A "supertanker" steering a corrected course. A "show-me story." An "old-new" company.
That's how Stephen I. Sadove, chief executive officer of Saks Inc., characterized Saks Fifth Avenue Enterprises, a company that is undergoing major transformation. In his presentation, Sadove painted a picture of a "broad revival program" at Saks that was both specific and strategic and filled with his views on corporate culture and leadership.
Saks is a high-end specialty chain searching for a sharper identity and stronger results after years of being mired in top-heavy management, ownership changes and poor merchandise decisions, and getting beaten down by stronger competition in the upscale arena. However, same-store sales gains, management streamlining, new buying strategies, resolved charge-back and markdown issues with vendors, debt reductions, dividend payouts and asset divestitures, notably the sale of Saks Inc. department store groups, have put a positive spin on the scaled-down company and its future. The company, which operates 53 Saks Fifth Avenue stores, 50 Off-5th outlets, saks.com and Club Libby Lu, which is a small tween specialty chain, should post close to $3 billion in 2006 revenues.
In August, Saks Fifth Avenue reported 5 percent comp-store growth, followed by an 11.1 percent lift in September and a 9.2 percent gain in October. Sadove said these results suggest the beginning of a turnaround, although he did pose the question of whether the recent sales trend is a blip or the beginning of "a supertanker" that was once adrift now moving in the right direction. Time will tell.
Sadove said Saks is undergoing a "cultural transformation," and a big part of that involves changing buying procedures and having merchants work closer with store personnel and planners to tailor the merchandising to local demands of each branch. It also involves building leadership across the organization, a nine-part merchandising matrix, offering luxury items at broader price points, reviving such categories as petites and private label and strengthening ties to key suppliers.
"We have been an underperformer...and we have a ways to go," Sadove acknowledged. He said the company is targeting an 8 percent operating margin over the next three to four years, or about quadruple the current rate.Sadove is a financial and strategic executive with a track record for turnarounds and selling companies in consumer products and is not considered a merchant. Between 1975 and 1991, Sadove was with General Foods USA after joining Bristol-Myers Squibb in 1991, where he grew Clairol into the number-one hair care business in the U.S., relaunched Herbal Essences into a $700 million business and completed the sale of the beauty care business to Procter & Gamble for $5 billion.
Sadove went to work at Saks Inc. in January 2002 as vice chairman, added the chief operating officer post two years later, and last January rose to ceo. There has been speculation that he is pumping up Saks to sell it, but he did not mention that possibility in his presentation.
He said leadership, when it becomes ingrained in the corporate culture, is the driver of innovation and that innovation is what leads to differentiation in the marketplace and ultimately stronger performance.
"For the last year, we've been focused on redefining and getting Saks to have the culture we want," so Saks can be a winner again, Sadove said. "The leadership focus for us is about articulating a compelling vision that is embraced by [the] entire organization, letting everybody understand that we want to be high-end, as well as [offering] accessible luxury and making sure we are thinking [about] what the customer needs. We are also focused on building the future leadership at all levels of the organization."
The company is intent on competing against Neiman Marcus and Bergdorf Goodman, as well as Nordstrom and Bloomingdale's. "We are going to differentiate with a Saks point of view, but it's okay to compete maybe 80 percent at the Neiman Marcus level and 10 [percent] to 15 percent with Nordstrom or Bloomingdale's," he said.
The core customer at Saks is 48, on average, and earns a couple of hundred thousand dollars annually, and the sweet spot is the 35 to 55 age group, Sadove said. However, there are new and younger customers shopping the store.
The company has identified three archetypical customers: The Park Avenue customer who seeks classic merchandise, an uptown type who wants more modern clothes and the SoHo customer looking for contemporary clothes. On the price-point side of the grid, Saks sells bridge, Gold Label and designer prices, forming the nine-box grid.In merchandising, Sadove said, "What really has been transforming for this company has been the nine-box grid, exclusive and unique products, getting back in private brand business, getting a lot more key-item focused and not apologizing for buying in depth." The company is focused on having "appropriate basic merchandise," where, in the past, the lack of basics was an issue.
Sadove said the trick is for each of the 53 stores to understand how much merchandise weight they should put on each of the nine boxes based on the customer profile in their respective markets. Stores and merchants discuss what the right merchandise balance is for each store to get the desired sales growth. The interaction, Sadove said, "really has been a cultural transformation for the company." He call the new alignment between stores, merchants and planners "parallel planning." Saks officials hope the process will lead to increased full-price selling.
Sadove also cited other possible changes at Saks, including:
Pruning some "nonproductive assets." That could include some weak branch stores, but Sadove didn't specify any assets.
Growing Saks Direct, which is essentially an online business. Saks.com has the potential to be the second-largest store in the company by getting vendors to improve site functionality and through aggressive marketing. "We were a little bit late to the game, relative to having capabilities in-house. Now we are off on a tear," Sadove said.
Building up private brands to represent a mid- to high-single-digit percent of the total volume. Private brands will be geared to fill merchandise voids left by brands, rather than compete with brands, and Saks is partnering with vendors on developing private label, rather than designing in-house. But Sadove noted, "Saks Fifth Avenue is about brands."
Better "clienteling." "We are in the process of rolling out part of a Web-based point-of-sale system across all our stores," Sadove said. "It's touch-screen, the registers are fast and a component is a clienteling system." It's live in Chevy Chase, Md.; Boca Raton, Fla.; New Orleans, and Chicago, and it will be rolled into 17 stores next year and chainwide in the next two years. "It's probably the best in the U.S. in terms of capabilities, such as direct access to Internet, e-mailing customers," he said. It also sends messages to associates to remind them to contact customers on merchandise arrivals or special events. Saks is using Retaligent software.Sadove also expects a good holiday season. "We are optimistic," he said, for several reasons, including Saks' merchandise and marketing initiatives such as the "Want It" campaign, which offers what buyers see as the must-haves of the season, and this season's relaunch of private brands and petites, as well as the record-setting Dow Jones Industrial Average and declining gas prices.
"This is a people business," Sadove said. "Saks is focused on building a pipeline of talent." That includes having succession plans, managing career development, streamlining and reducing organizational structure and collaboration within the ranks, like the parallel planning process. He also stressed nurturing empowerment, letting buyers be buyers and motivating and rewarding them appropriately, with a compensation structure that's become growth-focused, as opposed to just inventory-turn-focused.
"I need to build the best team and let them do their job," Sadove stated. "If you try to micromanage everything you end up in a mire of detail, and then you lose sight of the big picture. I want to tell people to learn how to empower their people, to get the right people, train them to do their job, then also let them do their job and hold them accountable. And to be clear on what the objectives are. Often, we are not clear on the priorities, objectives and expectations. Sometimes people are playing baseball, and others are playing football. At Saks, you had so many chiefs running around, you didn't have clarity.
"New talent and having different thinking is what drives the success of a business. I think it's great that somebody from J&J [Johnson & Johnson] is coming into Liz Claiborne." He said he didn't know the success rate of executives who are not experienced in the industry stepping in to run a retail or fashion business, as he did.
"There are built-in rejection mechanisms that organizations have about people like me coming in," Sadove noted. However, he added that he had the benefit of spending 10 years on the [Saks Inc.] board and was working at the holding company, before becoming ceo. "So people got to know you, and then they knew you weren't a leper coming in. I think this cross-fertilization of talent is absolutely a great thing. Ideally, you want to have a cadre of people being developed. I have 14 people on my executive team that [represent] the leadership of the company. I am talking about developing the leadership that will be guiding the future of the company."
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