NEW YORK — Saks Fifth Avenue is banking on “world class” customer service as a linchpin to help replenish its cachet in the fiercely competitive luxury segment.
The retailer outlined a strategic plan to Wall Street investors and analysts on Monday that centers on improved customer service, as well as an edited merchandise assortment, redesigned job responsibilities and changes in the management structure to emphasize the store associates.
Without giving away too much detail, top management said the evolution of Saks involves a “DNA change,” which suggests a refocused merchandising strategy, perhaps with a push into more designer sportswear and contemporary sportswear.
The presentation by the senior management team of Saks Fifth Avenue Enterprises Inc., the SFA division of Saks Inc., was led by Stephen Sadove, vice chairman and chief operating officer of Saks Inc., on behalf of R. Brad Martin, chairman and chief executive officer of Saks, who was unable to attend because of a family emergency. The SFAE team included Fred Wilson, chairman and ceo; Andrew Jennings, president and chief operating officer; Ron Frasch, vice chairman and chief merchant, and Terron Schaefer, senior vice president of marketing.
Wilson stressed the need for SFA to target a younger, aspirational demographic without giving up its older customer base. Toward that end, the retailer’s goal is for customers who walk in with a sense of fashion insecurity to see Saks as the sage of personal style. Key to this is enhanced customer service. And to help store associates cultivate loyalty among customers, the refocused SFA will operate in the form of an inverted pyramid, with the associates taking on greater leadership.
Saks Fifth Avenue had been outpaced by competitors such as Neiman Marcus and Nordstrom during the luxury boom, but rebounded in the fourth quarter of 2004, reporting double-digit increases in same-store sales for December.
“It was accepted [practice] to follow Neiman Marcus,” Frasch explained. “We’ve taken that out of the equation. We have to have our own strategy and point of view.”
To do that, Frasch said there’s been a focus on fine-tuning opening price points for all product categories. It has meant also that if a woman buys ready-to-wear, there must be a handbag in the store to coordinate with the outfit.
“We acquired Saks Holdings in late 1998 [because of the] power of the Saks Fifth Avenue brand, its good will and high customer relationships,’’ Sadove said. “We believed in the long-term growth of the affluent market in the U.S.”
Management said SFA had become overly extended, and that the strategic and tactical quality of its real estate was “poor.” But this is changing as the new management team, led by Wilson, redefines the image of the company.
Wall Street is expected to respond today to the new strategy.
The announcement of a revamped vision confirmed a December report in WWD.
Wilson said the opportunity to join SFA was one he couldn’t refuse. “Saks was just so compelling. It was, as we say in the trade, a no-brainer.”
He acknowledged there were challenges ahead. During his transition to SFA from Donna Karan, Wilson said, “We kind of knew where we were going [at Saks] and we kind of knew what we were about, but we weren’t clear.”
First on Wilson’s agenda was figuring out a clear vision for the company. The solution evolved into a “DNA change” for the company that Wilson described as “our own secret recipe.” Some of the changes in the turnaround initiative have been completed. The company has a focused agenda now, and more work still needs to be done, but Wilson said the company “will be relentless in our execution of that vision.”
The retailer has done some soul-searching before, crystallizing its vision for the future. Executing a new vision required a complete recasting of the retailer’s mind-set. Out are tired words such as “department store,” and luxury that used to be characterized by “Ladies Who Lunch,” management said. In are phrases such as “high performance” and “risk-embracing.”
In conducting focus group research, the SFA team noticed that it didn’t matter whether members of different demographic slices had annual household incomes of $100,000 or $250,000. Some spent $1,000, while others easily dropped $35,000 at the store. But the retailer learned they all had one thing in common: the shoppers spent their dollars at Saks because of a personal connection with someone at the store.
“How do retail brands work? People come in and search, and shop, discover, integrate and combine products,” Wilson said, adding that it is followed by a wild moment when someone is told she looks great, and is then asked what is she wearing. She will name a designer, but no mentions of Saks, Wilson said.
One way to enhance both the shopping experience at Saks and the brand image is to have all the departments communicating and coordinating with each other. “We had a neckwear buyer with one taste and a sportswear buyer with a contemporary taste,’’ Wilson said. “We were a department store box of brands, with no value other than being a box of brands instead of a link of all those brands.”
As for serving the customer, “American service standards have slipped,” Wilson said. “It has more to do with insults, an imposition on the server [with customers] faceless, meaningless, easily ignored or scorned. Saks Fifth Avenue is leading the change. In dozens of ways, large and small, service does matter.”
Where the typical ceo is at the top, the SFAE structure has now flipped so the associates are at the top. The emphasis is to make it easier for the sales associate to connect with the consumer.
Regarding merchandising, Wilson said there has been a 40 percent reduction in goods on the floor, as well as fewer fixtures. However, “there are mannequins coming up the kazoo to give consumers clues on how to put outfits together.”
The retailer is also putting some passion in its strategy.
“The most important weapon is the human soul on fire,’’ Jennings said. “Our team has that energy, personalization and synergy to take the organization to whole new level.”
For Jennings, whose focus has been on operations, the refocused SFA represents a change in how divisions have been operating and placing “ownership and accountability at every level of the organization.”
The emphasis, when done correctly, strengthens the customer relationship on a one-to-one basis. “We develop customers into friends…Saks really cares about how customers look and how they feel,” Jennings said.
The senior leadership in the stores have been reorganized so that it is decentralized, Jennings said, and closer to the customer. In addition, the gmm’s role is focused on top line sales and bottom line earnings before interest and taxes. The upgrade in talent has meant raising the bar on sales associates, which now includes recertification of sales associates every year before they are able to work in the same department as before, Jennings disclosed.
SFA is using a store in Boca Raton, Fla., and one in Boston as laboratories regarding customer acquisition. Store associates are “empowered” to improve the customer experience from use of free personal shopping to stylists. Meanwhile, the retailer is brushing off more conservative approaches to service and merchandising. Saks is also turning its heels on leaders in the high-end segment.
Regarding what’s selling for spring, the retailer said denim is red hot as well as brooches and ponchos. “We were terribly overassorted in all of our stores in the last few years. From breadth to depth, we are teaching people how to buy differently, plan differently, from safe to key item-focused. The advertising is aspirational, now we need the product to support it,” the chief merchant said.
The retailer has also developed a matrix expansion program for every brand, by category. The aim is to “blow out the brand by store and by category over the next three years,” Frasch said.
Frasch foresees growth in designer sportswear and “monstrous” growth in contemporary sportswear. He added that moderate sportswear is a “new zone we’re developing,” and characterized it as an offshoot of bridge. Handbags, Frasch said, is an obvious area of continued growth.
“Saks has changed. Saks is changing,” Frasch told investors.