Good News: Saks Fifth Avenue Is No Longer An Elitist

Saks 5^th Avenue is no longer elitist and wants to generate more business by embracing new customers. The SAKSFIRST loyalty card that previously had a $1,000 threshold for customer participation in the program is now available to anybody and the benefits start with the first purchase. That is great news.  The expanding program will reward customers with gift cards that start at a 2% level and rise to 6% for more substantial purchases. All participants in the loyalty program will receive additional benefits such as free shipping and invitations to special fashion shows.  The new rules expand the membership, and sales associates find it easier to invite participation in the program since they do not have to exclude anybody anymore.

The company recently announced results for 4Q12 and the 2012 fiscal year.  In the fourth quarter sales increased 5.6% to $978.6 Million. This year the fourth quarter included an extra selling week that boosts the percentage increase. Comparable store sales for the quarter rose only 0.7% due to the negative impact of Storm Sandy in November given the concentration of Saks stores in New York.  In the last two months of the quarter, sales were more normal again, according to management.

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For the full year, sales rose 4.4% to $3.147 Billion and comparable store sales (with one week less) also rose 4.4%.  The company currently operates 43 full line stores and 65 Off 5^th off price stores.  For the full year the company reported earnings of $62.8 Million ($0.41 per fully diluted shares).  For 2013 the plan is to add 7 new Off 5^th locations, one replacement, and 4 renovations. All new or renovated locations reflect the “luxury in the loft” format that has been well received in 27 existing stores. In addition two new full line stores are being planned.  One is a replacement store in Sarasota, FL in 2014 and a new one in San Juan, Puerto Rico in 2015.

Demand for luxury merchandise continues to be quite healthy.  The Saks Fifth Avenue store has always welcomed many European visitors, and while traffic from western and central European clients has slowed, Russian, Brazilian and Chinese tourists are picking up at least some of the slack.   In addition, management has worked hard to develop private label fashion merchandise that will appeal to a more value-oriented customer.

There are many new initiatives underway designed to attract new customers. The company is overhauling its merchandise, finance and human resources systems in a program called Project Evolution. With the help of Oracle, antiquated systems are being replaced and should have a great benefit for internal communications.  In addition, the company is busy developing an omnichannel program so that merchandise can be delivered to customers faster and with more certainty.  Using IPads on the selling floor, associates can obtain merchandise from other stores for their customer if it is no longer available in the original store.  Similar to other retailers, Saks is growing nationally and internationally through strong Internet sales.

These initiatives are significant and strategically important to keeping Saks competitive and relevant in a modern retail landscape.   I am impressed that Saks, at only 11% of Macy’s size, is implementing some of the same dynamic strategies.  As a result of these investments, I believe the early part of 2013 will be difficult for earnings at Saks, but I see the benefits as long lasting.   Moreover, by the end of the 2013 fiscal year I expect we will see the first benefits of these many operational, service, and merchandise initiatives.

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