The his-and-hers camels offered in the annual Christmas catalog told you everything you needed to know about Dallas's foremost department store -- or at least everything that Stanley Marcus wanted you to know. No matter that only one of the desert beasts was ever shipped. It was by such flashes of marketing genius that The Neiman-Marcus Co. established its reputation among America's department stores as the premier purveyor of extravagance, quality, and style.
Now 10 years retired from the chairmanship of the business that bears his family name, Marcus has watched as the store's new corporate owners try to steer clear of the rut into which most of the big retailing chains have fallen: standardization of product, decline in quality, an overemphasis on numbers and an underemphasis on customer service. Public ownership, he says, is largely to blame. So, too, is an industry that assigns too little prestige to its sales force and too little importance to price stability.
Actually, it was only reluctantly that the young Stanley Marcus went into retailing, abandoning a nascent publishing career on his father's plea for help and a promise not to stifle the young man's freedom of expression. Stanley's liberal politics and irreverent wit have not always sat well with a Dallas establishment that, nonetheless, continued to eat off his imported china and drape its women with his furs. Now a young 82, Marcus is still remarkably free with his opinions -- as the author of three books, as a columnist for The Dallas Morning News, and as a consultant. He shared his thoughts on retailing and its troubles with INC.'s Joseph P. Kahn and Steven Pearlstein.
INC.: You've been in retailing for 50 years now. In what fundamental ways has it changed?
MARCUS: The two biggest factors in retailing today are public ownership and the standardization of goods. And both are related. The reason merchandise is more standardized -- the reason you see the same goods in every store -- is because the buyers are almost exclusively computer oriented, less in touch with suppliers and customers, and much more in touch with the quarterly bottom-line numbers that inspire public-company managers. There are good reasons why public companies behave this way, but they don't have anything to do with serving the customer well -- and that is really where the excitement is in retailing.
INC.: What is it about the quarterly profit orientation of some of the larger outfits that is inconsistent with building an exemplary retail operation?
MARCUS: I suppose I learned this from the Dayton family in Minneapolis. The Daytons had a principle that profit was not the objective of a business. The objective of a business must be providing a service or product that's good enough for people to pay you a profit for providing it. That sounds, perhaps, like semantics until you start applying it, and then it makes a world of difference. I found that when I took care of customers extremely well, and made them a focal point, profit inevitably flowed from that.
INC.: But what is it about public ownership that prevents the head of Allied Stores or Sears Roebuck from realizing that and doing something about it?
MARCUS: Look, I'm not naive enough to think retailing's problems would be eliminated if public ownership suddenly disappeared. But you can't pretend that it hasn't led to a decline in quality -- that these stores are providing the same service to customers that John Wanamaker did when he felt he knew his merchandise so intimately that he sewed his own name into every piece of clothing. Oh, sure, the public companies pay lip service to the idea of satisfying the customer, but most of that is pious nonsense. They'd like to have customers happy and satisfied, but not if it's going to cost them three cents' worth of earnings in the current quarter. Given the choice between customer service and that three cents, customer service goes right down the drain.
INC.: And yet many of these big retail chains are today quite profitable, in spite of the declining quality and service. Do you think the marketplace will eventually catch up with the big chains?
MARCUS: That seems to be the long-range trend. At one end, you have K mart, the stripped-down model providing a limited number of standardized goods to that part of the market that doesn't want fanciness, that doesn't care much about quality or service, that is only concerned about price. And at the other end, there are the retailers -- a few large ones and many more small ones -- providing maximum service and maximum selection. And in the middle fall the department stores that are giving neither the best service nor the best price. So what future do they have?
INC.: Are department stores as we know them threatened with extinction?
MARCUS: Not imminently. And not all of them. There is Nordstrom's in Seattle, a publicly held clothing store with a deep commitment to its customers. And there are a few -- I'm thinking of Macy's, Bloomingdale's -- that realize the problem and are working hard at self-correction. Look at Gimbels, which is the perfect example of what happens to the bland store that tries to mean anything to anybody. When Gimbels buried its New York City store last year, no one came to the funeral. "Sorry you're gone," said the general public. "We thought that you had folded years ago."
INC.: You talk about some of the inevitable problems of size, and that raises a key management issue. Suppose you're a successful, ambitious retailer. You want to grow, but you're afraid of getting too big to be able to service customers well. What's your advice?
