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More Changes at Saks: Possible $500M Revamp, Exec Reshuffle Goes On

Saks Fifth Avenue is expected to pitch a three-year, $500 million capital expenditure program to the Saks Inc. board for store renovations, according to...

NEW YORK — With its top executive team in place, Saks Fifth Avenue is continuing its blizzard of change down through the management ranks — and plotting heavy investment in its future.

According to retail sources, Saks Fifth Avenue is expected to pitch to the board of directors of Saks Inc., the parent corporation, a three-year, $500 million capital expenditure program, most of which is to be earmarked for upgrades and renovations at the Fifth Avenue flagship and other key locations also considered flagships, such as the Atlanta, Beverly Hills and Boston stores.

Management also will propose several store closings, around 12 or more — mostly smaller units opened between 1996 and 1998. The capital expenditure and streamlining proposals, still being formulated and subject to change, will be made in September at the next Saks Inc. board meeting, and will be solidified at that point.

Last December, Fred Wilson became chairman and chief executive officer of Saks Fifth Avenue Enterprises. Subsequently, Andrew Jennings became president and chief merchandising officer and Ron Frasch became the number-two merchant.

Now it’s time to reconfigure the guts of the organization, with shifts affecting top fashion executives, including general merchandiser Joseph Boitano, who currently oversees designer and home and, in a major promotion, will be put in charge of all ready-to-wear.

William Lynch, who supervises women’s rtw, including bridge, contemporary and special sizes, will be shifted to working on Saks’ branding strategies and new visions for the store.

“It would be smart for Saks to align its structure more closely to Neiman’s structure, where you have one person with oversight for all of ready-to-wear,” said a source with knowledge of both retailers.

At Neiman Marcus, Ann Stordahl serves as executive vice president for all women’s categories. She is also responsible for the retailer’s New York-based fashion office. “With one set of eyes, you get a coordinated approach and a consistent taste level,” said the source.

On another merchandise front, the special-size category — in which Saks took a position long before other department stores saw the opportunity — is expected to be revamped. Large and petite lines are currently isolated like outcasts on the upper floors, but Wilson is said to be ready for some integration alongside the regular-size assortments.

On the personnel front, Saks has hired Frank Matz, formerly with Harrods and Duty Free Shops, as senior vice president for home, gifts and food. It’s a newly created position, reporting to Frasch, who has all the top merchants reporting to him. Matz was managing director for Duty Free Shops in Australia and New Zealand and before that served as director of Harrods’ renowned food hall in London. Some gourmet brands, such as Pôilane bread from Paris, are reportedly being sought. Pôilane has been sold at Holt Renfrew in Canada, which was run by Jennings before he joined Saks. It was one of his introductions.

“Saks is seeking to create merchandise strategies and implement new initiatives,” according to a source at the store.

Corky Tyler, a home executive formerly with Takashimaya and Bergdorf Goodman, is leaving the company and will be living in Florida to work in real estate. Matz’s role is considered much broader than Tyler’s.

In June 2002, when Boitano was given additional responsibilities running the home business, officials termed home “the number-one growth initiative.” Saks started to concentrate on building its home business around 1999, but it’s still considered quite small, estimated at around $30 million to $40 million a year, including food and gifts. As a result, Matz will face a challenge in building the category into a significant business for the store.

Neiman Marcus also has an underdeveloped home business, but it’s said to account for about $125 million to $150 million in annual sales, including food, home and Christmas decor.

In another senior-level change, John Woodward, head of human resources, is being succeeded by Manny Sousa, who held human resources slots at Investcorp and Pepsi-Cola. Both are working currently at Saks, in a transition period. Sousa came on board this month, and Woodward will stay at Saks through the end of the year until moving to Florida full-time, where he is building a home.

Other retailers have been noting that the new team at Saks is exceedingly male-dominated, though the merchandise sold at the store is about 75 percent for women. However, the store has recently hired a female executive, Chris Grant, as a vice president in human resources.

