CAMBRIDGE, Mass. — “Tell me where the Dow is and I’ll tell you how my business is doing,” said Stephen I. Sadove, Saks Inc. chairman and chief executive officer, in the opening keynote of the seventh annual Retail & Luxury Goods Conference at Harvard Business School.
These days, with the Dow hovering at more than 12,000, Sadove is feeling pretty good. His core customer is once again springing for superpremium items and comparable store sales are robust (up 11 percent in March). The Saks Fifth Avenue Men’s Collection, nonexistent three years ago, will be the store’s largest and most profitable men’s business this year.
With a nod to Macy’s Inc., which is also pursuing a localization strategy, Sadove said Saks has moved 15 percent of its advertising dollars out of national campaigns and into local efforts. It’s paying off. In Boston, for example, outreach aimed at courting Back Bay shoppers drove store performance up 20 points, he said.
Addressing future Harvard M.B.A.’s Saturday, Sadove clearly relished being able to position Saks — which traded at $1.55 a share in the recession’s depths — as a comeback story. He recalled watching the Lehman Brothers bankruptcy unfold, realizing Saks held several hundred million dollars’ worth of excess inventory, and making the “unprecedented” decision to slash prices — on everything — by 70 percent. People fought for goods and waited hours in some cases to get into stores. Sadove was pilloried.
“We took an enormous amount of criticism. People said we were destroying the luxury sector,” he said. “But we cleared the inventory and generated the cash. It was a question of the survivability of the enterprise. When 25 percent of your business disappears overnight, you have to change what you’re doing.”
The Saks board recommend Sadove lie low, but instead, he bolted a Web camera to his desk and talked regularly to the troops. He increased the time he spent walking the store floor. When producers approached him recently about doing an episode of the CBS reality show “Undercover Boss,” Sadove confessed he’d been too visible in stores over the last two years for it to work.
Saks also adopted the motto “don’t let a good recession go to waste” — starting with pay cuts for executives and a freeze on 401(k) contributions. “We’d developed a culture where people in the business were spending like our customers. Everybody took limos and we are in a low-margin business,” he said.
Now, each associate is required to develop an individual marketing plan for cultivating customers.
He said true luxury customers didn’t trade down brands, but looked for lower-priced options within the label. Saks worked with Gucci, Prada and others to develop a below-$1,000 handbag business.
Today, though, the aspirational shopper is still on the sidelines, but the true luxury customer is spending again. “Special pieces are selling extraordinarily well,” he said.
The company is moving from a “house of brands” approach to publicizing the Saks brand first. (A new ad campaign trumpets: “I’m Going to Saks.”) Sadove cited the successful branding of the footwear business under “10022-SHOE,” riffing on the idea that the shoe selection is so vast it needs its own zip code.
The company, which spent $15 million on a robotics system for online fulfillment, continues to invest heavily in saks.com. Revenues for Saks Direct, which includes the Web site, are up 28 percent.
In a question-and-answer session, Sadove touched on international expansion. He said the company makes a “few million” off licensing agreements in Mexico and the Middle East. “We may open up a couple of [new] markets but they will be emerging markets,” he said. “There isn’t a need for a luxury department store in Paris. They have plenty.”
He did say the company would like to attract more Chinese tourists. “You look at Printemps or Harrods and 30 to 35 percent of the business is Chinese tourists. It’s unbelievable,” he said. “I’d like to see visa issues eased up so they’ll come here.”
The Estée Lauder Cos. Inc. isn’t worried about boosting tourism, because it is already expert in reaching the customer wherever she lives. “There’s only one continent we don’t do business in and that’s because we don’t know how to market to penguins,” said William P. Lauder, executive chairman of the Estée Lauder Cos., during the closing keynote on Sunday. Sixty-five percent of the prestige cosmetic giant’s revenues come from outside the U.S.
He outlined continental differences: in Asia, 60-plus percent of the business is in treatment, of which lotions sell better than creams because of humidity and skin type, he said. Europeans, on the other hand, prefer creams, but the treatment business is relatively small, because fragrance generates more than 60 percent of sales. The U.S. is a “more balanced market,” he said, with nearly equal shares of treatment, makeup and fragrance sales.
When developing product for an international audience, he noted, it’s critical to do your homework. He cited Aveda’s launch of shampoo in Japan. The formulas were adjusted to be more suitable to Asian hair texture and to the high mineral content of the country’s water. Thanks to careful attention, that collection is the second-largest selling product for Aveda in the world, Lauder said.
Of course, not everything is a hit. Lauder and Tommy Hilfiger, who also presented at the conference, reminisced about Tommy Sport, the less-than-successful follow-up to Tommy and Tommy Girl, the first two designer licensed fragrances that Lauder ever produced.
“We weren’t bottling Tommy Sweat,” Lauder laughed. “But it was a case where we took the exact same positioning for the fragrance as the ready-to-wear and it didn’t work.”
But on the whole, the fragrance business helped open doors globally for the Hilfiger brand, which is now owned by Philips-Van Heusen Corp. and expected to reach $5.5 billion this year, said Hilfiger.
“The Lauder company invested a lot of money in advertising and paving the way,” Hilfiger said noting that there were many European markets that were selling Tommy months before being shipped clothes.
“Success was mapped out because the awareness was there.”
In a panel discussion earlier Sunday on innovation in e-commerce, Philip Behn, Wal-Mart Stores Inc.’s vice president, global e-commerce market development, said social commerce is a powerful thing — generating recommendations that more often result in purchases and are “a lot stickier” in terms of customer retention. He also said Wal-Mart is looking at cellphone apps with micro-location algorithms so that a shopper could be guided through a store in a particular way. U.K.-based Tesco already uses one like this, he noted, with “an amazing real-time flow for what’s in stock on the shelf at the moment.”
Panelists agreed that the cellphone is the next major shopping tool — but it’s still in its infancy. “Unless you’re buying on iTunes, it’s a lousy experience,” noted Gaurav Suri, Google Inc.’s head of commerce sales for emerging business.