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Saks Fifth Avenue’s Latest Strategy: An ‘Invitation to Luxury’

NEW YORK — There’s been soul-searching at Saks Fifth Avenue.It’s been perpetuated by having three owners and a string of...

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A technique for selective merchandising
At Saks in Las Vegas generous space for designer ready-to-wear
The Las Vegas prototype

The Las Vegas prototype.

Photo By Paul Cichocki

Christina Johnson

Christina Johnson

Photo By Paul Cichocki

NEW YORK — There’s been soul-searching at Saks Fifth Avenue.

It’s been perpetuated by having three owners and a string of management changes in the last decade. Yet, now Saks officials point to their latest store opening in Las Vegas and ongoing renovation of its New York flagship as proof that the company is raising standards and, more importantly, has a grip on its strategic direction.

"We are delivering on our promise that Saks will be the ‘most inviting luxury experience,’" said Christina Johnson, president and chief executive officer of Saks Fifth Avenue Enterprises.

She’s quoting the store’s internal mission statement, which last year was tweaked from Saks as the "accessible luxury experience." It is part of the march to present a clearer luxury identity and create a broader appeal. From its own research, Saks has learned that many people think of the store as intimidating, traditional and suited for an older Park Avenue crowd. But Johnson has been creating committees to get merchants to come up with new fashion ideas and ways to personalize looks for customers, versus dressing customers in head-to-toe designer looks. The store’s latest marketing mantra is "Make it Your Own."

The company also is refocusing private label offerings more to baby boomers, has been building up contemporary offerings at a faster clip than Neiman Marcus and, in January 2002, the Saks Inc. corporation added a strategic slot, hiring Stephen Sadove, a Bristol-Myers Squibb Co. senior executive, as vice chairman to help Saks Fifth and the Saks Inc. department stores develop branding strategies.

What the Saks brand stands for has been debated for years, and endlessly compared to Neiman’s, which exhibits a greater degree of uniformity in selection and presentation from door-to-door. The Saks presentation, as one insider said, has been "a little hen-pecked all over the place."

But that kind of comment gets the dander up at Saks. "It’s totally unfair," Johnson stated. "We have gone into every flagship market from 1995 and on, and increased our square footage in every major marketplace. Seventy-five percent of the portfolio has been remodeled since 1996. The bulk of our stores are in very good condition.
"Our brand has to be consistent in every market we serve," she added.

Apparently, the strategy seems headed right at Neiman’s. According to insiders, Saks’ top 10, or so, vendors are precisely the same as Neiman’s, although labels are bought differently and sold in different locations. Chanel, David Yurman, Donna Karan, Ellen Tracy, Ermenegildo Zegna, Escada, Giorgio Armani, Prada, Salvatore Ferragamo and St. John are reportedly on the Neiman’s top-10 list. Saks declined to disclose its top 10.

And like Neiman’s, Saks says its sells bridge-to-designer price points. Saks has been able to add designer goods through space increases, renovations and, in some cases, by creating "hard" shops, particularly in accessories, which are permanent installations with the designer’s signature decor.

Saks also has been building up merchandise in the "gold range," including such brands as Peter Cohen, Max Mara and Piazza Sempione, priced above such bridge lines as Ellen Tracy, Dana Buchman and Tahari.

Perhaps the best representation of the new Saks Fifth Avenue at the branch level can be seen in its Las Vegas store, which opened on Nov. 1. The 160,000-square-foot unit — more than twice as large as the unit it replaced — pours on the service and wants customers to feel cozy, with streamlined interiors, warmer colors, extended sight lines and three "living rooms" by the men’s wear, designer and bridge departments, where customers can rest, read, watch TV, have a snack and then do some serious shopping with a personal shopping assistant.

There’s also an array of luxury exclusives, like Penhaligon’s and Lab 21 cosmetics, which tests your DNA for skin type and thereby creates a skin cream just for you, at $250 for a 1.7-oz. jar. At the opening, there was also a vintage bar from a Paris antique show, priced at $42,000.

"We are using Las Vegas for a lot of prototypical work," Johnson noted, meaning new concepts there will be cloned to other Saks locations, and categories considered growth opportunities are more generously spaced. Designer square footage grew to 8,400 square feet, from 2,300 square feet in the previous store, with such labels as Christian Dior, Yves Saint Laurent, Issey Miyake, Burberry, Céline, Moschino, Ralph Lauren, Vera Wang, Badgley Mischka, Marc Jacobs, Jean Paul Gaultier, Dolce & Gabbana, Voyage and Viktor & Rolf. The home area grew to 4,200 square feet, from 200 square feet; fine jewelry went to 4,000 square feet, from 524 square feet, and men’s — primarily sportswear — expanded to 12,600 square feet, from 4,400 square feet.
The Vegas unit is seen hitting $50 million to $60 million in annual sales, and could be among the chain’s top five branches, according to sources.

Meanwhile, Saks continues to upgrade its flagship in New York through an ongoing $100 million renovation. The success of the flagship is crucial. Retailing in the city has been down since Sept. 11, 2001, and Saks Fifth Avenue, considering its high percentage of shoppers from out of town, has been slow to rebound. The 61-store Saks Fifth Avenue chain has sales of about $2.4 billion, and the flagship accounts for about 25 percent of the total.

Since the flagship renovation began about a year-and-a-half ago, men’s sportswear on seven; Salon Z for large sizes, and men’s furnishings, as well as the fine and fashion jewelry and accessory areas, have been renovated. In the main-floor accessories and fine jewelry areas, gone is costume brand Carolee, while fine jewelry brands such as Graff, Cartier, Chopard and Bulgari have moved in. Men’s accessories were relocated to six, next to men’s clothing.

