A walk through a typical Saks Fifth Avenue store a year ago would have revealed holes in the cosmetic cases where lipsticks were out of stock. Basic men’s dress shirts were often sold out. And forget about finding a size 34B bra.
Like a glamour girl determined to subsist on the fewest possible calories, Saks – in an effort to show improved financial results – was literally starving its stores of merchandise.
For a business that depends on tempting busy shoppers with everything from the right shade of lipstick to the perfect cocktail dress, the strategy proved disastrous.
The inventory debacle is just one of several initiatives favored by prior management that Stephen Sadove, who was named chief executive in January, has reversed in yet another attempt to revive the fortunes of Saks.
As the third CEO to lead the fabled department store chain in as many years, Sadove is under pressure to finally deliver a turnaround.
Though it is still early, initial results are encouraging.
Prompted by strong sales growth at stores open at least a year in August and September – October results are due today – analysts at Thomson have raised their earnings estimates for the third quarter to 2 cents a share from break-even.
Skeptics charge that Sadove is using promotions like a “friends and family” discount, to drive sales.
“Our goal is to improve earnings and margins over the next three to four years,” Sadove said. “Nobody is thinking in terms of getting a quick hit.”
More than the numbers, there is a buzz about Saks in the marketplace that hasn’t existed in years. Vendors, who in the past privately aired grievances, now sing the company’s praises.
“There was not a clear strategy before, but now they have one,” said Peter Kriemler, president of Akris.
Inside the company, morale is improving now that the executive suite has slimmed down. A year ago, five people had a say in Saks’ strategy, often creating confusion. Today, that strategy is spearheaded by Sadove and Ron Frasch, the chief merchant. “There is less internal politics, and more straight talk,” designer Elie Tahari said.
Under ex-CEO Fred Wilson, Saks turned off its core shoppers of 40-something women, many of them conservative in their tastes, to snare an edgier, more luxurious image.
Sadove has toned down the marketing and reinstated Saks’ private label and petites clothing.
As for the company’s place in the world, it no longer tries to compete with Bergdorf Goodman, but is instead pursuing what Sadove calls a “good, better, best” strategy.
The shift has required Saks to repair some damaged relationships. During its push upmarket, Saks had scaled back on certain brands such as Coach. Un able to secure the floor space it wanted in Saks stores, Coach pulled out of a majority of loca tions, sources said.
Sadove has been meeting with Coach execs “about how to get back on track, including a significant Coach presence in the Fifth Avenue store,” one source said.
Another hallmark of the Wilson era was a zealous focus on inventory reduction, so much so that half of a store buyer’s compensation was tied to the measure. Stores were often out of stock on key items.
Sadove refocused buyers on the need to fill stores with the right merchandise to drive sales. “We’d gone too far to one extreme,” he said.
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Model rehab
Key to Saks recent turnaround has been CEO Stephen Sadove (inset) reversing predecessor Fred Wilson’s policies.
Current strategies include:
* Making sure stores have the right inventory
* Reinstating private label and petites
* Patching up relationships with brands, such as Coach
* Doing away with infighting
SAKS – Close $36.81 (-46 cents)