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Saks: From Luxe To Hometown

He’s a man who acknowledges he never intended to be a retail ceo and thinks buyers should be running their business as if they were merchandising fresh produce.<br><br>That man is R. Brad Martin, the Tennessee legislator turned retailer who now...

He’s a man who acknowledges he never intended to be a retail ceo and thinks buyers should be running their business as if they were merchandising fresh produce.

That man is R. Brad Martin, the Tennessee legislator turned retailer who now is chairman and chief executive officer of $6.2 billion Saks Inc. Martin, in his keynote address in the historic members’ dining room of The New York Stock Exchange, delivered a message of encouragement and a bright forecast for the company.

“We knew when we made the Saks Fifth Avenue acquisition that there was a lot of hard work ahead of us,” Martin said. “And while it’s not been easy, particularly in the recent difficult luxury environment and the aftermath of the 9/11 attacks, we’ve made great progress. We have substantially improved the store base, refocused the merchandise strategies, customer service has been enhanced and we are now generating more productivity from the asset base. We have an incredible team in place and have restored the luster to this one-of-a-kind franchise.”

He confided that without the benefit of any formal retail training, he decided to approach his new responsibilities “in a very simple way. I showed up at the stores and acted like a customer.”

Martin learned retailing, he said, by working closely with associates with operating responsibilities and those on the front lines, and by watching competitors. But while Saks Inc. grew and became more complex, Martin’s underlying approach apparently changed little, philosophically speaking, from 12 years ago, when he was supervising 10 moderate department stores, with 500 associates representing $70 million in sales. “Today, with 350 stores, 55,000 associates and a $6.5 billion business, I still show up everyday as if I were still a customer in our stores,” Martin told his audience.

Acting like a customer, and not just wearing the corporate hat, led to decisions that placed new demands on the business, as well as a clear view on how to rework Saks Inc. merchandise, service levels, pricing and marketing to create out of its different parts a more focused and manageable company with two distinct operations, Saks Fifth Avenue and Saks department store group.

Martin outlined important changes at Saks Fifth Avenue, specifically saying that in the past three years, “We have increased our commitment to our designer businesses. Also, we have complemented that with an expansion of our Gold Range [merchandise priced between bridge and designer apparel] and contemporary women’s apparel assortments and a commitment to the large-size luxury women’s apparel.”

Running through other departments, Martin characterized SFA as “the leading retailer of luxury leather goods in the U.S.,” and noted that the Fifth Avenue flagship is completing a renovation of leather goods shops on the first floor. The $2.5 billion Saks Fifth Avenue, which already has a reputation as a premiere launch pad for cosmetics, “stands ready as the launch store for any supplier wishing to build a cosmetics or fragrance business targeted to the luxury consumer,” he said. And the flagship opened a new jewelry department last year.

Meanwhile, the bigger picture entails capital expenditures exceeding $500 million over several years to renovate and construct new SFA stores that are more open, easier to shop and offer more amenities. Associates have been retrained, compensation and performance measurement systems have been developed, and although customers can shop Saks Fifth Avenue three ways — stores, catalogs and online — there is really one assortment now that can be found at each of the three channels.

Shifting from merchandise to the business outlook, Martin said: “Financial returns at Saks Fifth Avenue are improving” and that the real estate portfolio has been strengthened. Since 1998, 16 Saks Fifth Avenue stores have been opened, 17 expanded or renovated and five closed, resulting in a majority of the physical facilities being either newly constructed or completely renovated in that time. In addition, technology is being used more extensively for better product distribution by location and for better pricing.

At the Saks department store group — accounting for about $4 billion in volume with 202 traditional department stores under the names Proffitt’s, McRae’s, Younkers, Herberger’s, Carson Pirie Scott, Bergner’s, and Boston Store, and 43 Parisian stores — “there is a bright future in this business, and we are focused on executing that future in our own unique way, with product differentiation being stressed with renewed vigor,” Martin said. “It’s a big issue in our industry.”

“Saks Inc. is reallocating investment dollars and floor space to merchandise not available at principal competitors and away from widely distributed product,” Martin said, adding, “so I would say to suppliers, ‘If you want to grow with the Saks department store group and have great value and uniqueness in your offerings, call us.’ We have a lot of capital to invest in differentiated merchandise.” Recent announcements on new products include exclusive Laura Ashley, Ruff Hewn and Jane Seymour collections.

Martin also said the company believes in reinventing customer service, and that the department store group has done so by dividing stores into two zones: one where customers can receive close personal service, and another for self-service areas and “efficient transactions.” In addition, the department stores are utilizing technology to give more communication tools to associates to help them perform multiple tasks ranging from managing a store to selling shoes.

On the pricing front, Martin maintained that “credibility” is being restored and discounting is being reduced. Consequently, Saks Inc. may be “giving up some top line, but is playing for the long term,” he noted. It’s a theme that such competitors as Macy’s and Bloomingdale’s have also stressed this year.

To strengthen the company’s position as the “hometown store” in many middle-market communities, there will be more event sponsorships of activities ranging from the Junior Olympics to local symphonies, Martin said.

The Parisian division of the department store group is being managed as a special case. Martin said product differentiation is even more intense there, with widely distributed resources getting dropped and more than 200 new suppliers added this year alone. He acknowledged that not all of the new relationships are profitable yet, though the strategy at Parisian will translate into “attractive returns.”

The customer in him came out again when he said he wants to see “constant newness” on the selling floors. “I told our buyers recently that I want them to think about running their business as if they were merchandising fresh produce in a grocery store,” Martin said. “I believe in a more consistent and regular flow of new offerings, and the timely liquidation of aging products is critical to the health of the department stores and the industry. Again, to our suppliers, if you will manufacture and ship this way, we will buy and sell your goods this way.”

Martin said the company wants “an appropriate return on our investment” in better physical locations, through higher sales, higher sell-throughs and higher operating margins, and he sees a fundamental change in the way business gets conducted with vendors as critical in getting the higher return. “We don’t want our financial returns propped up temporarily by end-of-the-season deals, where the bulk of our discussions with our vendors end up relating to what we didn’t sell,” Martin stressed. “We want more support from our suppliers to properly price goods when they hit the floors, and we want more support to help deliver the environment and the service our customers expect when they pay a fair price for merchandise. And we want to spend less time and energy on cleaning up what, in truth, we probably both knew were weak value propositions when we began the season, or poor execution during the season.

“Strategies will permit us to win, but as [billionaire investor] Warren Buffet says, ‘In order to finish first, first you have to finish.’ We have structured our balance sheet to ensure that no matter how tough the environment, we will finish. We have $2.3 billion of shareholder equity, own millions of square feet of real estate, including the nice block here on Fifth Avenue, have no mortgage in this company, no bank debt, and substantial free cash flow.”

Though different in size and character, Martin said the Saks Fifth Avenue and the Saks department stores, as well as the corporate support staff are bound today “not only by this common corporate structure, but also by our shared values of quality, integrity, service, teamwork, responsibility and winning.”