn about people and goods at Neiman-Marcus. We gave her employment and when she quit to get married, she came to thank me for her three years at the store. I asked what had particularly impressed her during her time with us, to which she replied, “People. I never knew there could be so many nice and mean people in the world. I've learned to deal with both, something I doubt I would have learned in college.” Rarely do people reveal themselves for what they really are as they do with salespeople.
In 1930, when the nation was in the depths of the Depression, the great East Texas discovery well came in. Exploration of the area indicated that the East Texas oil field would be the single greatest reservoir to have been found in the country. Thus, at the very moment when other parts of the United States were faced with declining value of national assets, Texas suddenly found itself with great new sources of wealth. Dirt farmers, florists, anyone who owned a piece of land, were transformed overnight from poverty to riches. Fortuitously, Dallas was located midway between the new oil fields to the east and the oil fields to the west, and Neiman-Marcus was in Dallas. The new rich behaved in a predictable manner; they did exactly the same things the Gold Rushers in California did in 1849 and the successful oil drillers of West Texas in 1918. They came to town to spend their money for some of the things they had dreamt about for so long. Prosperity spread from the new oil landowners to the local lawyers, bankers, accountants, title companies, and others in the community life of Tyler, Longview, Henderson and other Texas towns.
Not true was the often-repeated story of a barefooted oil queen who supposedly appeared at Neiman-Marcus one day and said, “Dress me up. Give me the works”; but it was true that many plain-looking country families came to us, shyly in some instances, to buy a new church outfit or winter coat. Perhaps they entered with some trepidation, for Neiman-Marcus, like all stores dealing in expensive merchandise, had unwittingly, from the management's point of view, developed a reputation for hauteur and aloofness. But when they found they were treated with kindness and understanding, they went away convinced that Neiman-Marcus was the store for them. It doesn't take long for poor people to adjust themselves to newfound riches; most people want to eat well, dress better, own fine automobiles. They accept lower quality not out of choice, but through necessity. Improve their incomes and they immediately move to higher quality levels within a very brief period. This we experienced with East Texas, and again when the wartime boom gave employment and increased salaries to millions of low-income workers.
Many times I've toyed with the question of whether I could have had the courage, foresight and general business acumen to have started a business from scratch as my father had done. To this day I don't know the answer, and I never shall.
I entered the store when it was firmly rooted, when the early financial tribulations had been overcome, and although we went through some gales and typhoons, it required completely different talents to stay afloat than to set forth on the lonely journey alone. My contribution to the business took shape in my ability to translate the store's ideals into ideas that a large number of potential customers could find credible. Somewhere in my education I had picked up a sense of promotion, an understanding of how to do things that would get a maximum amount of desired publicity, a flair for communicating with people by doing things that commanded attention.
A store with a split personality
Although Neiman-Marcus maintained a conservative dividend policy, plowing a substantial part of our earnings back into the business, the financial requirements of our growing volume and expansions taxed our resources. Unwilling to dilute our ownership by the sale of common stock, we resorted to open lines of credit at the banks, term loans and even the sale of preferred stock. Our debt ratio always ran quite high, and finally on the recommendation of Fred Florence, by now a member of our board of directors, we decided to ease our problems by the sale of some debenture bonds. At his suggestion, we visited the Prudential Insurance Co. in Newark, N.J., where we met with Kerby H. Fisk, head of the bond department, and explained why we wanted to sell Prudential $2 million of debentures. After reviewing the statements and financial history of our business he said, “I question whether we want to get involved with a company selling only ‘whipped cream.’ I've read about your sensational sales of furs and diamonds, but if a dip in the economy occurs, you are apt to be without customers.” This was the first time our well-planned public relations program had backfired!
We assured him that we were selling much more than “whipped cream”; that in truth we were selling “milk” as well, and that actually, we sold more “milk” than “whipped cream.” We suggested that he come to Dallas to go through our stocks with us, and to review our sales by price-line categories to prove the validity of this statement. He accepted our invitation, and was astonished to find that in addition to selling more mink and vicuña coats than any single store in the country, we also sold thousands of garments at $30, $75 and $100. Thus reassured that our business had a very broad base for consumer support, he agreed to the purchase of the bonds.
