By  on December 13, 2004

NEW YORK — After a year of sweeping management changes, store closings and self-analysis, Saks Fifth Avenue has a strategy for the future, and it calls for no less than a “retail revolution.”

Among the objectives: elevating service, targeting a younger audience and bigger apparel spenders. On the selling floor, the intent is to blend brands to project a more modern style and create a greater spectacle.

While management has yet to publicly articulate the game plan, the executive team has conducted PowerPoint presentations in the past few seasons to motivate its 12,000 associates toward higher standards of service and provide the vision of what’s ahead. It’s not unusual for any incoming management to devise a rallying cry to encourage workers, and to lay out big objectives, which Saks management has done. It’s another matter to translate the talk into action and effectively execute to achieve the goals.

However, the new Saks executive team has been on the road to show that change is in the works for a company that needs it. SFA has a murky identity and performance has lagged the competition.  Neiman Marcus and Nordstrom just keep outpacing Saks, with Neiman’s recently showing up to four times the rate of profitability.

Earlier this year, the Fallon Brand Consulting group interviewed vendors, customers and store employees about what Saks stands for, and what it should stand for. The Fallon research helped form the basis of the Saks “brand filter” roadmap for the future and became the outline for management’s message to employees.

“We did a lot of research with Fallon and also used different sources and formed what we want to project as the new vision for Saks Fifth Avenue,” said Fred Wilson, the chairman and chief executive officer of Saks Fifth Avenue Enterprises. Wilson said the executive committee as been on the road since March and continues to make presentations. “It’s important. There’s a lot of action taking place in a whole number of areas,” Wilson added, without divulging details.

According to sources, the presentation, called “Saks Fifth Avenue: Creating a Retail Revolution,” showed Saks wants to:

  • Rethink its positioning language by disassociating with luxury, which it considers passé. The term is “overused, not differentiating; staid; snobby, and safe,” according to a source familiar with the management presentation. The new Saks buzz is “high-performance,” which management believes implies “ageless and energized fashion, risky merchandising and a modern image.”


  • “Revolutionize” service so it’s more authoritative, one-on-one and geared to “consulting” rather than selling, though that’s easier said than done. Great service is ingrained at Nordstrom and Neiman’s, but they have been at it for decades and it is part of their cultures. Consulting entails having expert fashion knowledge, developing close relationships with customers and enhancing the “personal styles” of customers by exposing them to multiple brands to create individual looks. Saks management reportedly is seeking associates who exude strong personal style.


  • Sell to more people who spend more on apparel. The Saks First loyalty club benefits are offered to those spending at least $2,000 annually at Saks, but the new management believes there is a vast proportion of the population spending more than $5,000 annually on apparel that could be tapped.


  • Sell to a much younger crowd. The current average age of the Saks customer is around 50, but the new team will target the 25- to 34-year-old crowd. Retail experts say that’s a tough audience to mine for fashion because it’s a demographic apt to spend on weddings, family matters like houses and children and tends to be very disloyal to stores. It also is an extremely competitive market, targeted as of late not just by department stores but also by retailers such as Anthropologie, Barneys New York and even, in the future, Gap Inc.


  • Alter the in-store presentation and marketing toward a “blending” of brands to emphasize style over individual labels, and exclusives. That would help differentiate SFA from Neiman’s, which throughout its chain presents dominant, in-depth assortments with designer shops.


  • Pursue the “wow” factor so Saks dazzles with in-store displays and special events and creates a retail “spectacle.” ; There’s been signs of that already. For holiday, Saks went Vegas-style, covering its Fifth Avenue facade with 50 giant snowflakes illuminated by 72,000 Philips LEDs. The snowflakes change colors in sync with music.
There is also an extensive and expensive plan to renovate the flagship, even redoing areas that were recently renovated and to use Frank Gehry as the architect.

In the Saks roadmap, targeting fashionistas is not the way to go. The key is to focus on the bulk of customers who are not confident in their abilities to create outfits with personal style. The nonfashionistas tend to buy big brand names and need support when they select apparel.

