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It’s a Small World: Saks Fifth Avenue Plans International Push

Through a network of licensing deals signed with overseas companies, Saks Fifth Avenue plans to open a slew of stores in the Mideast and Japan.

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NEW YORK — Saks Fifth Avenue is going global.

The retailer’s parent, Saks Inc., will today announce that, through a network of licensing arrangements signed with overseas companies, Saks plans to open a total of four stores in the United Arab Emirates, Qatar, Kuwait and Bahrain, beginning in 2004, and between five and 10 Saks stores in major cities in Japan, beginning in 2005.

In addition, Saks is considering additional sites in Bahrain and Beirut in 2005 or 2006. South America also could be fertile ground, considering Saks has so many Latin customers, but there are no definite sites in mind.

This is the first real push by Saks to capitalize on its brand recognition worldwide, after decades of indecision over international expansion. It’s also the first international expansion by an upscale U.S. department store, though Barneys New York has two licensed stores in Japan and is planning a third for next year.

“Clearly there is a great opportunity overseas,” said R. Brad Martin, chairman and chief executive officer of Saks Inc., in an exclusive interview. Asked to project an ultimate store count abroad, Martin said, “It’s too early to say.”

Toshihiro Hirosaki, ceo of Ask Planning Center, one of the investors in the Saks’ expansion in Japan, characterized the strategy as “a new business model in the Japanese retail industry.” APC is a public company on the JASDAQ market specializing in environmental and space consulting, including planning for new shopping centers and consulting for Japanese retailers and distributors.

Considering the instability in the Middle East, Japan’s soft economy and concerns about airline security, international expansion is currently a risky proposition. But the licensing agreements present minimal up-front financial risk to Saks since the company will not invest any capital in the overseas stores. The licensees will own and operate the stores while Saks will get licensing fees based on sales performance. “By having great local licensees, we can be assured that the assortments and operations will be customized for each market,” Martin said.

He also noted that Saks will be able to strengthen its partnerships with vendors by providing “an umbrella” for them to grow their own businesses.

While SFA is aggressively pursuing partners for international expansion, “we think we still have opportunities in the States,” he said. SFA, which operates 62 Saks Fifth Avenue stores and 53 Saks Off 5th stores, opened a Saks Fifth Avenue store in Indianapolis on Wednesday, and will open another in Richmond, Va., next Wednesday. In fall 2004, Saks will open in Raleigh, N.C., and in spring 2005, in Charlotte, N.C. The parent, Saks Inc., also operates 242 department stores under various nameplates including Parisian and Proffitt’s, and 15 Club Libby Lu specialty stores.

Saks Fifth Avenue is one of the few upscale department stores that is internationally recognized and transportable. That’s largely because of its huge Fifth Avenue flagship, which draws a heavy tourist clientele, as well as other key locations in portal cities, such as Miami, San Francisco and Los Angeles. Also, the merchandise mix has an international flavor and Saks has been forming marketing alliances with world-class brands, such as Mercedes.

Its primary competitor, Neiman Marcus, has no plans to venture overseas. One of the few upscale department or specialty store owners with international operations is Galen Weston, who owns Holt Renfrew in Canada, Brown Thomas in Dublin and who earlier this year bought Selfridges in the U.K. There has been some speculation that, given Weston’s international reach, he could take Holt Renfrew into international markets.

Up until now, ownership and management shifts, as well as weak business trends, interfered with Saks going overseas. However, in November 2001, a licensed Saks Fifth Avenue store opened in Riyadh, Saudi Arabia. The 65,000-square-foot unit is owned by HRH Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, who owns a small stake in Saks. He also is known as Prince Alwaleed. The Riyadh store is located in The Kingdom Centre, Saudi Arabia’s largest fashion retail complex.

“This store has become the linchpin for future growth in the region,” Martin said. “Essentially, it was a test to determine whether there were international opportunities to license the Saks Fifth Avenue brand and deliver the luxury experience globally. We are very happy with the experience. It’s been successful.”

He said it’s been running 25 to 30 percent ahead in sales. Martin would not disclose Saudi store’s volume, but he stressed, “There is a demand on a global basis for the quality of products and services associated with Saks. We have a lot of Japanese customers and customers from the Persian Gulf who shop our flagship stores. This is an opportunity to serve those existing customers in their home communities and introduce Saks to a new client base.”