MARCUS: That's a tough question. Even the great merchants, the ones who stay intimately involved with their stores as they grow, reach a limit beyond which they cease to be effective. It's a very tough decision knowing how far you can extend yourself.
INC.: Are those limits best defined by sales volume? Number of employees? Number of stores?
MARCUS: Most likely it's the number of stores that becomes the poison pill. I'm guessing a bit here, but if you can get to each location every three, maybe every four weeks, you'll probably catch problems before they get out of hand. Once every six weeks, you may be in trouble. Regional chains are a little easier to manage than national ones, naturally.
INC.: Doesn't the computer extend your reach by giving you detailed information on what is going on in each store -- which items are moving, which are profitable and which are not, which salespeople are doing the best? If you have that kind of information on a daily basis, isn't that what you need to manage?
MARCUS: No, because you still haven't spent enough time on the selling floor, meeting customers, understanding the merchandise, watching the salespeople.
INC.: Why is that so important? In one sense, it sounds like a colossal waste of time for somebody really trying to grow a business.
MARCUS: It is important because you learn something from your customers that you can't learn anywhere else. You learn whether they're happy and satisfied. You learn not only what they bought but what they didn't buy -- and why. You learn what they came in expecting to buy and expecting to pay. I haven't seen a computer yet that can tell you all that -- that can plug into a customer and ask, "Are you satisfied? Have the merchandise and service met your expectations?"
INC.: And yet you'll have to admit that the computer has provided an incredible amount of valuable information that yesterday's retailers rarely had.
MARCUS: There's no doubt about it. But the danger is that it's like an addictive drug. You become hooked on numbers to the point that you neglect your products and your people. I've walked into department stores around the country and found buyers sitting in their offices in sweat suits. You know what that tells me? It tells me that they have no intention of spending any time on the selling floor. Their whole life is tied to that damned screen.
INC.: And that leads to bad decisions.
MARCUS: It can certainly lead to wrong conclusions, or wrongheaded policies. Take suspenders as an example. Originally, suspenders came in long and short. If you were short and tried to wear long suspenders, your pants would fall down. If you were a tall fellow and tried to wear short suspenders, you'd cut your masculinity off. But now the computer comes along and tells the buyer that she can reduce her stock investment and increase her margins by stocking a one-size-only suspender. In the short run, it looks great. But a computer can't tell her why one size suspender doesn't satisfy all. And it can't tell her how many customers she has lost.
The real problem here is that we have become exposed to much more potential knowledge than we have time to read and digest and act upon intelligently. It comes back to the fact that the day is still only 24 hours long, and if you are a retailer, you've still got to spend some of those 24 hours with your customers and your product. You can't allow the computer to crowd them out as crucial sources of information.
INC.: Let's carry this a step further. If every retailer had up-to-date information on which items in which sizes and colors generate the largest margins -- and if the idea is to maximize margins -- then wouldn't all stores begin to carry the same merchandise?
MARCUS: That is exactly what is happening. The computer helps minimize risk and exposure. That's great for the inventory manager, and for the manufacturer, who gets to produce larger quantities of fewer items. But it also squeezes out fashion change, which is what makes retailing exciting -- and can make it very profitable. Remember, once you start standardizing selection, competition on those items gets so keen that margins begin to disappear for everyone.
INC.: How does a retailer fight that tendency?
MARCUS: By selling what he believes in, not just what he thinks can make him money. I remember once telling a Neiman-Marcus buyer to discontinue a line of handbags she'd ordered. "But Mr. Marcus," she said, "I've already sold 3,500, and I've got another 3,500 on the way." "Too bad," I said. "Burn them." "But Mr. Marcus," she said, "have you figured out the gross margin you'd be burning?" "Yes, I have," I said, "and I'm more than willing to sacrifice that margin. Sell the bags to someone else, job them out, do whatever you have to do. But do not stock them."
INC.: In other words, have the courage of your convictions.
MARCUS: This wasn't being heroic. It was being the master of my own destiny, building the kind of business I wanted to build. Not the kind of business the bag buyer wanted to build, but the kind of business I, the impresario, wanted to build.