Curiously, he wasn't the only one to suffer from this misapprehension. Despite the fact that we may advertise a sable coat for $50,000 once in the course of six months, and dresses at $50 twenty times in the same period, a large number of potential buyers will remember only the sable advertisement, and not the ones for $50 dresses. If you were to query these women about what they want to spend for a dress, a large number would reply “$50,” and if you were to follow up this question with another, “Do you buy your dresses at Neiman-Marcus?” you would probably get another answer, “No, I can't afford to shop there.” They either ignore our advertisements for less expensive merchandise or don't believe them. However, since we sell large quantities of moderately priced articles in all departments of our stores, we obviously have been able to convince a substantial number of customers that we have things to sell at affordable prices.
There is a reverse twist to this reputation for selling high-priced merchandise. There are women who do read both the $50,000 sable coat and the $50 dress advertisements, and who deliberately choose to buy their $50 dresses from the store that sells $50,000 sable coats. A little bit of the luster of the sable rubs off on the label of every $50 dress.
What we proved very early in our history is that it was possible to sell both the finest, most expensive merchandise to those who could afford it and simultaneously well-selected, good-quality merchandise at moderate prices to those in other income strata. Obviously there is a thin market for $50,000 furs, and if we depended on the sale of them for any substantial portion of our volume, we would have a very small business. Stores of our type which failed to recognize this obvious fact went out of business; others, like Bergdorf Goodman, read the signs correctly when they popularized their clientele by adding their Miss Bergdorg and Bigi shops. It's not enough merely to have less expensive garments for sale; they must be better selected, and better styled than similar articles found in the stocks of department stores.
The night Neiman-Marcus burned
At 1:35 a.m. on Saturday morning, Dec. 19, 1964, I was awakened by the incessant ringing of the telephone. We had retired an hour before and I was in deep sleep. It took me a few seconds before I could comprehend the voice on the other end of the line saying, “Mr. Marcus, we have just discovered a little fire in the store, and we wanted to alert you. There's no necessity for you to come down, but we'll call you back as soon as we get it under control.” I turned over and went back to an uneasy sleep. Forty minutes later the phone rang again, and this time I was fully alert to our store superintendent's message. “The fire is spreading,” he said. “I think you'd better get down here at once!” I jumped into warm clothes, drove at high speed on the deserted, icy streets and arrived at the site of the burning building within 15 minutes after the second phone call.
Smoke was billowing from the upper floors, flames were licking the early morning air from the second-floor windows. It was obvious before I entered the building that a major catastrophe had occurred. The fire chief confirmed my fear that all the floors had been damaged by fire, smoke or water, and estimated that it would take several hours to extinguish the fire. He permitted me to go on an inspection trip as far as the third floor, but no farther, because of the hazardous conditions. A few firemen had been overcome by smoke, but fortunately no one had been injured. By this time it was 4 a.m. and five cups of coffee later. My brothers and many of our executives had arrived on the scene with questions about the cause of the conflagration, the extent of the destruction and the condition of our stocks. The air was full of contradictory ideas and suggestions. I recognized that in an emergency situation such as this it was necessary for strong leadership, and as chief executive it was my job.
I commandeered a small office on the ground floor, removed from the center of the firefighting activities and smoke-laden air, and called all of our senior people together. I said, “We have an emergency, and we are going to have to make some fast decisions. Time won't permit us to discuss the pros and cons of every question. I'll listen to anything you have to recommend, but I am ready and willing to make final judgments. I may make some mistakes in judgment, but I'll have to take that chance. We have been put out of business just a week before Christmas, and thousands of people are depending on us to supply them with Christmas gifts. Bob, you get hold of the radio and TV stations, and ask them to tell our customers that we shall reinforce our staff of salespeople at the Preston Center and Fort Worth stores, so that they can complete their Christmas shopping. Buy commercial time as well to carry this message, and also tell our customers that most purchases made the day before the fire are already at our service center, and are undamaged. As soon as you get access to our alteration department, determine how many garments are there which had been promised for delivery today, and if they are undamaged, offer to send them out, subject to the customers' satisfaction.”
I continued, “We are covered by ‘use and occupancy’ insurance, which will safeguard us against financial loss while we are closed, but even that can't protect us from the loss of the customers who have to go elsewhere to shop in the meantime. Therefore, our No. 1 objective is to get back into business at the earliest possible moment.” It was then 4:45 a.m. I turned to our construction supervisor. “Call our contractors, and tell them to get down here at once and start building a barricade around the building. Telephone Eleanor LeMaire in New York, and ask her to send two of her store designers to Dallas on the first plane they can catch, and tell them to come prepared to stay for the duration. We'll need them to determine what, if anything, can be reused, and after that, they can start designing permanent installations.” By 7 a.m., before the firemen had left the premises, the construction crew was erecting the protective barricade around the building.
