On 4/10/11, I had the esteemed privilege of meeting Steve Sadove, the CEO of Saks Inc., after his keynote address at the Retail and Luxury Goods Conference at HBS. When you meet Steve Sadove, you literally get what you see – a down-to-earth professional who knows the business of retail. In meeting him, I got a sense of a very frank and collaborative company culture at Saks.
Below are some of my notes from his address.
Saks does not have a huge international footprint. Except for some limited agreements in the Middle East and Mexico, its stores are mainly located in the US. As a high-end to accessible luxury brand, Saks is very strong in the domestic US market. Roughly 20% of its revenues come from the NY store. As you may well know, the company owns substantial real estate (i.e. its stores).
Transformation of Sales in Mr. Sadove’s Reign
Since his arrival at the helm, Mr. Sadove has initiated a lot of strategies to give the company a concentrated marketing focus. He introduced the 9-box grid system for optimizing their product mix along brands of classical, contemporary, and trendy (on rows) mixed with value propositions of good, better, and best (on columns). In his time, the company has had to weather a couple of economic downturns. In the 2008 recession, the company discounted excess merchandise by up to 70% in a bid to drive cash flow. Inventory expense and obsolescence have always been a common problem in retail. For Saks, they represent unique challenges especially because of the implications a flash discounting strategy can have on the brand’s perception.
View of Retail Today
In discussing his view of retail in today’s business environment, Mr. Sadove said that it is still a challenging one. Demand is not back up to pre-recession levels, but the market is more stable now because consumers still love luxury brands. The main difference today is that they want more value for their purchases. As such, customers are spending less. The challenge for Saks is to reinforce its connections with consumers, so that they spend more of their hard earned dollars in its stores.
Lessons Learned from The 2008 Recession and Future Strategy
Mr. Sadove said that he has learned a lot for managing Saks. Top among his takeaways is never to let a good recession go to waste. His company did as well as it did in downturns by learning to aggressively control inventory and optimize the product mix (remember the nine-box grid).
Another lesson consists of controlling exactly what you can to drive growth in the business. For Saks, this means making modifications to its merchandising program, its collaboration with suppliers, and the service customers receive. The company religiously controlled its expenses and inventory to:
- ensure it was making more targeted investments in the business; and
- optimizing the mix between inventory and demand.
As far as business tactics, he taught the attendees about his team’s use of the “four-legged stool approach” for developing Saks’ strategy. The legs of the stool include: merchandising, customer experience, marketing, and expense management. Differentiation is still the company’s key strategy and it continuously tries to make it an ingrained component in its corporate culture. Saks has worked on rejuvenating the brand with creative campaigns. As an example, look below for the Fall 2010 “I’m going to Saks” campaign, which was created internally at Saks. It features graphic devices by the Pentagram design firm, which created the retro-chic Saks logo that was introduced in 2007.
Saks has also differentiated itself in delivery of the customer experience. First, it has focused its marketing budget on developing more customized/localized marketing and promotional campaigns. An example of this is its online channel, Saks Direct (in 2010, Saks Direct, Inc. was acquired by Saks Incorporated. Saks Direct, Inc. engages in online and catalog retailing). As far as developing a differentiated component of its brick and mortar stores, the company has paid some more attention to its OFF 5th brand of stores, which are loft-type stores focused on providing savvy shoppers with the most coveted designer clothing and accessories at an incredible value.
Opportunities for MBAs
Since this event was sponsored by the HBS Retail and Luxury Club, Mr. Sadove spoke to the issue of opportunities for MBAs. Currently, his company is looking for MBAs that will develop and execute new business models. The old models are not as effective anymore because it is now context, rather than core. Retail is a business where continuous innovation is necessary.
- Context defines the things that a business does to support its core. Customers do not pay a premium for context, but they will punish a business if it is not present because it is expected in the value delivery model. Examples include: security in online baking; return policies; new product warranty; etc
- Core relates to the main business characteristics that give one company an edge over its rivals. They are the things for which consumers pay a premium. Examples include: the differentiated service at customer service at Four Seasons, Estee Lauder; brand offerings at Saks, Harrods, Nieman Marcus, and other high-end luxury retailers.
- If you want to know more about Core vs. Context see the links to Geoffrey Moore at TCG Advisors
Mr. Sadove emphasized that the future of retail lies in new online and catalog business models like Saks Direct. The challenge for our generation of MBAs will be developing the delivery and service models that enhance the value communication of the Saks brand. In simpler terms how do you get customers to buy these Manolo Blahnik Risp Knotted Peep-Toe Pumps online – while delivering an experience comparable to what you get in the store? How do you develop a strategy to drive sales and margins across multiple channels, while maintaining a distinctive and differentiated brand message? I learned a lot from listening and talking to this industry leader. I hope this post helps. Let me know what you think.