Not so much on the sales racks at Saks
For more than a decade now, shoppers have gotten used to waiting for a sale to buy clothing at department stores. Thanks to a recession, hypercompetition among retailers and another recession, a sale was never that far away.
Even Saks Fifth Avenue (SKS) , whose primary customers aren't necessarily coupon clippers, was Wal-Martesque in its discounting; just over three years ago, Saks was slashing prices on everything from Armani to Zegna by as much as 70%.
Company boss Steve Sadove wants to put a stop to that. During the last December holidays, the sales tags were reserved almost exclusively for the season's dregs. Over the past year, Sadove has pared down the discounts at Saks's big semiannual friends-and-family sales. Remaining sales are shorter and offer smaller price cuts. Saks has nixed discounts on cosmetics and some designers altogether. "We have to reinforce that we're not a promotional department store," he says.
Saks hopes, of course, that getting rid of sales will actually increase both its revenue and profits. So far, Sadove's encouraged. In 2011 the retailer, which has 45 department stores, posted a profit for the first time since 2008.
In the 2012 fiscal year, same-store sales were up nearly 10 %. Since the recession ended, the store's high-end clientele have been quick to resume shopping. But the move could backfire if those 1-percenters don't like what Saks is selling: About 80% of Saks sales come from 20% of its customers. "It's a lot of stuff going through a very small segment," says Morningstar retail analyst Paul Swinand.
Investors aren't sure what to make of Saks's new strategy. The stock is up 12% year to date, slightly better than the Standard & Poor's Retail Select Industry Index. Some analysts think Saks's stock is too expensive, considering how much it can actually grow in the next few years. That doesn't worry Sadove, who earned his marketing reputation relaunching Herbal Essences with the shampoo brand's racy 1990s "orgasm" commercials.
We caught up with the CEO in his New York office (around the corner from Saks's flagship store). We asked him how Saks gets shoppers to spring for big-ticket items--even online--and where you can still find deals.
You've moved away from sales at stores, yet you launched a flash sale site, Saks FashionFix. Why?
It's attracting a new customer to the site, and they're also buying on Saks.com at full price. Flash sales got created in the recession when there was this vast amount of excess product from the very high-end designers. The problem now is that the kinds of deals the customer wants just aren't available. No designer wants to sell his brand at 70% or 80% off on purpose.
Do people buy $6,000 dresses and diamond rings online?
High-end people will buy very high-end apparel, especially women's apparel. The customers are a little younger, a little bit more fashion-forward, more item-driven as opposed to head-to-toe. The online business has been growing about 30% over the past couple of years.
You've emphasized that Saks has made technological improvements.
In the midst of the recession we invested in robotics in our distribution center to speed the delivery experience and be much more efficient in servicing demand. We were losing a lot of money, so we had to place bets on what's really going to shape the future of the firm.
Saks has 45 department stores, but 63 outlets. Doesn't that risk cannibalizing sales?
Customer overlap is less than 10%. We're opening five new outlets this year and six in 2013. It used to be that outlets carried the leftovers from stores, but now only about 15% is leftover. The rest is largely made for the outlet.
Will we see more Saks department stores in the future?
Between the Internet and our mobile customers, we probably don't need too many more Saks stores. We're focused on making our current stores more productive.
What do you look for when you go shopping?
I love going in anonymously--can't do it in my own stores, but I can certainly do it in others. I look at how I'm treated: Are people being treated the same way, whether they're wearing sweatpants or a suit?