By  on March 15, 2006

NEW YORK — It looks like the $2.7 billion Saks Fifth Avenue is headed for a major merchandise overhaul.

That was the message from the retailer's chief executive, Stephen Sadove, during a presentation at a Bank of America consumer conference here Tuesday, where he spelled out his formula for fixing a business that's been sick for years. It's a broad revival program with a new merchandising matrix and a "good-better-best" and "classic, modern and contemporary" nine-part grid. The goal is to boost Saks Fifth Avenue's operating margins to 8 percent within the next two to three years, compared with the 2 percent margins it had in 2005.

There is also a particular emphasis on getting branches back on track with assortments tailored to local tastes; greater team play between stores, planning, financial and merchant personnel, and cutting corporate overhead. According to Sadove, about 20 branches, including those in places such as Tulsa, Okla.; Birmingham, Ala., and Indianapolis, could contribute far greater productivity if changes are implemented.

He cited the example of the Saks in Birmingham, where the parent Saks Inc. is based. The ceo characterized Birmingham as an extremely affluent city, probably the second most affluent in the South after Atlanta, with customers seeking both classic and advanced apparel. "But when you walk into Saks and look at the assortment of men's products, we don't have the multiplicity of price points or array of styling from classic to advanced," said Sadove.

He said the store lacks "depth of assortment" meaningful to customers.

But Sadove said he is pleased overall with the retailer's real estate and that only three stores, for now, are being considered for closure. Most stores are in good physical shape, since Saks over the last decade has poured millions into capital improvements, although some observers have said the retailer needs to close a lot more stores.

Sadove did not specify the locations he'd like to close. Saks operates 55 full-line stores and owns more than 60 percent of its real estate, including the Fifth Avenue flagship here. It also operates 50 Off 5th outlets, 39 Parisian stores, 57 Club Libby Lu shops and saks.com.

"I don't think real estate is an issue to get to the 8 percent margin," Sadove said. "We've talked about wanting to close three more stores. It's probably going to be more, and we will be adding a store or two" in the not-too-distant future. "But there's no reason why stores in smaller markets than Beverly Hills or New York can't deliver greater productivity if they had the appropriate merchandise mix….We feel good about the real estate. The focus is on getting [branches] to grow. There's no reason we can't get them to deliver on a four-wall margin."

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