Next up on the renovation schedule is the cosmetics and fragrance area on the main floor, starting this month, where sight lines will be dropped and fixturing lowered to maximize the grandeur of the floor.

It’s a top-to-bottom overhaul, with a schedule that’s been stretched out, at least a year longer than originally anticipated, so that expenses are more in line with the pace of the business.

"When the renovation is complete, there will be no other store in the world like this," Johnson contended, referring to the enlarged scope of the designer presentation.

Johnson also said the main floor of the two-level Atlanta store might be renovated, that Saks is opening in Richmond and Indianapolis next fall and the company is considering two other openings in 2004. Asked how many stores Saks Fifth could ultimately operate, Johnson replied: "I don’t believe there is a ceiling. We continue to look at smaller markets. New stores going forward may be smaller rather than larger."

Others think Saks is close to saturation in the U.S. "Basically, the growth is going to have to come from remodeling or enhancement or increasing space in some of their hotter properties," said Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates. He is a former Saks Fifth ceo who also once headed up Batus Retail, which owned Saks Fifth Avenue until Investcorp bought Saks, and subsequently sold it to Saks Inc., formerly Proffitt’s, in 1998.
"Neiman’s has been remodeling and started earlier, but Saks has been very aggressive in strengthening their position in Florida, Texas, California and New York. It’s selective saturation. Saks is working now toward trying to establish a clearer identity. There have maybe been some inconsistencies in their presentation in smaller stores in smaller cities, where Saks has a huge opportunity to improve their productivity," Aronson said.

"There should be room in the luxury segment for both Neiman’s and Saks — of these traditional rivals to grow — and the strategy of more aggressive head-to-head competition could end up helping them both. Good competition is healthy."

While Saks does have key branch stores in such places as Beverly Hills, San Francisco and Bal Harbour, Fla., the store also has locations in more conservative towns such as Boston and Bala Cynwyd, near Philadelphia, leaving Saks challenged to micromerchandise to local tastes and pocketbooks, while maintaining a consistent image chainwide.

"When you want to be a luxury chain, and you have 60-plus stores, it’s very difficult to execute," said the Saks insider. "There is a difference between the reality and the perception [of what Saks should be]."

One perception is that the management is dominated by operations and financial executives. Brad Martin, chairman of the parent Saks Inc., is considered a strong financial and operating executive, scoring points for gross margin and expense controls. Inventories are being more carefully controlled, and the company is experimenting with new systems in a few categories geared to optimize the markdown schedule, while still investing in strategic initiatives.

At the end of the third quarter, inventories at the Saks Fifth Avenue division were down in the mid-single digits, and best-selling categories were men’s furnishings, leather goods, jewelry and contemporary sportswear, while outerwear and designer eveningwear proved most difficult. The division drove its operating profits, before special items, up to $26.9 million, compared with year-ago losses of $18.9 million. And sales for the division inched up 0.5 percent to $565.1 million, from $562.4 million a year ago. A more robust 5.2 percent increase on a comparable-store basis occurred, benefiting from comparisons with the slump right after the Sept. 11 attacks.
However, Martin hasn’t been removed from the creative side of Saks. Last October, he was instrumental in getting Saks and key vendors to create a men’s wear section inside business magazine Forbes. It was a daring move that advocated traditional business attire, a category that’s slumped for years, but shows signs of a pickup. Saks men’s wear did get a lift off the Forbes project, executives said.

Saks is taking stands in other categories as well. The Saks Beauty Place concept, which has been rolled out to all of its cosmetic floors, culls new items from several brands and merchandises them together for a focused, fun presentation on what’s trendy. Trends are reenforced on the selling floors with "Saks Suggests" vignettes to spotlight a trend by showing outfits that mix items from designers.

"I respect that they are really trying hard and may be a few steps ahead trying to make product differentiation happen quicker," said Marshall Cohen, co-president of NPDFashionworld market research firm. "Saks has begun to address the issue of recognizing who they want to be, as well as who they want to be like. They have to be careful not to look too much like someone else or a Neiman Marcus. But the problem is there is limited product availability in luxury. There is a whole customer that lies between the everyday department store and Neiman’s, and that’s where Saks could fit in."

"Neiman Marcus has outstripped Saks in many parts of the country," said retail analyst Walter Loeb. "I don’t see the image of Saks as a leading-edge retailer in luxury items, yet. However, Saks has been able to develop a franchise with leading brands, and has a private label program that’s excellent."

Saks is also trying to get in with younger customers, with its average consumer being 47 years old, down from 52 over the last four years, according to Johnson. "The sweet spot" for Saks, said Johnson, is a customer in her 40s, though on some fronts, such as in contemporary, Saks shoots lower.

"I believe the contemporary business is improving at Saks," observed David Shamouelian, ceo of Sharagano, a contemporary firm that sells to 26 Saks doors. "They are really on top of it, working with vendors to make it happen. They are trying to build that business. Major city stores perform much better [than those in secondary markets] because customers get it right away."
He also said that Saks seems to be moving into more of a collection presentation, although it’s been very item-oriented. For spring, his label will be displayed more as a look, as well as with signage, to help customers understand the brand, Shamouelian continued.

"We were picked up in six stores: Tampa, Palm Beach, Naples, Charleston, Hilton Head and Palm Desert," said Gina Paoloni, president of Rita Wilcox, an accessory firm formed about a year ago that sells handbags with a resort look, retailing from $225 to $350, and belts, starting at $90. She got her first order from Saks about a month ago. "Additionally, they are putting us in the Southampton store for the summer. They ordered 14 bags for each store.

"They seemed willing to take a chance, much more so than some of the other retailers," she added.