Neiman Marcus to Cut Chef’s Catalog Strings

The heat is on, and Neiman Marcus Group wants out of the kitchen. The Dallas-based cataloger/retailer, which mails the high-ticket gifts and home decor titles Horchow and Neiman Marcus, announced on May 26 that it is exploring “strategic alternatives” for its $75 million kitchenware book, Chef’s Catalog. New York-based investment bank Elixir Advisors is advising Neiman Marcus on its options, which could include a sale, a merger, or a joint venture.

Founded in 1979 by Marshall Marcovitz, Chef’s Catalog was acquired by Neiman Marcus in 1998. Neiman Marcus did not return calls for comment, but in its 2003 annual report, the company admits that sales at the title were “disappointing.” Nonetheless, revenue at Neiman Marcus Direct in 2003 increased 11%, to $494 million; its operating earnings for fiscal 2003 doubled to reach $46 million.

In the five years that Neiman Marcus has owned Chef’s Catalog, the kitchenware market became increasingly competitive, says a source close to the company speaking on the condition of anonymity. Consumers now have more sources to shop for Chef’s Catalog staple brands such as Cuisinart, Kitchenaid, and Henckels.

In addition to increased competition, the source says that Chef’s Catalog’s profitability also concerns Neiman Marcus. The title’s margins are lower than those of the company’s other catalogs. In recent years Chef’s Catalog tried to sell more private-label tabletop items and giftware, which typically carry higher margins, the source says, but customers did not respond to the offerings.

Indeed, “Neiman Marcus wanted to grow Chef’s Catalog into a brand that would be all things luxury when they first purchased it,” says Katherine Galligan, vice president of research for Dallas-based equity research and trading firm Aperion Group. But it proved difficult for the company to differentiate the book as an upscale, upper-tier brand. Ultimately, Neiman Marcus “could never take the Chef’s business and go beyond a break-even pretax margin,” Galligan says.

What’s more, catalogers “are focusing on their core businesses,” observes Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander. If a unit is not central to their flagship business, marketers are now considering selling it for a good price, he says. “This is something you’re going to see more and more.”

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