By that time, the insurance adjusters showed up, and together, we were able to make a preliminary investigation of the condition of the merchandise stocks. They concurred that the entire stock, with minor exceptions, had to be considered unsalable. Bill Bramley, our vice president and treasurer, told them that we would not consider offering for sale any piece of merchandise which had been exposed to smoke, even though it showed no visible damage from fire or water. They agreed, so I turned to George Baylis, our general merchandise manager, and instructed him to get our buyers to New York by the following Monday morning to buy replacement stocks for delivery in two weeks, not knowing whether a reopening could be accomplished by that time or not.
One of our merchandise men reminded me that we had a number of wedding deliveries scheduled for that day, and since the bridal and attendants' gowns were all stored in our bridal shop, they were either smoke- or water-damaged. He made the brilliant proposal that we call in the entire wedding garment stocks from our Fort Worth and Houston stores, rent a suite of rooms at a hotel, and notify every bride to come and make another selection. By 11 a.m. this plan had been executed, and we re-outfitted the 15 bridal parties without losing a single bride. Helen Corbitt, our food director, set cooks to work in her own apartment to meet our Christmas party catering commitments.
By 11 a.m., Bob Jeffrey, our controller, had organized a fleet of trucks to start moving the inventory out of the building to the salvage warehouses. Another group of trucks carried off water-soaked furniture and carpets. Engineers and contractors began an appraisal of the physical damage caused by the fire and started to establish a reconstruction schedule. By that night we had demolition workmen in the store, pulling down plaster walls and sagging ceilings.
Throughout the meeting, I was called out to talk to the press, do radio and TV interviews and pose for innumerable photographs wearing a fireman's helmet. By cooperating with the reporters and helping them make their deadlines, we scored the most inclusive and sympathetic press in the history of fires. We even had coverage on European TV. Our total loss was about $12.5 million. The cause of the fire was never determined.
By 11 p.m. I called it a day and went home, carrying with me the acrid stench of smoke in my clothing, my hair and my nostrils. For years the slightest smell of charred wood was enough to send a chill through my body, creating instant recall of that fateful day in 1964.
When Miss LeMaire and her designers arrived, we had a long discussion of our alternatives. We could either return the store to its prefire condition, or we could take advantage of a bad situation and redesign the fixtures and décor of every department, ending up with a completely modern-looking store. Even though I knew the latter choice would prove more difficult and expensive, I nonetheless took that option.
Under normal conditions, it takes a year to design the interior, six months to finish the shell of a building (and that's about all we had left), and another six months to build new fixtures. Through the Herculean efforts of the LeMaire organization, our contractors and our own staff, we were completely rebuilt in 11 months.
Equally remarkable, by a scheme devised by Miss LeMaire and Alvin Colt, we were able to reopen the first three floors on Jan. 15, 1965, 27 days after the fire. Occupancy of the fourth floor followed a week later. Miss LeMaire figured that if we could create an attractive décor in the center of each floor, permanent reconstruction work could be started around the perimeter. The second stage involved closing down the center and occupying the perimeter spaces. She felt the colorings of the interim areas should be verdant and springlike, the antithesis of fire and smoke.
Our manufacturers in this country and abroad cooperated to the fullest extent in restocking us. One sweater mill in Scotland turned over its entire production for one week to manufacture replacement stocks for us. Our customers poured in on reopening day to express their congratulations on our speedy recovery.
During the days that followed the fire we were deluged with cables and letters from all over the world — from retail colleagues, customers and even the President of the United States. I was deeply touched by the generous concern of local retailers and banks who offered trucks and manpower, storage facilities and personnel to help us in our time of need.
One wag took advantage of the fire by sending out a New Year's card that read: “This is to inform you that a gift being held for you at Neiman-Marcus was destroyed by fire. Happy New Year, Pat Donahue.”
Another customer got hold a 2-inch square of mink. He singed it around the edges, tacked on a Neiman-Marcus label from one of his wife's dresses, and gift-wrapped it with his card, which was inscribed, “I know you've always wanted a mink coat, so I decided to buy you one this year. This is all that's left of it after the fire at Neiman-Marcus.”