Saks Sees Hope In Lower-Cost Products,Expanding Outlet Stores
Date : 04/01/2009 @ 12:49PM
Source : Dow Jones News
Stock : Saks Inc. (SKS)
Quote : 4.98 0.68 (15.81%) @ 8:00PM
Saks Sees Hope In Lower-Cost Products,Expanding Outlet Stores
By Karen Talley
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- While still planning to retain its status as a luxury retailer, Saks Inc. (SKS) is rejiggering to sell a greater amount of less-costly name-brand merchandise, and evolving its outlets to be choice destinations, not just places to offload overstock from stores.
"In terms of the merchandizing mix, you're seeing an evolution of what the consumer wants," said Chief Executive Officer Stephen Sadove on Wednesday during a consumer conference sponsored by Telsey Advisory Group.
High net worth individuals like those who shop at Saks are very attuned to the way the stock market is acting because so much of their wealth is tied up in it.
"They don't feel good, because they don't know whether this market is going to go to 4000 (on the Dow Jones Industrial Average) or whether it's going to stay at 7500 and slowly grow from there," Sadove said.
But even after confidence begins returning, "there are going to be some mix changes," Sadove said. "You're going to be seeing a migration, not so much from a high brand name to a low brand name but within the brands" to lower-costing items in many cases.
Saks is doing its buying in anticipation of the shift and working with vendors to receive better margins on what it is purchasing, Sadove said.
The strategy is similar to the one being taken by fellow high-end merchandiser Nordstrom Inc. (JWN) as it, too, tries to bring in more lower-costing items within brands as a way of adjusting to its upper-end customers' changed shopping habits.
At the same time, with so many high-end boutiques closing, more exclusive merchandise should migrate Saks' way, Sadove said.
Saks is also seeing its Off 5th outlets performing "substaintially better than the full-line business" and the company wants to capitalize on the shift, Sadove said. "We are much more making product for the (outlet) channel as opposed to relying on the leftovers from either our stores or our vendors."
Saks operates 51 Off 5th outlets, with plans to open another three to five this year and projected 5% to 10% square footage growth each year over the next several years.
The outlets are "volume and profit movers," Sadove said.
Saks' goal is to be cash flow positive this year, Sadove said, in other words having more cash coming in than going out.
Additional efforts to help achieve the goal include taking a more local approach to its customer base, an initiative Macy's Inc. (M) has been touting as the key for its planned success.
Saks plans more private-label merchandise, where margins can be better. The measure will be more apparent on the men's side, "but we will always be a house of brands," Sadove said.
Saks is using more Web-based point-of-sale systems, which Sadove called "probably one of the most valuable tools in terms of touching the customer in a difficult environment."
Department managers are being told to pitch in more when it comes to selling alongside regular salespeople.
But progress may be slow, with sales remaining a major challenge.
Comparable-store sales are expected, on average, to show declines in the 20% area this year, Sadove said.
Saks' sees its gross margin declining in the first half of the year followed by "dramatic" improvement in the second half, because of all the margin slicing discounting it did during around the 2008 holiday season.
To achieve better margins, Saks has been cutting its inventory receipts. Capital expenditures are also going to be way down, to around $60 million from $130 million in 2008.
The retailer has been one of the hardest hit by the recession, swinging to a fiscal fourth-quarter loss on slumping sales and margins as its steep markdowns failed to stem the woes now hitting high-end chains.
Standard & Poor's Ratings Services recently lowered its credit ratings for Saks debt deeper into junk territory on expectations the company will be more challenged than expected during the recession.
But Sadove said Saks is responding to the changed environment.
"We are structuring the company assuming that the sales base will be lower," Sadove said. "We are not assuming that it's going to be 'V,' and that this thing is going to come right back to where it was. We are making adjustments where we believe that the world is changing."
Shares of Saks are up 4.3%, or 8 cents, to $1.95. The stocks has lost 85% of its value over the past year and trades close to its 52-week low of $1.50.
-By Karen Talley, Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com
