Bargain Hunting: Luxury Retailers Find an Outlet

With sales at their main locations sagging, Saks, Nordstrom, and others are tapping budget-conscious shoppers by expanding their outlet stores

On a recent morning at the Woodbury Commons Outlet mall an hour north of New York City, Carissa Nava is looking over a red wraparound dress by Diane Von Furstenberg at the Saks Fifth Avenue Off Fifth store. The dress retails for $365 at Saks' main store on in New York, but here it is selling for $126.99.

Nava, a pharmaceutical sales rep who lives in Manhattan, makes regular trips to Saks' flagship store on Fifth Avenue—sometimes to buy, but often just to check out the selection of big-name apparel. Then, at the earliest chance, she drives up to the Saks outlet to pick those items up at a significant discount. "I only wear Seven or True Religion jeans, and I get them here for $149," she says. "Why would I pay $216 for the same exact ones at the main store?"

There's a certain snob appeal that attaches to luxury retailers like Neiman Marcus, Saks (SKS), or Nordstrom (JWN). Which is why, even though almost all of them have operated discount outlet stores for years, they never talked much about them. Saks went to the extent of keeping its name off the outlets, calling them "Off Fifth."

Out of the Shadows

But today, with the economy stalled and consumer spending in free fall, snobbery is a bit harder to pull off. Even the most upscale shoppers are hunting for bargains. So luxury retail executives are taking their off-price operations out of the shadows and launching their most aggressive expansion plans in years. Increasingly, the outlets also are offering not just discontinued or leftover inventory from a previous season, but many items currently available at the mainline stores.

"Only stores that scream value are getting consumers in," says Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at the Wharton School at the University of Pennsylvania. . . . more

Stores Plan for Weak Holiday Sales

Retailers Respond to Shaky Economy With Earlier Ads, Fewer Seasonal Workers

As economists predict the worst holiday sales season since the recession of 1991, retailers are fighting back with an arsenal of new selling strategies, staff cutbacks and more emphasis than ever on low prices.

Retailers are planning bigger, bolder and earlier ad campaigns to lure shoppers as early as possible, racing to make the most of the shorter holiday season this year-five fewer days between Thanksgiving and Christmas than in 2007. Some chains, including Macy's Inc. and Costco Wholesale Inc. already have put out holiday merchandise.

Stores are expected to hire fewer part-time staffers during the holidays, to control labor costs. Gift cards will be fancier, and companies, such as Target Corp. say they'll be emphasizing affordability with a range of gifts under $25. . . . more

Saks Looking Abroad

Luxury retailer announces new stores overseas, reports signs of growth to shareholders

Saks Fifth Avenue Inc. (New York) announced it will open a 15,000-square-foot men’s store at The Walk at the Jumeirah Beach Residences in Dubai, U.A.E. The new store will join an existing 80,000 square-foot full-line store that opened in Dubai in 2004.

It will be the fifth overseas store in the Saks chain, joining an existing one in Riyadh, Saudi Arabia, and a new one in Mexico City.

Speaking at the Saks annual stockholders meeting, chairman and ceo Stephen Sadove said the company also plans to open a Saks Fifth Avenue store in Jeddah, Saudi Arabia, in November, and is looking at further opportunities in the Middle East, Shanghai and other markets. (For full coverage of the Mexico City store, see the July 2008 issue of VMSD.)

Saks told shareholders that it’s projecting flat operating margins, mid-single digit comparable store growth, and a modest gross margin rate decrease in fiscal 2008. “This is a difficult environment and the luxury consumer has been cutting back,” Sadove said. “You’re seeing more sales on promotion than full price. The luxury consumer is more affected by stock markets and their net worth than rising gas prices.”

The company ended 2007 with an 11.7 percent same-store sales increase, much better than rivals Neiman Marcus (5.7 percent) and Nordstrom (3.9 percent). In the first quarter of 2008, Saks enjoyed an 8.4 percent gain while Neiman’s and Nordstrom both saw same-store sales decline. “It was a year of great progress for Saks,” he said. “Saks wasn’t making money three years ago. Also, the average Saks Fifth Avenue store does about one-third less in productivity than the average Neiman Marcus store. But, as we increase that to Neiman Marcus’ productivity level, we’ll be closing the profitability level between the two.”

