SAKS’ MIDEAST PLAN: STORE FOR SAUDI ARABIA AND MORE ON THE TABLE

Byline: David Moin

Saks Fifth Avenue is drumming up a plan for potential Mideast expansion.
Currently, Saks has just one international opening set — in Riyadh, Saudi Arabia. It’s a unit licensed to Prince Al Waleed, who is building the Kingdom Shopping Center in the city through his Kingdom Holdings company, and is a major Saks shareholder.
When that store was announced last year, it was portrayed as an isolated venture, and Saks wasn’t just referring to its desert surroundings. Officials downplayed it as a springboard to expansion, noting it was tied to the wishes of a wealthy shareholder building a mall.
Last week, there was a different message: Saks is exploring additional Middle East opportunities, possibly four or five more stores. Such a move would make Saks the first U.S. upscale department store to expand overseas.
“This is an initiative we are certainly serious about,” said Saks Fifth Avenue chairman Philip Miller, responding last week to rumors that Saks was seeking sites around the Persian Gulf. “We want to have a presence in the Middle East,” though he stressed that there is only one store definitely set to open.
Although Saks Fifth Avenue’s performance was up and down through the Nineties, its strong Fifth Avenue flagship continues to draw a huge international clientele, giving the Saks name international recognition. The brand is among the most transportable in retailing, to a greater degree perhaps than even its primary competitor, the more profitable Neiman Marcus.
For Saks, a division of Saks Inc., the costs of planning and logistics will be high considering the far-away location. However, since it’s a licensed unit, and a smaller unit, at 65,000-square-feet, financials become more realistic. The Riyadh unit is comparable in size to a Saks’ resort or Main Street unit, which range from 35,000 to 50,000 square feet. Nevertheless, Saks considers Riyadh a full-line unit. In the U.S., full-line Saks stores are generally at least 100,000 square feet.
The Riyadh unit, scheduled to bow in spring 2001, will be located at the Kingdom Center, a shopping, hotel and apartment complex being developed by the Prince. His full name is Prince Al Waleed Bin Talal Bin Abdulaziz Al Saud. He is said to have a strong interest in fashion and is a nephew of Saudi King Fahd.
Saks goes back a bit with the Prince. In 1992, he acquired a $100 million stake in Saks through Investcorp, the Bahrain-based firm that took Gucci public in 1995 and sold Saks Fifth Avenue to Proffitt’s, now called Saks Inc., in 1998.
After a secondary offering in 1996, the Prince reduced his interest in Saks to 5.7 percent from 7.7 percent. The Prince has purchased stakes in Donna Karan International, as well as Citicorp and the Four Seasons Hotel chain.
Saks Inc. and Saks Fifth Avenue have a history of attracting foreign investors. Investcorp still holds around a 5.8 percent interest in Saks Inc., though it does not directly own any shares, holding them on behalf of clients.
Also, Ronald de Waal, vice chairman of Saks Inc., owns 1.9 percent of Saks Inc. He’s from Belgium and runs the We International specialty store chain operating in Belgium, The Netherlands, Switzerland, Germany and France.
In the Nineties, Saks Fifth Avenue attracted a number of foreign investors, including Prince Al Waleed, who indirectly held about 10 percent of the company, and Trustees of the Estate of Bernice Pauahi Bishop, an educational trust in Hawaii, which once held about 5 percent.
In Saudi Arabia, Saks will be required to create a store that is customized to adhere to cultural and religious doctrines of the region. For example, the two-level Riyadh store will reportedly house accessories on the first floor, while the entire second floor will be devoted to women’s wear and not allow men to shop there. While certain cultures in the region do not allow women to wear cosmetics in public, it’s expected that Saks will still sell cosmetics for women to wear at home.
In another overseas venture, Saks had operated shops-in-shops in Seibu department stores in Japan until the late Nineties, selling exclusively Saks Fifth Avenue private label merchandise. The shops closed at the end of a test period due to the ailing Japanese economy and rising export costs.
Outside Riyadh, Saks’ international expansion is focused on the Internet. Saks plans to go live with online selling in June.
Saks once almost opened in Mexico City, but dropped the plan when the peso was devalued.
In the Gulf region, Saks is opening an office in Dubai in early May, while “actively looking for other opportunities in Kuwait and in the United Arab Emirates, including Dubai and Abu Dhabi. While there have been reports that Saks would consider opening in Beirut and Cairo, Miller dismissed those reports and said there are no active discussions involving those cities.
While the Riyadh store is licensed to Kingdom Holding, future Saks stores may or may not be. “We would have to look at each opportunity on its own,” Miller said. “There is an awful lot of work putting up a store in the Middle East, and there would have to be significant financial reward.”
The Saks office, Miller said, is primarily for communications and to get the Riyadh store set up, but could be used for future sites as well. It will have a data processing center to aid in the receipt of merchandise. Having an office enables Saks officials to have easier access in the Middle East.
There has also been speculation that Saks would use the Middle East operation as a springboard to Europe, but Miller said, “I don’t think that’s something that would happen in the near future.” Getting Saks selling on the Internet is a more immediate priority, to further revenues and global awareness, Miller noted.
However, he added, “We feel comfortable operating in the Middle East. We have a lot of friends there,” established through Investcorp’s long history with Saks Fifth Avenue and the Prince’s ownership.