Source: Facebook/Saks Fifth Avenue
NRF 2021: Saks doubles down on its ‘luxury disrupted’ strategy
Marc Metrick, president and CEO of Saks, speaking yesterday during a session at the NRF Big Show’s virtual event, said the luxury department store retailer was fairly well-positioned to handle the novel coronavirus pandemic when it hit. He also said that many of the lessons learned over the months since have reinforced Saks’ strategy and the business pillars it is built on.
“The name of our strategy is ‘luxury disrupted’ because it’s about innovation and disruption,” said Mr. Metrick. “It’s about asking a question that you normally wouldn’t ask or thinking about something in a completely different way or stepping outside of your comfort zone, but innovation for me — and this is how I was raised at Saks, I started at Saks in 1995, you know — innovation starts with people. And it starts with the people in the organization and culture, and having an environment where they feel safe and comfortable with presenting ideas.”
Saks, like other retailers, has seen its sales negatively affected by the pandemic as it has been forced to close stores at times and seen reduced traffic when they reopened them. On balance, however, Mr. Metrick said sales at its physical locations “have been slightly negative” year-over-year since May but that the company has found a direct correlation between open stores and digital sales.
“Our digital business actually began to fire even more when our stores opened,” he said.
Employing a high touch approach continued to be important for Saks’ results whether stores were open or not, according to its CEO. The retailer’s personal shopper team really came through in a big way.
“We’ve put lots of technology in the hands of our associates through the peak of the pandemic,” he said. “Our stylists in our stores have generated nearly $150 million in revenue from technology, from being able to use it on websites to fulfill their customers needs before the stores were open, and then even after they were open and folks didn’t want to come in.”
Calling data “the great equalizer,” Mr. Metrick said Saks is seeking to combine the best of its high-touch approach with technology to connect its in-store and online experiences. “When they come into our store it’s about personalization, ease and — really important — don’t forget the fashion.”
Discussion Questions
DISCUSSION QUESTIONS: Do you see Saks as being on the right track for success, if the chain’s actions match its CEO’s words? What retailers, regardless of vertical, do you think are currently doing the most effective jobs connecting their in-store and online experiences?
Poll
BrainTrust
Bob Amster
Principal, Retail Technology Group
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
Based on Mr. Metrick’s comments, the Saks experience is a good illustration that “omnichannel” success is not limited to big box stores like Target and Walmart. The marriage of physical and digital retail can thrive even with a high-touch luxury business like Saks, and it certainly becomes a growth driver long after the effects of the pandemic have faded. A store like Saks needs to use digital tools to cement relationships, not merely to offer convenient logistical solutions.
That being said, I’m still curious just how much the business suffered because of store closures. (Fellow panelists, any insights?) It’s hard to imagine a retailer more dependent on its flagship store being at full strength, with a constant stream of residents, business customers and especially tourists in New York.
I’m sure their decreases were similar to Neiman’s, 40% + down
Saks has a choice today. It can go faux-luxury and support the volume it will generate, or it can stay in and maybe increase real luxury.
Trends suggest that real luxury is being replaced by alternatives. Reading in between the lines, Marc Metrick’s plan is to double down on real luxury in every aspect of the business. This may mean less brick and mortar and less customers, but I am guessing more revenue.
If they are able to achieve this vision, they will be the go-to place for real luxury and no other retailer will be able to approach their status.
Saks is in a position to regain its luster in luxury. Fewer, select stores, personalized service, elegant fashion. Put those together and they will come.
If I am going to make a luxury purchase, it is all about the experience and the actual sensory elements (touch, feel) of the product. While retailers have attempted to recreate this online, it still doesn’t completely replace that feeling which is why I think brick and mortar sales wouldn’t completely be compensated by digital sales.
As someone who has been writing, speaking and consulting about in-store and online connection (harmonization, embracing the blur) for more than a decade — and led initial efforts at Neiman Marcus 15 year ago, I can only say: congrats on catching up. Overall, Saks is taking the right actions, but there are a few issues which provide strong headwinds. First and most obviously, the pandemic largely obviates many of the buying occasions that drive high-end spending. While their comps will be easy, luxury is going to stay contracted for some time. Second, the move toward casualization may help a little, but neither Saks nor Neiman’s has been good in driving their business through increased transactions. It’s been mostly about raising prices. For that strategy to work they need to attract a lot more customers, particularly younger ones, who haven’t generally become big spenders at traditional luxury department stores. Third, the competition is intense, both from the usual suspects, but also newer models like FarFetch, Rent The Runway and their own vendors (finally) leaning into DTC. I fundamentally believe that there is too much traditional luxury department store space chasing too little spending. The best way for this business model to get back to really good returns is still likely a Saks/Neiman’s merger where real estate could be rationalized and major cost savings could be achieved.
I’ll take this a different way. Connecting the in-store and online experience is a horizontal play, irrespective of format or retail vertical. Luxury is a segmentation and brand positioning that requires focus and deep marketing finesse and spending. Mr. Metrick is okay to think of luxury disrupted, but the sequence is critical: better get the luxury “right” prior to disrupting the “how.”
Brands have no choice but to ramp up their omnichannel initiatives, that much is clear. But bringing that in-store personalized experience online is especially important for luxury retailers, whose shoppers buy from brands to engage in the luxury experience. Armani’s on-site tailoring, for example, is a good way to simulate in-store customization. Or Chanel’s “catwalk” category in their product taxonomy. Your typical connections of in-store and online will be different for luxury brands, whose audiences are varied and subject to change (especially post-pandemic).
It’s high time for Saks Fifth Avenue to recapture the luxury, exclusivity, and magic it has lost along the way. While the brand still has plenty of equity in the luxury space, as the Saks leadership team drives the right strategic moves to connect the physical and digital worlds into one experience.
Along with driving a seamless cross channel experience, the Saks leadership team has to self disrupt their operating model around what makes luxury what it is. Because it has veered too close to the middle area of retail, Saks has to make the necessary moves to become the exclusive luxury department store of choice. It will take courage, innovation, and out-of-the-box thinking to drive outstanding experience, which will drive revenues, profitability, and EBITDA, fueling even more innovation.
Fundamentally, Saks will need to de-invest in assortments and brands that do not align with this new strategy and invest in brands and experiences that will help recapture the magic.
Saks will benefit from the stumbles of its rivals (or in many cases, like Barneys and Lord & Taylor, FORMER rivals).
The bigger issue long term is what will happen if the luxury sector begins to diminish: growth requires either a growing market or a growing market share, and once one reaches a certain level, only the first option is available.
Can we get a definition on what Luxury even is today? I’m no longer sure. Is luxury a logo? A better material (cashmere, silk, etc.) A country of origin strategy (made in Italy vs. China)? A better make, i.e. more handwork, more stitches per inch. Better service? I don’t think there is a consistent definition. But I do know someone’s got a lot of explaining to do to get this customer to buy a $700 T-shirt or $1000 hoodie.