Fallon is also recommending that Saks must present “longer lasting styles that magnify a person’s style.”

According to another source close to the Saks strategy, consumers perceive Saks as “the sage,” a retailer customers would look to for discovering new products and to receive expert fashion guidance and personal attention. But Saks has not lived up to that reputation and instead projects a blurry image, which is largely due to uneven merchandising across the chain, management and ownership changes through the past decade, not steering a straight course and fierce competition.

 Last December, Wilson became chairman and ceo. Subsequently, Andrew Jennings became president and vice chairman and Ron Frasch serves as chief merchant. The top tier seems to be in agreement on creating a splashier, more entertaining Saks Fifth Avenue, and that service levels and the merchandise have to be elevated.

However, Saks has been through self-analysis under different regimes over the last 10 years and has utilized consulting firms to set new directions, including its Live a Little campaign a few years ago. Prior managements have commissioned such consulting firms as McKinsey & Co. and Copernicus Group to enlighten them and to help set strategic courses, improve service, marketing and merchandising. Some of the recommendations from Fallon are not new, sources said, just couched in new language. 

According to observers, the Saks team that was formed over the past year, while setting a new course, has performed only minor surgery on the brand so far. But there have been some noticeable changes on the selling floors, and a lot more to come. The floors are less cluttered and make fashion statements at the front of departments with mannequin clusters displaying multiple brands. Many sales associates have been added. Stores have been cleaned up, with bathrooms getting remodeled, and the sidewalks around the flagship are powerwashed twice a week.What also appears to be new is that Saks is spending more on advertising, particularly on ads with a very directed point of view on elegance, refinement, delicate objects and personal style.

“Fred Wilson has made it clear that he wants more excitement, splashier events and to renovate the flagship,” one source said.

Aside from the flagship, upgrades and renovations at other key locations are being considered, such as the Atlanta, Beverly Hills and Boston stores, as previously reported. Staff changes continue, and additional store closings are likely, on top of the 10 SFA and three Off-5th closings announced this year. There are 64 SFA stores and 53 Off-5th outlets. Last year, the stores totaled more than $2.4 billion in sales.

On another merchandise front, the special-size category is expected to be revamped so that plus-size and petite lines get integrated with the assortments of other sizes. Home, gifts and food, currently a sliver of Saks’ overall volume, are expected to play a bigger role in the offering, as management seeks to create more of an eclectic emporium, particularly at the 600,000-square-foot flagship, which accounts for about 25 percent of the chain’s volume. The strategy is being inspired by such stores as Harrods, Bergdorf Goodman, Holt Renfrew and retailers in Japan.

But all that costs money and the investment won’t keep coming unless Saks Fifth Avenue starts to show better sales and earnings results and gains ground on Neiman’s. The purse strings are held by Saks Inc., the parent of Saks Fifth Avenue.

As Brad Martin, the chairman of Saks Inc. noted in his commentary on the third quarter, “SFA’s operating income declined modestly from the prior year, reflecting a 4.3 percent increase in comparable store sales, improved gross margin performance driven by a systematic reduction in the level of promotional activity, offset by increased SG&A expenses primarily related to continued investment in key strategic store and marketing initiatives, including an increased number of sales associates and related compensation.” For the quarter ended Oct. 30, operating income dropped to $25.9 million from $27.3 million. Neiman Marcus’ specialty retail stores segment reported operating earnings at $120 million, compared with $91 million in the first quarter of fiscal year 2004However, SFA has generally done well this year, with operating income for the nine-month period increasing to $62.3 million from $38.2 million last year, driven by what Martin called “solid comp-store sales growth in spite of a reduction in promotional activity, and investing in key strategic initiatives and absorbing certain costs related to organizational changes.” While the SFA price promoting has been reduced through most of the year, markdowns seem pervasive, with 40 percent off seen through much of the store during this challenging Christmas season. The Rebranding Strategy
  • Target younger customers.


  • Blend brands to project style and trends.


  • Shift to “high-performance” positioning.


  • Elevate service by transforming sales help to selling consultants.


  • Create “spectacle” in the store.

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