Saks Fifth Ave. to woo "rich ladies," remove focus from younger women

  1. Goldman, Morgan Stanley Buy as Saks Woos Rich Ladies (Update3)
    By Cotten Timberlake

    March 6 (Bloomberg) -- Saks Fifth Avenue chased 25-to-34- year-old women in the last few years, offering expensive sportswear like premium denim under the brand ``7 for all mankind.'' A ``Wild About Cashmere'' promotion filled the Manhattan flagship department store with goat mannequins.

    The strategy flopped.

    Under Stephen Sadove, named chief executive officer 14 months ago, Saks is now trying to lure back its onetime core customers: well-to-do women 35 to 55.

    Wall Street is buying in.

    Morgan Stanley, Goldman Sachs Group Inc. and Fidelity Investments are some of Saks's biggest investors, with 21 million shares purchased among them in the fourth quarter. Morgan Stanley quadrupled its Saks Inc. holdings to 8.8 percent.

    As Saks prepares to report a fourth-quarter profit tomorrow after a year-ago loss, according to analysts, Wall Street firms are wagering that Sadove's strategy will succeed and perhaps attract a buyer. Rusty Robinson, president of Robinson Investment Group in Brentwood, Tennessee, says this ``smart money'' reflects a sense that an acquisition may be imminent.

    With a market value of $2.6 billion, Birmingham, Alabama- based Saks might fetch $3 billion to $3.5 billion, said Robinson, whose firm manages $135 million including 7,250 Saks shares.

    Spokesmen for Morgan Stanley and Goldman in New York, and Fidelity in Boston, declined to comment.

    Flush With Cash

    Investors and private-equity groups, flush with billions of dollars in cash, have stepped up their pace of acquisitions. Retailers are targets because of their real estate as well as the cash stores generate. Last year, 353 retail and restaurant companies agreed to be bought, the most in at least 10 years, according to Bloomberg data.

    In 2005, Warburg Pincus LLC and Texas Pacific Group paid $5.1 billion for luxury retailer Neiman Marcus Group Inc.

    Saks Fifth Avenue's roots date to 1924, when Horace Saks and Bernard Gimbel opened their Fifth Avenue store in New York. Its real estate is worth $1 billion, UBS Securities LLC estimates.

    Under Sadove's predecessors, Saks became more popular with younger shoppers. Yet they spend less, and Saks's performance suffered, said Fred Crawford, managing partner of turnaround adviser AlixPartners LLC in New York.

    While sales slumped, competitors such as Dallas-based Neiman Marcus and Seattle-based Nordstrom Inc. benefited more from a four-year boom in U.S. luxury-goods sales.

    Chanel, St. John

    Now, the 54 U.S. Saks stores feature more Chanel and St. John suits, and clothes with enduring styles under Saks brands, including ``Classic.''
    ``Saks was a little bit too trendy,'' said Leslie Billera, 38, a marketing copy writer who divides her time between Los Angeles and New York. ``Going after around-40-year-olds is spot on. It feels really good to be in a grown-up store.''

    Sadove, who runs Saks out of New York, beefed up popular brands such as Elie Tahari and re-launched petite styles and Saks labels that were axed under his predecessor, Fred Wilson. The ``Want It!'' advertising campaign identifies must-haves, like crisp white shirts for spring.

    ``The return to their older shopper base, households with higher income, makes good sense,'' Crawford said. ``That is a solid strategy.''

    Saks stock rose 58 cents, or 3.2 percent, to $18.74 at 4:01 p.m. in New York Stock Exchange composite trading. It has climbed 24 percent in the past two years. Excluding some items, 10 analysts in a Bloomberg survey estimate a fourth-quarter profit of 23 cents a share.

    `Has-Been Retailer'

    ``It was a beaten-up, almost has-been retailer,'' said David Abella, a New York-based Rochdale Investment Management analyst. ``With their renewed focus on the Saks Fifth Avenue brand, and with their attention on getting the merchandise right, there was a real chance for a turnaround story. They are being successful.''

    Abella's firm, which manages $2.2 billion, began acquiring Saks shares a year ago and had 37,200 as of December.

    Saks said Feb. 8 that sales growth at stores open at least a year soared sevenfold, to 9.9 percent, in the fourth quarter.

    ``We've made an enormous amount of progress in the last 12 months,'' Sadove said in a Jan. 23 interview. ``We are focusing on our core customer. We did a good job of meeting their needs.''

