NEW YORK — Hudson’s Bay Company can’t overstate Saks Fifth Avenue Off 5th’s potential.
The Canadian retail giant is relentlessly pursuing the off-price business in Manhattan, and will do so right in competitor Bloomingdale’s backyard.
The company on Monday said it will open a 47,333-square-foot Off 5th store at Tower 57, an office tower at 125 East 57th Street near Lexington Avenue. The off-price store is a mere two blocks away from Bloomingdale’s 59th Street and Lexington Avenue flagship.
An Off 5th is also slated to open in lower Manhattan, just a few blocks from where a full-line Saks Fifth Avenue is opening next year in Brookfield Place. “Manhattan is a huge market,” said Gerald L. Storch, chief executive officer of Hudson’s Bay Co. Inc., parent of Saks Fifth Avenue and Saks Off-5th. “There’s plenty of room for two Saks Fifth Avenue locations and two Off 5ths.
“Off-price is a major growth strategy for Saks Fifth Avenue,” Storch added. “It’s growing faster than the retail industry. With Saks Off 5th, we have a concept positioned as the best of the off-price business. It’s white space above the other retailers.”
HBC is accelerating the expansion of Off 5th with plans to open 15 to 20 units a year in the U.S. There are now more than 90 Off 5th stores in 50 states.
The retail concept also has international legs. There are plans next year to unveil up to eight stores in Canada and foresees as many as 25 Off 5th locations in Canada within the next five years.
“We intend on bringing Off 5th to Germany,” Storch said, adding that HBC’s impending acquisition of Galeria Kaufhof would be used as the foundation. “With the acquisition, we’ll have the largest department store chains in Germany and Belgium and an established foothold in Europe to grow Saks Fifth Avenue and Saks Off 5th. We can have up to 40 Off 5th stores” in Europe. Storch said there is no specific count for the number of Saks units that could open.
The Off 5th unit on 57th Street is part of a strategy of expanding the off-price business in suburban and urban locations around the country. Off 5th stores operate in downtown San Francisco; The Beverly Center in Los Angeles, and Costa Mesa, Calif., across the street from South Coast Plaza.
“This location is in line with higher density areas. We have no concerns whatsoever,” Storch said about opening Off 5th in close proximity to the Saks Fifth Avenue flagship in Manhattan. “The concepts are additive and complimentary. One plus one equals three. Saks Off 5th is more of a Millennial shopper and we view Off 5th as an excellent vehicle for developing a new customer base.”
Once the younger shoppers establish themselves and start earning more money, they move to the full-price Saks stores, Storch said. “We think Off 5th is a brand-building experience,” he explained. “As we enter East 57th Street, we’re investing $250 million [in the flagship on Fifth Avenue] to ensure that Saks Fifth Avenue is far and away the best [experience] in the world. We’re very committed to the luxury customer.”
Storch maintained that Saks Fifth Avenue and Off 5th have very little crossover in terms of shoppers. “Everybody shops everywhere, yet, when it comes to apparel buying, we see that Saks Off 5th customers tend to be distinct from the Saks luxury customers.”
Saks Off 5th, which has been around for about 20 years, was originally conceived as an outlet business. HBC realized that Off 5th had potential beyond the outlet malls and started opening stores in suburban and downtown locations that support TJ Maxx and Nordstrom Rack.
“We adapted a format that had been divided into small rooms to a more contemporary open format with a more modern look and feel,” Storch said.
Off 5th changed its pricing model radically. Before, it listed the market price and a markdown indicating the new lower price, with a sign advertising a further 40 percent or more reduction. The final price was calculated at the cash wrap. Off 5th now does all the math, listing the final out-the-door price and the total savings from the original market price. Merchandise at Off 5th is reduced up to 70 percent.
“Consumers love the increased transparency and reliability,” Storch said, adding that the majority of the assortment is branded sell-off from Saks full-price stores or purchased from vendors, with some Saks private label.
Even as department stores are repurposing some of their real estate and slowing expansion of full-line stores, they see the off-price model as a prime growth vehicle. Nordstrom sees the Rack format as one of the keys to its goal of hitting $20 billion in sales by 2020, with plans to have at least 300 Racks by that time, up from 194 currently. Macy’s Inc., meanwhile, last week revealed plans to roll out up to 50 Macy’s Backstage off-price stores over the next two years as it seeks to jumpstart the group’s growth.
“Consumer demand for off-price continues to grow,” Storch said. “It’s one of the most rapidly growing segments in retailing and we’ll continue to grow it. Unlike some of the johnny-come-latelies, we know what we’re doing. We know how to price the merchandise.”