The decision to go global reflects “the quality of our relations with our key vendors,” Martin added. “Luxury vendors want the Saks umbrella to be part of their expansion.” He characterized the Gulf region as an underserved luxury market.

Saks also has many customers from South America, in particular, shopping its Florida, Texas and California units. At one time, Saks had plans to open in Mexico City, but they were nixed after the peso was devalued. Asked if the company would reconsider going south of the border, Martin replied, “We think we have additional opportunities on a global basis.” But before Saks decides to enter any market, “we are very focused on making certain that there is a vibrant and growing market and that we have the right partners. Those are our criteria.”

Prior to the Riyadh opening, Saks established an international organization, which is headed by David Pilnick, vice president of international development. While the licensees own and operate the stores, the international organization acts as a consultant for the merchandising, marketing and the look of the store to ensure that it is in line with how Saks perceives itself.

In the Middle East, the Al Mana Group, Chalhoub Group, Damas Jewellery and Kapico Group have formed Style Avenue Middle East to own and operate the licensed Saks stores, apart from the Riyadh unit. Style Avenue Middle East consists of the following shareholders:

  • Al Mana Retail W.W.L., a group of diversified companies with interests in automotive, retail, investments and real estate.

  • The Chalhoub Group, which in the Middle East owns and operates freestanding boutiques including Louis Vuitton, Chanel, Christian Lacroix and Ralph Lauren. It is the largest distributor and retailer of cosmetics and fragrances in the Middle East.

  • Damas Jewellery, the largest jeweler in the UAE with more than 75 locations.
  • Kapico Group, a partnership of the Al Ghannam and Handa families of Kuwait, with interests in automotive, engineering and construction, health care and retail.

The first store will have two levels and a total of 80,000 square feet and will be located in the Bur Juman Centre in Dubai, which is in the United Arab Emirates. The store is scheduled to open in February 2004 and will be “congruent with the Saks Fifth Avenue stores in the U.S. in both product and service, while being sensitive to local preferences and customs,” Saks said in a statement. The store will offer designer and contemporary apparel, shoes and accessories for women and men; fine and fashion jewelry; cosmetics and fragrances; children’s apparel, and gifts for the home. The designer lineup so far includes Christian Dior, Dolce & Gabbana, Prada, Jean Paul Gaultier, Alberta Ferretti, Marc Jacobs, Badgley Mischka, Elie Saab, Plein Sud, Ermano Scervino and Oscar de la Renta. The store also will feature personal shopping and a coffee bar.

A smaller “satellite” store is scheduled to open in the Landmark Shopping Center in Doha, Qatar, in fall 2004. It will sell designer handbags, accessories, cosmetics and fragrances, fine jewelry and a small collection of designer and contemporary sportswear.

The company did not disclose details of the remaining two store openings, with lease talks still going on.

In Japan, a group of fashion specialty stores, a commercial facilities developer and retail consulting companies have formed Specialty Fashion Associates Japan Inc. to own and operate Saks stores. Specialty Fashion Associates Japan Inc. is the master licensee and will develop Saks stores both directly and through approved sublicense agreements. In addition to Ask Planning Center Inc., the investors in SFAJ are:

  • Shinpushachu Co. Ltd., a company formed by Japanese vertical fashion firms including Beams, Tomorrowland and Stockman. These companies currently operate the “Shin-Puh-Kan” commercial facility developed as a new town center in Kyoto.

  • ILC Co. Ltd., a consulting firm for town and urban developments, commercial facilities and for importing branded products.

  • International Management Technology Corporation LLC, a management consulting business based in Stamford, Conn., which has arranged agreements between Japanese and U.S. companies resulting in several businesses being developed in Japan, including Circle K Convenience Stores, Nippon Steel Space World and Fujitsu Nifty.

The first Saks in Japan will open in Tokyo in fall 2005 and will total approximately 54,000 square feet. Saks will disclose the address of this site and the others as the leases get finalized. “Distinctive offerings from established and emerging Japanese, European and American designers” will be offered, Saks said. Personal shopping also will be provided.

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