INC.: Let's talk a bit about selling. Years ago, it was possible for somebody to make a decent living and raise a family on the salary of a store salesperson. However, that doesn't seem to be the case today.
MARCUS: No, it's not. Part of it is that retailers have been dead wrong in the way they've compensated salespeople -- they're paid too little. But another part of it is that, money aside, they have failed to build prestige into the position.
INC.: Is that a problem unique to retailing?
MARCUS: I suppose it's more general than that. If you think about it, there are very few businesses in which selling is regarded as a profession. Life insurance is probably one of the few. They do a better education job, for one thing, than most businesses do with their salespeople. They offer greater job security and greater income. And as a result, it's probably the only professional cadre in the selling force of America. But for the most part, salesmen these days -- even ones that make $100,000 selling cars or $75,000 selling shoes -- are not people you'd want your daughter to marry.
INC.: Your daughter knows that. The young person looking for a career knows that, too.
MARCUS: And in retailing, that has become a major problem. One thing I learned very early is that a valuable sales-person is easily worth three times what you pay the average schnook.
MARCUS: Because you never know what that schnook is costing you in lost sales. Why do you think that you have to have so many department stores in a mall these days? It's not because their merchandise is so different. It's because each of them does such a poor selling job that they survive just taking up each other's unsatisfied customers. A store with good salespeople wouldn't let that happen.
INC.: You've given us some eternal truths about retailing -- about the importance of salesmanship, about keeping contact with the customer. Can you give us some "truisms" of retailing that deserve to be discarded?
MARCUS: Number one: customers love to shop. Pure nonsense. Maybe they used to, but not anymore. Today, customers have more money -- and less time -- to shop. Shopping no longer has the entertainment value it once had.
INC.: So a smart retailer will work hard to build some of that entertainment value back into the product and service?
MARCUS: That's right.
INC.: Other myths?
MARCUS: That stores "own" their customers. Nobody owns anybody anymore. This is show business, folks, and you're only as good as your last performance. And if it was lousy, shoppers could probably find identical merchandise three doors down in the same mall.
INC.: And a third?
MARCUS: The attitude that you're not doing well because "business is bad all over." Maybe that's true, but I'll guarantee you that somebody in that mall or on that street is saying to himself, "Averages don't apply to me."
Let me give you an example. I recently met a small, independent retailer in Oklahoma City -- the center of what is possibly the most economically depressed region in the country -- who was selling $350 hand-knit sweaters in great variety and quantity. That surprised me. So when I found myself in Los Angeles -- a prosperous city by comparison -- a few weeks later, I made a point of talking to three or four clothing-store owners about their sweater selections. Each one told me he had stopped carrying the more expensive hand-knit merchandise because the market for it had disappeared.
Now let's face it: the entire market for handmade sweaters has not relocated to Oklahoma City in the meddle of an oil depression. What happened is that this merchant liked these sweaters, he believed in them, bought them, and then got his salespeople together. And he said, "Goddamn it, this is the hottest thing that I saw on the market, and I believe our customers are going to like them. Be sure you show them, because they're not going to walk off the shelf and twist a customer's arm. You have to sell them." And then the next day he was probably on the floor and he saw one of his top salespeople waiting on Mrs. Porter and not showing her the sweater. And he went up to Mrs. Porter, presented the sweater, and Mrs. Porter decided to buy it. And all of a sudden, the salesperson became a convert.
That's what selling and sales training is all about -- it's the only way I've ever seen it work.
INC.: So what's missing today -- what the computer misses, to go back to your earlier point -- is the process by which the merchant trains his salespeople, and the salespeople train the customers?
MARCUS: Almost. Because it's not training I'm talking about -- it's education, which is not the same thing at all. You train dogs and bears, but you educate people. That's because people have to understand why they should do something. It's true for customers. And it's true for all your employees -- managers, salespeople, buyers.
INC.: How has the buyer's role changed?
MARCUS: In the past, the buyers knew much more about the goods they were buying, in part because they had bosses who knew more. But today there is nobody to teach them about the thread count on a piece of fabric or the lead content of a fine piece of crystal. Today the buyer is only interested in the "look" of the garment or the "design" of the glass. And she depends heavily on the market reps for guidance -- taking stock counts, writing up orders, keeping track of inventory. This reliance on the reps saves the retailer some money on clerical help. But it also contributes to the standardization I was talking about, because the rep, of course, is performing precisely the same service for competing stores.