Source: VMSD.com

Retailer looks to build bridge between ultra-wealthy, 'aspirational rich'

Saks Fifth Avenue isn't just for the extreme rich. Or the sophisticated woman of a certain age.

They may be the luxury retailer's traditional customers, but these days, Saks is casting a wider net.

"Saks is about a balance of high-end luxury and accessible luxury, of classic and contemporary," Chief Executive Officer Stephen Sadove says.

It's all part of a retail rejuvenation launched two years ago.

The New York stalwart would too often whipsaw between extremes in its stores, from too traditional to too modern, Sadove said. Saks now offers a merchandise mix with a greater range in price and style.

Its three lines - "Park Avenue" classic, "Uptown" modern and "Soho" contemporary - are aimed at a variety of ages and tastes. Its "good, better and best" price points are aimed at reaching the ultra-wealthy and the "aspirational rich," or those consumers that might be considered entry-level rich.

Sadove wants to reinvent the bridge market - less-expensive fashions aimed at shoppers who want chic, contemporary clothes, although not at top-of-the-line prices. But he says the bridge appeal is also about fit, offering a middle ground between tighter-fitting youth-oriented styles and tailoring for older customers.

"The bridge business has declined dramatically," he said. "It's tended to be more of a missy fit and has missed the customer that's a bit older but still wants styles that are much more contemporary."

Those 'aspirational' shoppers have been a catalyst for growth in the luxury retail scene over the past decade. But these days, they're getting squeezed more than higher-income consumers.
Saks' same-store sales were up 12 percent last year and 8.4 percent in the first quarter of this year.

Sales are down for many less-expensive retailers, but Saks still undershot Wall Street's expectations last quarter because aggressive discounts cut profit margins.

Even luxury retailers are facing pressure to step up promotions in today's ailing economy. Wealthier consumers are generally more insulated from the crush of rising costs, but they're still looking for deals.

With the economic slowdown, Saks is investing its money in remodeling existing stores rather than opening new ones. Its working to lure more designers and brands.

The retailer is also making a push to go more local. Saks shifted 10 percent of its marketing budget from national to local advertising.

"It makes even more sense in this economic environment to focus on the stores that you have, to make them even more productive," Sadove said.

In its recent revamp of the Saks Fifth Avenue at The Gardens Mall, the retailer greatly expanded its jewelry, shoe, handbag and cosmetics departments.

"Saks is very good at developing categories and making them a real winner in these stores," said retail consultant Cynthia Cohen, president of Strategic Mindshare in Miami. "They'll add more of what (a customer) wants in a category versus going into another category. ... The high-net-worth older woman is a lot more loyal than a young fashionista."

Source: Palm Beach Post

Saks Posts 66% Jump in First-quarter Profit

NEW YORK--Saks Inc. said Tuesday that its first-quarter net income jumped 66% to $18.3 million, or 13 cents a share, from $11 million, or 7 cents a share, a year earlier. The Birmingham, Ala., operator of luxury department stores said sales for the period increased 8.8% to $862.4 million from $792.7 million a year ago.

On average, analysts polled by Thomson Reuters were expecting earnings of 17 cents a share on revenue of $841 million. Same-store sales for the quarter rose 8.4%. Saks said it repurchased about 1.2 million common shares during the quarter at an average price of $11.96. For 2008, Saks (SKS: 12.50, -0.01, -0.07%) expects same-store sales growth of mid-single digits percentage, with growth in the second quarter in the low-single digits.

Luxury Retailers Pin Hopes on Outlets

Bracing for a prolonged economic downturn, luxury retailers are lavishing new attention on their lower-end factory-outlet stores.

The efforts reflect a new reality for retailers that are being squeezed by one of the worst consumer spending slumps in years. Sales at outlet stores are growing faster than those at full-priced stores at many chains.

Saks Inc. is renaming its Off Fifth outlets "Saks Fifth Avenue Off Fifth" -- in hopes that a closer association with the luxury department store will be a bigger draw. The 48 outlets also began using the Saks label and selling more merchandise that is tailored for them, as opposed to goods that aren't selling at higher-end stores.