    Sadove, 55, joined Saks in 2002 from New York-based drugmaker Bristol-Myers Squibb Co., where he was president of worldwide beauty care.
    Doubters

    Saks still has doubters, among them New York-based analyst Michelle Tan of UBS, who recommends selling the stock. ``They have a challenge trying to catch up with the profitability of their peers,'' she said.

    Sadove wants to increase Saks's operating margin to 8 percent by 2010, from less than 1 percent in January 2006. That compares with 11 percent at Neiman Marcus.

    It's been a slog for long-term investors. Shares have slumped 57 percent from a peak of $43.88 in 1998, while the Standard & Poor's 500 Index gained 23 percent.

    Chairman Brad Martin acquired Saks Fifth Avenue from Bahrain-based Investcorp SA for $2.99 billon in 1998 and combined it with Proffitt's Inc. stores. He changed the parent company's name to Saks Inc.

    After sluggish sales, Martin, 55, concentrated on luxury. Sadove, then-chief operating officer, assumed the CEO role from Martin. Wilson, who had been chairman of the Saks Fifth Avenue division, was ousted.

    Sadove deflects questions about whether Saks is for sale. ``I can't comment,'' he said. ``I can just tell you we are focused on improving the business.''
     
  2. Thanks for posting the article...

    I'm not loving saks5th avenue's service at all! I'm glad the neiman marcus branch here in austin is opening this weekend. :biggrin:
     
  3. Interesting. I've never been too impressed with Saks, or seen them as a store that caters to the 25 to 34 year old group. I've always thought those stores to be Nordstrom, with their great juniors and "sassy" department, as well as awesome customer service, and Bloomingdale's, which I always find to have a good denim selection and decent customer service (most of the time) toward young people like myself.
     
  4. that's very interesting. i have noticed that saks stuff tends to really overlap with a lot of their competition, who often offer better customer service and prices (i.e. Nordstrom!), so this may be a smart move on their part to relocate their niche market...
     
  5. Wow, I had no idea they were based in Birmingham. I always wondered why they had a store there, but not in Nashville or Jacksonville (bigger cities with more wealth).
     
  6. I think that from a purely marketing and business standpoint, Saks is making a good decision, and I don't think that they will be alone among the "higher end" retailers to make such a transition. Far from it.

    Just like consumers, the retail industry as a whole, not just the high end, will have the opportunity to develop new strategies to meet some big challenges as the larger economy makes some big changes!
     
  7. Well they did try to get rid of the petites section, then the older women protested it, as well they should.
    I personally don't like Saks so much, especially the one in my mall. It's just not interesting, there's no LV or Chanel counter in it and it's boring. I'm even bored by my own clothing section.
    I like Neiman's better anyway.
     
  8. True. They make so much more money by selling 1 or 2 Chanel or St. John suits, than 4-5 pairs of True Religion Jeans or Juicy tracksuits.
     
  9. Our Saks turned into Off 5th nearly two years ago.

    i think switching their focus to older women will work better for them
     
  10. I had no idea the "Wild About Cashmere" campaign was aimed at younger women. There was nothing youthful about it, IMO.

    Anyway...I really like Saks, and I'm 28...does that make me an old fogey?:lol:

    At least in the BH store, I think their clothes are perfect for women my age who buy high-end. I often find their Juicy on sale, and they're starting to carry more hip designers, like Marni and Zac Posen.
     
  11. I always think that Saks has better buyers than Neiman - I feel like Saks IS Neiman without the attitude. Neiman is just so uptight and snobby! I feel like Saks should continue thier young focus and Neiman should go back to the older set.
     
  12. Interesting how most here prefer Neiman Marcus to Saks. Our Neiman's here doesn't seem very upscale to me: very dim lightly, weird layout for the contemporary section, etc. Guess it just depends where you are.

    I much prefer the Saks here -- plus, unlike NM, they accept more than American Express which makes it far less annoying to shop there.
     
  13. Interesting article. I like Saks and NM equally.
     
  14. This is quite the interesting article. Seems like they are really trying to re-focus and find their core audience and the audience they think will bring the most sales.
     
  15. I hated those stupid Goat things...They had them in Tysons too during the campagne and it just looked...dumb.

    Anyway, I think this is a good move for the company considering that lots of young people go in there just to have the shopping bag. Know what I mean? They'll go in there and buy a pair of jeans or a t-shirt just so that they can have the shopping bag to make them look "important"...That's at least the impression that I got from some of the girls that I knew. They wouldn't touch a pair of 7FAM jeans in another store, but bought them up at Saks.

    I'm not sure if I like NM better than Saks...It really depends what I'm shopping for :smile: