The long-awaited renovation of Saks Fifth Avenue flagship in Manhattan will commence this summer, WWD has learned.
This story first appeared in the April 8, 2015 issue of WWD. Subscribe Today.
The overhaul is expected to take two to two-and-a-half years to complete, with the shoe floor on eight among the first projects to be undertaken.
At Saks, the overarching strategy to elevate the brand image and presentation hasn’t stalled, according to Jerry Storch, chief executive officer of parent Hudson’s Bay Co., despite last week’s abrupt switch in presidents involving the departure of Marigay McKee and appointment of Marc Metrick as her successor. “If anything, we will be able to accelerate what we were doing going forward,” he said. Improvements center on “continuing to bring in new brands and elevating the presentation and service levels,” Storch told WWD. “No detail is too small.”
Saks has also been weeding out vendors that aren’t generating enough profit for the store, and renovating key locations. While some market sources see Saks running up a tab greater than the suggested $250 million to renovate its flagship, Richard Baker, HBC’s governor and executive chairman, said in a conference call Tuesday just after the company released its year-end and fourth-quarter results, that the previously disclosed price tag is “a very reasonable number” and the company is “very far along” with the renovation plans.
Last year, HBC said the Saks Fifth Avenue flagship was independently appraised at $3.7 billion. The Saks flagship, which has 340,000 square feet of selling space, accounts for about 25 percent of the luxury chain’s overall volume.
Another big step ahead for Saks is to select a new chief merchant. Storch said it’s not going to take too long to hire one. “We’ve seen a lot of people.” The former chief merchant, Jennifer De Winter, left Saks last year to join Tiffany’s. McKee and De Winter did not work well together, according to industry reports.
HBC is opening its first two Saks Fifth Avenue locations in Canada next year, in Toronto, on Queen Street and in Sherway Gardens. Up to seven Saks Fifth Avenue stores could operate in Canada over time, officials said. Hudson’s Bay bought Saks Fifth Avenue, including the Saks Off-5th off-price business, in 2013 for $2.9 billion.
HBC is accelerating Off-5th openings, with 12 to 14 planned for this year. Next year, Off-5th will start opening units in Canada, where up to 25 are seen operating in a few years.
Meanwhile, at Lord & Taylor, considered the weakest nameplate within the Hudson’s Bay Co. stable, executives are doubling up on developing strategies to differentiate the store from competitors. “We are working on many ideas,” Storch said in an interview, adding that in the months ahead, changes at L&T will be visible and the company is “very pleased” with the Design Lab concept introduced this spring. “It’s the first landing craft of an invasion of differentiation,” Storch said.
Design Lab is a young contemporary private brand for Millennials sold in 50 L&T locations as well as 57 Hudson’s Bay stores, with up to 130 new styles introduced monthly. Design Lab is also the name of a new young contemporary area in the stores selling that label as well as BB Dakota, J.O.A., Lucy Paris, Lush and SugarLips, at an average price point of $64.
The changes at Saks and L&T were revealed Tuesday as their Toronto-based parent HBC, benefiting from digital and off-price sales gains and acquisition synergies, posted strong fourth-quarter results, leading the company to project at least 9 billion Canadian dollars, or more than $8 billion, in 2015 revenues.
HBC said Tuesday that net earnings almost quadrupled in the fourth quarter ended Jan. 31 to 111 million Canadian dollars, or $95.5 million. On a per-share basis, earnings from continuing operations practically tripled to 61 Canadian cents, or 49 cents, a share. Normalized earnings, before interest, taxes, depreciation and amortization rose 25.7 percent to 318 million Canadian dollars in the last quarter, or $273.6 million.
For the year, the company earned 238 million Canadian dollars, or $228.5 million, versus a loss of 259 million Canadian dollars the year before, or $249.7 million, largely due to the Saks deal.
Storch attributed the leap in the fourth quarter’s earnings to strong sales gains, capturing synergies from the Saks acquisition, expense reductions, stronger gross margins and essentially flat SG&A. Total sales in the quarter rose 9.3 percent to more than 2.6 billion Canadian dollars, or $2.24 billion, and 3.2 percent on a same-store basis.
The department store group, which includes Hudson’s Bay and Lord & Taylor, saw same-store sales grow 2.3 percent. Saks Fifth Avenue had a same-store sales increase of 2.6 percent. Off-5th had a same-store sales increase of 12.1 percent, while digital sales gained 35.1 percent.
At the department store group, men’s apparel, ladies shoes, outerwear and home performed the best last quarter. Saks Fifth Avenue was paced by designer clothing, men’s wear and accessories, while Off-5th did best with men’s wear, women’s shoes and accessories. Baker acknowledged a slowdown among customers from Europe, which is partly due to the strength of the U.S. dollar, though he noted that stronger business from U.S. and Chinese customers has been a counterbalance.
Women’s apparel, generally, continues to be a soft spot. “Ladies’ wear has been an issue for some time in the market as a whole,” Storch observed. However, “so many believe that the fashions coming out this year are far better. There’s a lot of optimism that we will see some movement this year.”
Though reports of sluggishness at L&T persist, “We are feeling comfortable as of the fourth quarter of last year that the trend at Lord & Taylor has improved and the economy of the eastern portion of the U.S. has improved,” Baker said. “We are seeing that reflected in the business.”
While Saks’ Web site is strong, the L&T and Hudson’s Bay Web sites are playing catch up. On the omni front, HBC has begun shipping online orders from stores, but the company sees opportunities to add in-store pickups and vendor drop shipping. “We will continue to improve the nuts and bolts of each of our Web sites,” Storch said. “The Saks Web site is excellent. We haven’t been as strong with Lord & Taylor and Hudson’s Bay. The Off-5th Web site continues to be very exciting.”
Last year, revenues reached 8.2 billion Canadian dollars, or about $7.8 billion. HBC is projecting 2015 revenues of 9 billion to 9.3 billion Canadian dollars, or $8.1 billion to $8.4 billion.
HBC remains open to acquisitions. Charlotte, N.C.-based Belk Inc. last week said it is reviewing its strategic options, which might include a sale, though it is believed that at this time, HBC is not interested.
“Our criteria is to acquire companies that provide us with synergies, cost savings, an opportunity to operate the business maybe better than the previous management and to have some real estate component,” Baker said during the call. “We have the capacity and financial capability to do a transaction at this time, but we are very careful and picky and relatively conservative. So we’ll see how it goes….Our focus is really on acquisitions in the luxury space, in the better, midtier space and in off-price. The quality of a brand is very meaningful to us.”