By  on December 12, 2006

Streamlining, remerchandising and huge asset sell-offs: It all happened at Saks Inc. in one of retailing's most dramatic transformations of 2006.

Hardly a week went by without another development emanating from Saks Inc. At the beginning of the year, the company was a confused conglomeration of regional chains as well as Saks Fifth Avenue, for a combined annual volume exceeding $5 billion.

By the end of the year, Saks Inc. was a slimmer, focused company operating just the $2.7 billion, 54-unit Saks Fifth Avenue, as well as the related Off 5th and direct businesses — and better positioned to revive its venerable Saks brand.

The string of dispositions included the northern department store group, which was sold to Bon-Ton, and the southern department store group and Parisian, which were both bought by Belk. Saks still operates Club Libby Lu, a small tween chain that's immaterial to the overall sales and profits.

There are signs that the company is moving in the right direction, with some modest profits recently reported. The company posted $12.5 million in income from continuing operations for the third quarter ended Oct. 28, versus a $13.5 million loss in the year-ago quarter. Saks' sales in the third quarter increased 8 percent, to $697 million, versus $645.2 million a year ago, with an 8.8 percent rise in comp-store sales.

While much has been accomplished and the mood inside the company is one of relief and hope, management acknowledges there's still a long road ahead. The mission: to reassert Saks as a strong player in bridge to designer price points, compete against a wider field from Bergdorf Goodman at the very high end to Nordstrom in a more affordable zone and reclaim customers who abandoned the store for nimbler competitors.

Among the biggest changes seen last year, Stephen Sadove stepped up as chief executive officer, replacing Fred Wilson; Andrew Jennings departed as president, leaving Ron Frasch clearly in charge of the merchant team, and the corporate headquarters in Birmingham, Ala., was being dissolved while a smaller corporate team was getting established at Saks in New York.

In addition, Saks rebuilt and reopened its New Orleans store, which was destroyed by Hurricane Katrina, and furthered a program for overseas growth by announcing that the first Saks in Mexico is being planned to open next September in the upscale Santa Fe Shopping Center in Mexico City. Another international opening will be the first Saks in China, slated to bow in Shanghai before the 2008 Olympics in Beijing. Both stores will be licensed units and follow two other licensed stores already operating in the Middle East: in Dubai in the United Arab Emirates and in Riyadh, Saudi Arabia.Sadove has spelled out a broad revival program with a new merchandising matrix and a "good-better-best" and "classic, modern and contemporary" nine-part grid. It's about selling both high-end luxury and accessible luxury. He's also called for greater team play among stores, planning, financial and merchant personnel and cutting corporate overhead.

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.

On the merchandising front, petites and private label were reintroduced, and a concerted effort to showcase the hot items of the season and carry more fashion basics for a broader audience was launched. Conflicts with vendors over chargebacks and related government investigations were resolved.

Among the retailer's goals: raising the profit margin to 8 percent in two to three years, compared to the 2 percent margins it posted in 2005, and sustaining the recent run of improved comp-store sales by tailoring stores to local tastes.

Underneath all the changes, there's been persistent speculation that Saks will ultimately be sold, possibly this spring. It's a nameplate that, despite all the ownership changes, bloated managements and confusing strategic shifts that lost sight of the core customer in the past, has maintained its cachet. But officially, Saks is not up for sale.

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