Nike Inc.'s Cole Haan unit is renovating and opening 40 total outlet stores resembling beach houses in the next two years, in a bid to capture luxury customers who might be shopping for bargains. And Liz Claiborne Inc. is changing the format of its outlets, devoting less space to its flagship Liz Claiborne brand and carving out off-price standalone stores for its Juicy Couture, Lucky Brand Jeans and Kate Spade labels.

The trend is evident at Simon Property Group Inc., the nation's largest mall operator. The company reported Tuesday that comparable sales per square foot at its Chelsea Premium Outlets division rose 5.4% to $511 as of March 31, compared with a year ago. That's far better than the anemic 0.8% increase to $491 per square foot at its regional malls.

The pattern is far more pronounced for some retailers. At Coach Inc., same-store sales at factory outlets rose a healthy 17.7% in the quarter ended Dec. 29, while sales at full-priced stores fell 1.1%; Coach no longer breaks out retail and factory-store results. Nordstrom Inc.'s sales at its high-end department stores, meanwhile, have fallen four consecutive months, most recently by 11.4% in March, while sales at its Nordstrom Rack clearance stores have continued to grow, rising 1.7% last month.

Howard Weinberg, a retiree in Framingham, Mass., who says he generally has been spending less, noticed that several stores at one local outlet mall he shopped at recently were "packed with people," although "some of the stuff there looks like it's a castoff."

The resurgence of outlets entails new risks for retailers. For one thing, shifting sales to what is by definition a discount format can put pressure on profit margins. Coach, for instance, says it sweetened its discounts of handbags at its 101 outlet stores last quarter by 10% to 12%, contributing to a decline in gross margin for the company. "We've had to be more promotional" to take advantage of the higher traffic at outlet malls, says Coach CEO Lew Frankfort.

What's more, outlets are facing greater competition from the so-called off-price retailers, such as Ross Stores Inc. and T.J. Maxx, a unit of TJX Cos., which can buy more discount designer merchandise than before -- a typical byproduct of the economic slowdown that is hurting sales at full-price stores. "The current environment is favorable in terms of availability of product," says Katie Loughnot, a Ross Stores vice president for investor relations.

There's also a chance that outlet operators might cannibalize sales at their own full-priced stores, particularly as new outlets open closer to suburban and urban malls. "The key is to not proliferate the outlets too much, and to be choosy about location," says William McComb, chief executive officer of Liz Claiborne. So far, it has closed or renovated a third of its old Liz Claiborne outlets, which he describes as "relics."

That's one reason jeans maker VF Corp., which plans to open 75 to 100 stores in the next few years, isn't planning a push into outlet malls. "We wouldn't want to drag our brands down with too many outlet stores," says Michael T. Gannaway, vice president of the VF Direct division. The company's brands include Wrangler, Lee and 7 for All Mankind jeans, Vans and John Varvatos.

To avoid hurting full-priced sales, most of the outlet divisions of retailers intentionally don't sell online. One exception is Neiman Marcus Group Inc., which has a Last Call clearance feature on its Web site.

Many retailers, including Neiman Marcus, don't break out the performance of their outlet stores. Saks Chief Executive Officer Steve Sadove said at a conference Tuesday that its Off Fifth business has the potential to deliver "outsized growth" in monthly same-store sales. Saks expects its overall same-store sales, including outlets, to grow by the low- to mid-single digits in the first half of this year.

At Simon's Chelsea outlet malls, "we are still on a positive track" with "no meaningful weakness in tenant demand or in the shopper," says Leslie T. Chao, chief executive officer of Chelsea Property Group.

Outlet centers in New York, Las Vegas, Texas and Seattle have seen "sizable gains" in sales, thanks to the weaker U.S. dollar and an influx of foreign tourists, he notes. But even in other markets "we are holding our own" -- with outlet malls sales flat or slightly up so far, he says.

Even Talbots Inc., which plans to close its 78 children's and men's apparel stores by September, said this month it will open as many as 40 upscale factory stores in premium outlet malls in the next three years. Talbots currently has 25 clearance centers -- locations that Linda Humphers, editor-in-chief of Value Retail News, an outlet-industry magazine, describes as "totally dismal." The new upscale outlet stores will carry merchandise specifically made for them, Talbots says.

Source: Wall Street Journal