INC.: While, at the same time, the buyer is bringing more price pressure on the manufacturer?
MARCUS: That's correct. The buyer is saying, "I want more money for my showcase. I want markdown money. I want advertising money. And I want some money under the table."
INC.: Is that more true today?
MARCUS: I really couldn't say. Buyers have always been susceptible to corruption. It used to be nightclubs and racetracks. Today, for all I know, it's sex.
INC.: But whether the concession is under the table or over it, you're saying that these concessions have become too important in buying decisions.
MARCUS: I can tell you almost exactly when it began, because I was one of the ones who started it. It was back in 1931. David Crystal came to me with a line of casual dresses made from a new fabric, Linisette, I think it was called, and asked me to give it a try. I liked the program, but it was new, risky, so I made a proposal to Crystal that if he and his fabric supplier could put together some money for us to buy local advertising and help defray the cost of a mailer, that we would put on a huge promotion of his dresses. He did, and it was a success that became copied very quickly throughout the whole industry. But like lots of good ideas, it has been carried to an extreme, and become self-defeating. Now, everybody is looking for advertising money, and it has helped to drive the best goods from the marketplace.
INC.: How's that?
MARCUS: Because if a buyer, sitting in front of her computer screen, is faced with the choice of buying something that is definitely superior or something that is of lesser quality but comes with 50-50 advertising money, you know which one the computer is going to tell her to buy.
INC.: And by the same logic, the incentive is to buy goods that come with markdown money rather than those that don't.
MARCUS: To me, insisting on markdown money makes an unfair claim on the manufacturer. If you're a retailer and you buy a product of your own free will, assuming that the product is delivered in good condition, you should take your own lumps if it doesn't sell. But that's not the trend today. Retailers want to minimize risk. And they show very little respect for price. Somehow the goal of retailing has become to get rid of your goods as quickly as possible, and this has led to a theory of merchandizing that requires you to reduce prices just as soon as sales of an item begin to drop. That's why the markdown money has become so important. But with all this marking down, customers no longer have any confidence that the price they are paying today is not going to be undercut tomorrow. The price system's foundation is as strong as Jell-O.
INC.: And as a result, margins get thinner, leading to even greater pressure on prices, greater standardization, and further decline in product quality.
MARCUS: It's a vicious circle.
INC.: Don't both sides have an argument here? The manufacturers say they would obviously prefer not to have to get into markdown money and advertising money, but they're at the mercy of the big stores, the volume buyers. And from the other side, the retailers complain that they really do want to offer better goods -- and a better selection of goods -- but the manufacturers aren't offering them. Which group has the better argument?
MARCUS: Probably the manufacturers. It's not black and white, to be sure. But I think the reason retailers see less choice and less creativity is that they're putting greater pressure on the manufacturer to cut costs. You can't do that and then turn around and complain that creativity is gone. Creativity is a commodity that must be paid for. And fewer and fewer of today's retail managers understand that.
INC.: Is that because fewer and fewer retail managers have much creativity themselves?
MARCUS: To a degree. I think the good, creative people -- the people with flair -- have gotten out of the retail business and gone into things like advertising, where they have found more money, more applause, more of an opportunity to spread their wings.
INC.: You were able to spread your wings without leaving retailing. And perhaps nothing symbolized that better than your Christmas catalog.
MARCUS: We used it to help build a sense of excitement, a sense of the unexpected. And it is still effective in that regard today, although less so. Production and distribution costs have escalated enormously, and I have a feeling electronic marketing will eventually replace the catalog as we know it now. That is something that retailers, on the whole, are not very enthusiastic about.
INC.: Why not?
MARCUS: Retailers tend to be extremely reactionary. Over the years, they've fought about every new or progressive idea that they've come up against. In the '20s they fought chain grocery stores. In the '50s it was various laws to protect the worker. They resisted truth-in-labeling laws. On the whole, retailers are like the Bourbons: they've learned nothing and forgotten nothing.
CORRECTION-DATE: July, 1987
On the cover of our June issue, we incorrectly identified Stanley Marcus as the founder of The Neiman-Marcus Co. In fact, the Dallas-based department store was founded by his father, his uncle, and his aunt.