Amid all these changes, a sense of the Saks of the future is beginning to emerge. Although officials have yet to fully articulate what that path will be, it appears the new team wants to reenergize the stores, in particular the flagship, which accounts for about 25 percent of the overall volume, by transforming them more into emporiums that sell an eclectic range, and distinctive assortments, as department stores used to before they began eliminating a lot of categories. The strategy is being inspired by such stores as Harrods, Bergdorf Goodman, Holt Renfrew, and retailers in Japan.

The team is also intent on raising the standards of fashion, service and ambience to be more competitive with luxury leader Neiman Marcus and is determined to project more of a Saks image, rather than relying on designer shops to cast an aura. Saks has been working on a branding strategy with Fallon Brand Consulting, an independent and autonomously operating division of Fallon Worldwide.

However, Saks has to be careful in making big, costly moves that might pile on debt and affect the group’s stock price. Wall Street can be skeptical about major capital expenditures, questioning how much return on investment they bring. But it generally looks favorably on closings of weak stores that drain profits, as well as on personnel cuts. Already, about $120 million has been spent on the Fifth Avenue flagship in recent years, and roughly $700 million to $800 million was spent during the Nineties on stores throughout the chain. The $2.44 billion chain posted $108.5 million in operating profits last year. The stock closed at $12.11 Thursday on the New York Stock Exchange and has ranged from $10.65 to $17.92 in the past 52 weeks.

Given the dominance of the Fifth Avenue flagship, it’s not unrealistic to expect Saks to earmark one-quarter or more of the proposed $500 million for renovations there. Two sources said that executives were considering proposing $350 million for the flagship, suggesting the Saks executive team is shooting high in hopes of striking a compromise with the Saks Inc. board that would be well under that figure. “Brad Martin keeps tight purse strings,” said a source, referring to the chairman and ceo of Saks Inc. Retail executives working in stores other than Saks said $350 million would be an outrageously high proportion of a $500 million capital expenditure program, given the flagship’s volume contribution to the 62-unit chain.

Past renovations at the flagship included main-floor departments for jewelry and designer accessories. Under the new plan, some of those changes could be redone. Further major surgery is being contemplated, including carving out part of the first floor for access to the lower level, which could be designated for special events, such as fashion shows, product launches and parties. Space for certain categories that have been underplayed to date, but seen as growing, will have to be carved out as well.

“You can’t build a luxury environment for less than $350 a foot, and you can easily go way up from there,” said interior designer Randall Ridless, a former Saks executive. “Plenty of designer vendors spend well over $400 a foot.”

Ridless said the challenge of the flagship, which has 600,000 square feet, gross, and is twice the size of Bergdorf’s, is “to make the Saks brand image more prominent through the architecture, rather than basing the image on what the vendors present, while still holding on to the vendors.

“Saks has to recapture its glory and strong image, like an old grand dame ocean liner, but without the stuffiness, and with an appeal for a younger, hipper, cool audience.”

Retail and financial sources say that with huge expenditures likely to be earmarked for the chain, Saks is seeking to close some of the gap on Neiman’s, which for more than a decade has focused on building and refurbishing stores for maximum luxury impact and generous spacing for leading designer brands.

“There is room for two stores in the luxury department store business,” said Peter J. Solomon, chairman of Peter J. Solomon Co. “Saks has a long tradition in that area, but they ceded market position to Neiman’s, which has executed an aggressive and successful expansion program over the last 10 or 12 years. Neiman’s poured money into places that intuitively you would not have concluded to have been good ideas, but it has worked out spectacularly and allowed them to differentiate. Theoretically, if Saks is going to live up to its tradition, then they have to do that or they risk becoming further marginalized in their own fundamental business. Other chains are moving upscale,” Solomon said, citing Nordstrom and Bloomingdale’s.

Saks ceo Wilson could not be reached for comment. He has been in California this week celebrating the birth of his first grandchild, Mason Fish, born four days ago.

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