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Off 5th on Fifth Avenue?

Officials assure WWD that there are no plans to open a Saks Fifth Avenue Off 5th outlet on Manhattan’s Fifth Avenue. But they add never say never and it’s not beyond the realm of possibility given their readiness to situate Saks Off 5th in a diversity of urban and suburban settings nationwide and closer to Saks Fifth Avenue stores.

“We are getting aggressive,” says Jonathan Greller, president of Hudson’s Bay Co.’s outlets, who outlined Off 5th’s accelerating rollout, changes in the approach to pricing and buying and marketing shifts to present lighter, more approachable imagery.

“We will open up 15 Saks Off 5th outlets in the U.S. in 2015 and will have 90 by the end of the year,” he says. “In 2016, our plan is to open 20 stores in the U.S. And we are opening up to eight stores in Canada in 2016, and up to 25 in Canada within the first five years.
“We think there are opportunities to go global with the brand.”

Germany has real estate possibilities in light of HBC’s impending acquisition of Galeria Kaufhof there.

Greller also oversees the four Lord & Taylor outlets and two Hudson’s Bay outlets. He would not comment on strategies for those smaller businesses, but they’re being developed.

“When we look at real estate, in the past we were 95 percent outlet centers. Today, we believe we can be in almost any retail platform,” Greller says. “Outlet centers are a big part of our go-forward strategy, but we also believe we can be in malls, in downtowns, in lifestyle centers, strip centers — non-outlet centers.

“We think there is a big opportunity to open downtown. We just opened in downtown San Francisco and we opened our first mall store in Stamford, Conn., at the end of June.
“Could we put one on Fifth Avenue? Absolutely,” though Greller made clear that there’s nothing in the works.

The first opening in Canada will be Vaughan Mills in Toronto, followed by Ottawa Tanger Outlets and the Outlet Collections in Niagara as part of the plan to have eight in the country by the end of the year. Stores average 28,000 square feet, though there’s a range, with the Stamford store being the largest in the fleet at 56,000 square feet.

Archrival Nordstrom Rack is also entering Canada, but Greller says Off 5th will be first in the country. “We see opportunity in all regions” of Canada.

After five consecutive quarters of comp growth at Off 5th, in no small part due to the accelerated openings and the launch of saksoff5th.com in September 2013, it’s the view at HBC that off-price will continue to outgrow other brick-and-mortar sectors over the next few years.

“We are seeing significant traffic coming to our stores through the dot.com,” Greller says. “Dot.com is the biggest single store, but I don’t look it as a store. It is a channel. It’s creating the experience.”

When HBC acquired Saks Fifth Avenue and its Off 5th division in July 2013, expansion was less of a priority and buying was conducted differently. “Historically, Saks Off 5th had been an outlet mall business, but there is a much bigger opportunity when you combine the outlet business with the off-price business,” observes Jerry Storch, chief executive officer of Hudson’s Bay Co., who, before becoming ceo in January, was a consultant hired by HBC to help reengineer Off 5th.

“You see tremendous growth at T.J. Maxx, Ross Stores, Burlington Coat Factory, Nordstrom Rack. Repositioning as more than an outlet business and becoming more of an off-price business, we are able to tap the entire country, not just outlets,” Storch says. “We began opening stores in Costa Mesa, across the street from South Coast Plaza and in downtown San Francisco. We just opened Off 5th across the street from the Beverly Center, right in the heartland of Los Angeles shopping. Off 5th could be across the street from any of our stores.”

Off 5th will also open in lower Manhattan, just a few blocks from where Saks Fifth Avenue is opening next year in Brookfield Place.

Greller believes that situating Off 5th near Saks Fifth Avenue isn’t harmful to either business. “I get real data. I can look at the data every single day and there is almost no cannibalization. Cannibalization is defined as having a customer from Saks Fifth Avenue walking over to Off 5th and never coming back to Saks Fifth Avenue. Our best customers are those that shop all channels.”

The Off 5th customer on average tends to be in their late 30s, or about 10 years younger than the Saks full-line customer. Off 5th, as Greller and the team see it, is a way to get the younger, Millennial customers to begin to appreciate the Saks brand and hopefully graduate to Saks Fifth Avenue as they earn more money.

With the shift to more of an off-price model came fundamental shifts in the buying. “When you are in the value concept, it’s so important to remain liquid, because we want to be closer to the trends,” Greller says. “We have a lot of open-to-buy. We are always liquid, that allows us to buy much more opportunistically. That is really important. Only about 50 percent of our open-to-buy is up front. In the past, we were placing almost 90 percent of our buys upfront, so if [hypothetically], there was $1 million to spend, we were placing $900,000 up front and holding back $100,000.”

Under the new buying strategy, “Every store is different, but you could have up to 25 percent of the store looking different every single week. Some stores are fast-turning, some are a little bit slower. But there is new product coming in every single day, and we are delivering a lot of merchandise on a monthly basis. If you want to get that customer coming in two or three times a week, you have to show him or her something new.”

With the merchandise, Greller said Off 5th maintains a “good, better, best strategy. We will continue to buy luxury brands, but also wanted to stretch the elastic a little bit and have some opening price points as well. In 2014, we started this migration. We are buying more luxury than we ever did before, pushing up price points, but we are also layering in some more good and better brands.”

Product specifically made for Off 5th under the house label represents about 20 percent of the total. About 10 percent of the inventory is clearance from the Saks Fifth Avenue stores, with 70 percent obtained from vendors. Off 5th also buys and holds back products for months in distribution centers. And home products, which have been sold online, are being added to stores as impulse items merchandised by checkouts, including soaps, small foods and tech accessories.

The store environment is changing. New and renovated stores have a more open format and fewer walls for greater flexibility in expanding and contracting categories, and shoe racks are organized by size, and no longer by style. “It’s easier to shop, you go to your size, you can see up to potentially 200 pairs sitting on the racks, you will see good, better and best price points, all in that size. Customers are buying, three, four and five styles at a time. Our penetration of shoes has more than doubled.”

Greller says the challenge is to have the customer feel that the brand is “approachable” and not expensive. So ads are lighter in attitude, and there’s more color in the marketing and the store decor, in a shift from the former serious black-and-white motif.

Off 5th radically changed how prices are presented beginning in February. Typically, there would be the market price, an immediate markdown indicating the new lower price, and a sign saying take an extra 40 or so percent off. The final price was not indicated and shoppers were often surprised at the checkout that the final price was lower than expected.

Now Off 5th does all the math by listing the final out-the-door price and the total savings from the original market price. Day-in and day-out, the merchandise at Off 5th is up to 70 percent off.

“We are seeing increased conversions in our stores every week since we started the pricing,” Greller said. “This alone will be a tipping point for Saks Off 5th. The whole thing about this is to give the best value right up front.”

This story first appeared in the August 12, 2015 issue of WWD. Subscribe Today.

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