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Saks Alters Its Focus to Entice Old Friends

With a slew of new plans, the department store tries to reconnect with the well-heeled.

September 19, 2006|From the Associated Press

After struggling with a fashion formula that skewed too young, Saks Fifth Avenue wants to reclaim its status among the well-heeled with a makeover.

The store chain's new management is rebuilding its label fashions, investing in classic brands such as Ellen Tracy and tailoring its stores to better meet specific markets. The shift is reflected in a new fall ad campaign that embraces a broader approach to fashion, highlighting more than 20 different must-haves, such as fur-trimmed coats for women and rugged sport boots for men.

Saks Fifth Avenue executives say the chain made a big mistake chasing young customers with its line of tight clothing, turning off its loyal customers in their 40s.

A 1998 merger with a mid-brow department store operator also proved to be the wrong fit, resulting in disappointing earnings.

Having focused too much on its Fifth Avenue flagship, Saks now is renovating its regional outposts, including its Boston and Beverly Hills locations, to feature open cosmetic counters and more exciting fashion displays. Saks' Atlanta store, renovated last year, is serving as a model.

"This is Step One in a multistep process," Ron Frasch, vice chairman and chief merchant at Saks Fifth Avenue Enterprises, said in a phone interview. "But we are beginning to see the light at the end of the tunnel. You will see a good fall, and it will continue through next year."

The new management structure has been streamlined in recent months as parent company Saks Inc. shed its mid-brow department store chains to focus on its luxury business.

Most recently, Andrew Jennings resigned as president and chief operating officer of Saks Fifth Avenue Enterprises, which consists of 54 Saks Fifth Avenue stores, 50 Off 5th stores and saks.com. The Birmingham, Ala.-based company said it would not replace Jennings, who will be leaving Saks at the end of the month.

Saks Fifth Avenue's goal is to increase its operating profit margin to 8% in the next three to four years from last year's 1%. Saks expects to increase its sales at stores open at least a year to mid-single digits, compared with flat sales in the past. Those numbers, known as same-store sales, are considered the best indicator of a retailer's health.

Saks executives say a cultural change is sweeping the company, with buyers taking bigger risks on fashion instead of playing it safe and fixating on inventory control.

Still, Saks Fifth Avenue, which has long lagged behind its rivals, faces heavy competition at the upper end from Neiman Marcus Inc. and at the lower luxury tier from Nordstrom Inc.

"Saks is facing a competitive situation where both Neiman and Nordstrom are doing extremely well. The issue is how successful will [Saks] be in executing from a merchandising and service standpoint," said Michael Appel, managing director of Quest Turnaround Advisors.

Doug Harrison, president and CEO of Harrison Group, a strategic consulting group, noted that Saks Fifth Avenue was behind Neiman Marcus in personalizing customer service. He cited the success of Neiman Marcus' program called InCircle, which rewards customers with giveaways and special discounts based on how much they spend.

Saks could catch up, but it won't be easy, said Andrew Sacks, a luxury shopper and president of AgencySacks, an advertising agency focusing on upscale companies. Neiman Marcus is more attuned to fashion, he noted.

The overhaul at Saks comes after a bumpy road punctuated by a failed merger in 1998 and a Securities and Exchange Commission accounting scandal tied to improper collections from vendors that cast a cloud over Saks' business last year.

Last year, Saks Inc. said that a merger of its luxury business with department store operator Proffitts Inc. didn't create big cost savings. As a result, Proffitts was sold to Belk Inc.

In March, Saks sold its Northern Department Store Group business to Bon-Ton Stores Inc. And in early August, Belk announced it was buying Saks' Parisian department store chain. The deal is expected to close in early October.

After divesting Parisian, Saks will be left with its Saks Fifth Avenue businesses and Club Libby Lu, a specialty retail chain.

For the six-month period that ended July 29, Saks earned $26.04 million, or 19 cents a share, compared with $24.36 million, or 17 cents a share, in the year-earlier period. Net sales were $1.8 billion, down from $2.6 billion a year earlier, as the company shed its moderate department store businesses.

Saks Fifth Avenue executives say one of the big mistakes was chasing young customers, thus alienating Saks' core customers, who average 48 years old.

To win back its most loyal customers, Saks Fifth Avenue is offering this fall Saks Fifth Avenue Private Collections. While trendy labels remain key, Frasch noted that the company was beefing up selections in classic names in both men's and women's suits as well as stocking up on such basics as bras. Saks is also investing more in key designers such as Chanel and Fendi and bringing back petite sizes.

"We had become too clean," Frasch said. "We want to put more products on the floor so customers can see the depth and breadth of our offering."

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