Saks Fifth Avenue will close less than 20 stores over time, representing “more than a handful” of the 53 full-line units in the luxury chain, said Stephen I. Sadove, chairman and chief executive officer of Saks Inc.
This story first appeared in the April 16, 2010 issue of WWD. Subscribe Today.
Meanwhile, Diego Della Valle, one of Saks’ biggest shareholders with 9.1 percent of the stock, said during an appearance in Beverly Hills, “In my opinion, the business every day is much better than before and the valuation of the share will grow a lot.”
Asked whether he would increase his involvement with the management of the company, Della Valle said: “This is what we want to decide in the next step. Maybe we speak about our friends in management. But at the moment, no new news. That is the next interview.”
His remarks came after Sadove said at the Telsey Advisory Group Consumer Conference, “Closing stores in this business isn’t as easy as others, in terms of specialty stores. It takes a lot of discussions with developers.”
Last month, Saks revealed the closing of its two Portland, Ore., stores, triggering speculation about how many others could shutter based on their lack of profitability or potential to produce profits and leases coming due. In the recession, store closings have intensified for retailers in general. In Portland, Saks expects to shut its 23,000-square-foot men’s store in the Pioneer Place Mall on April 25 and the 60,000-square-foot main store in the center by July 31.
Overall, Sadove was positive about the business. “We are feeling much more optimistic about where the economy is going and the state of the consumer. There are [still] a lot of clouds out there, but you are seeing a mind-set change among the consumers.…We are seeing a resurgence in areas that were dead in the water” at the lower and higher ends of the business, Sadove said, citing men’s tailored clothing as the primary example.
“We are seeing customers come in that we haven’t seen in the last year and a half,” he said. “The most significant determination of the business of our company is the stock market. It’s how do people feel about their net worth? It’s very different when the Dow is at 6,500 from the Dow at 11,000.”
Saks owns 29 of its full-line stores, including the Fifth Avenue flagship, and there are no mortgages or liens. Sadove downplayed the possibility of selling or “monetizing” any sites. “I’m not saying we would never do it, but it’s not high on our priority list. If you do a sale leaseback, it’s more rent.” He added he is pleased with the company’s capital structure, suggesting there’s no urgency to raise money, and added there are tax consequences to selling real estate.
Moving from stores to merchandise, Sadove disclosed the percentage of Saks’ exclusive products could represent north of 20 percent of the franchise, from the current 5 to 10 percent. That includes private label, as well as brands made just for Saks by European designers.
Other growth plans cited by Sadove included:
• Expanding the 55-unit Off 5th outlet chain, with most opportunities in strip power centers, where Nordstrom’s Rack has a big stake, and where Off 5th could take over sites vacated by Circuit City and Linens-N-Things.
• Widening profit margins by “weaning ourselves off some of the promotions” and seeking “substantial improvement in full-price selling,” Sadove said. Also, Saks is adopting “hold and flow” technology, whereby 20 to 30 percent of the products at the distribution center aren’t shipped to stores until there’s an understanding of what’s selling.
• Changing the marketing from national to local based and getting better reads on population makeups, target audiences and how to attract new customers. For example, marketing plans at the Atlanta store, where there is a large gay, Jewish and African-American base, are different from those at the Philadelphia or Palm Beach, Fla., store. “We brought as many as 35 new marketing directors into the stores…to win on a local basis,” Sadove said. “It’s having a very big impact.”