Since assuming the leadership role at the Luxury and Retail Club at the Mason School of Business, I have had the opportunity to network with executives from different segments of the luxury and retail industry. My most meaningful encounter occurred in April, 2011 when I met Steve Sadove, CEO at Saks, Inc. at the annual Retail and Luxury Conference at Harvard Business School. I kept in touch with him over the summer, and last month (Oct. 2011), Mr. Sadove (SS) spoke to me (EA) in his New York office about leadership, his company and industry, customer trends, career opportunities, and the job of CEO at a company with a market capitalization of about $1.7B (11/7/11). Below are excerpts from our conversation.

Leadership

EA: How do you approach the task of leading Saks?

SS: The most important thing is making sure that we have a very clear vision, direction and understanding about where we are trying to take the company. So we spend a lot of time on establishing the vision, articulating the strategies, and then getting alignment around the organization [on where] we want to go.

The second thing would be to make sure that we create the culture and the environment where people are going to be able to accomplish and do the things that [will] get them to where they want to go.

EA: What are the biggest obstacles in minimizing turnover at the floor level as well as aligning senior management towards the vision you have for the company? 

SS: One of the biggest challenges is finding the right people. Understand the fit and the values. You have to establish the value set of the company and [the strategies] to attracting, developing and retaining those people that fit those values. Retail is a business of relatively high turnover at the associates’ ranks, however, not at the management ranks. Retail is not a high turnover business at the management ranks, [but] more at the associate [level]. At the management ranks, you want to make sure that you are giving people personal development opportunities; and then when dealing at the associates rank, make sure that you get people to feel comfortable that there are opportunities for them to earn a good living.

Strategy & Operations

EA: Saks had good quarterly results with a 9 percent improvement in September, 2011 same-store sales. Coming off of those laurels, how can the company protect itself from drops in consumer spending, and against discount and lower-tier retailers who are attracting the value-conscious customer today?

SS: Saks competes in the luxury space so we are not competing against the lower-price value, mid-tier chains. In fact [we] see a bifurcation going on in America: the high end stores (Saks, Neiman Marcus, and Nordstrom) performing well because our customer is much more tied to the stock market versus the housing market and unemployment rates. I don’t think there is much of a correlation between the lower tier competitors and our performance.

[As for discounting], we have been going in the other direction with less discounting. Luxury goods are about limited distribution and availability, and full-price selling so we have been focusing on that. I think there is an issue with the volatility of the markets and the higher end customer, who has been responding very well over the last year (or couple of years) in terms of when  as they felt more comfortable about themselves.  As you mentioned, we had a 9 percent [improvement in same-store sales] in September, which is very strong.  As we look forward, we will be a lot more cautious. The risk is that the consumer will not trade down, but will just stop shopping as much.

EA: In your quest to drive profitability, without the pre-2008 practice of heaving discounting, how do you now handle inventory management?

SS: We are using some [discounting], but we are keeping our inventories under control. For example, as we came out of the first half of the year, our sales in the second quarter were up 13% and our inventories were up 3%. So, keeping your inventories in line and [having] current inventory is the way to minimize having to clear out a lot of product.  In luxury goods, you have a full price selling period that lasts for about four months (in a six month season) and then you go into a sale price period, which is a normalized clearing of the product. Flash sales are an emerging piece of the business that is still relatively small, but is opportunistic for us. In the end when product doesn’t clear we can send it to our OFF 5TH channel.

EA: Can you tell me about the principles or pillars that you and your management use in driving Saks’ high-level strategy?

SS: If you think about pillars being the legs of a table, [they are]: product, the selling environment, marketing, and the cost structure behind the business. The product is all about differentiated product and making sure we have a mix of “good, better, and best” within luxury. In terms of the selling environment, it is about full price selling, but it is also about service, training, and [recruiting] the right people. We have moved from 50% to 90% commission-based selling – you get a different kind of associate with that [incentive]. The marketing is all about what we call “local”. We’ve evolved to having marketing plans and marketing associates for every store. So that has transformed the kind of marketing that we do. The last [pillar] is having a cost structure that is in line [with the other pillars]. I think each pillar has been transformative in terms of the growth of the company.

EA: You mentioned using local marketing for each store. What are some of the demographic trends you have noticed that guided this strategy?

SS: Every store is different. In Boston, you have a young population driven by the university and tourism. That customer base is very different than if you went to Washington DC or Atlanta. What you need to be doing in each market is very different. In Atlanta, there is a very large African-American population and a very large Jewish population. In San Francisco, there is a large Asian population. The marketing and how you embed yourself in the community is going to be very different from one city to another.

E-Commerce vs. “Brick and Mortar” 

EA: I think it is fair to say that “brick and mortar” stores will always be a relevant part of this business (retail). How are you approaching the new business model of e-commerce?

SS: It used to be viewed as a separate business and it has been a very successful one. We saw 35% growth (in e-commerce revenue) in the first half of the year. I think that the channels are merging – customers are shopping both channels. I look at thi (brick and mortar and ecommerce?) Not solved totally yet. Customers should be able to shop both channels. Customers want to be able to get products anytime and anywhere that they want. We now have the data about our customers’ shopping behaviors across channels. We are moving towards a position where we can share inventory, so that [customers] can buy [products] online and pick it up in the store. We want to be able to get more efficiency out of inventory. I think that there is a lot to be learned in terms of the best way to manage [these channels]. In the future, you will probably see a lot more sharing, whether it is in planning, allocation, or in marketing…, but you don’t want to [hurt] the emerging indirect [channel].

Customer Trends

EA: I read an article in the Wall Street Magazine on the menswear market, which accounts for 20% of the total luxury market. Different online strategies have emerged – one on the premise that male customers know exactly what products they want… and another approach suggesting that male purchasers need some style assistance. Do you have any Insights on menswear as a future opportunity?

SS: Menswear is in the 15% to 20% range. It is growing very nicely. Some men are self-serve; and some need a lot of assistance. What we do is appeal to both [types of male consumers] with an online presence as well as [in the stores].

Career Advice

EA: What is your career advice to people (especially MBAs) who want to get into luxury goods? I have heard you say that MBAs are not the prime target [for hiring at Saks].

SS: MBAs are not the prime target. We have some MBAs… in planning and strategy, but it is not the same as going into a consumer goods company where MBAs go into a training program. Our merchant training program tends to be [occupied] more by people out of undergraduate schools, with a liberal arts background. You are more likely to see MBAs [at Saks] in planning, strategy, and finance. We don’t have a lot of MBAs in our organization.

EA: What do you look for in an applicant resume that stands out to you? 

SS: When [I] talk to people, [I] look for intellectual curiosity; people who are well-rounded and love to interact. I like people who have been in leadership positions or have been very engaged in whatever they have done. I don’t [know] if you can find [those qualities] on a resume.

Balance

EA: How do you manage your time?

SS: It’s tough. Running a multi-billion dollar company is a 24/7 job, and you are always tied to [the business] in one way or another. There are different constituencies – whether it is Wall Street, your stores, your merchants, or your vendors. You want to say “yes” to everything, but you can’t. You have to be able to balance your time wisely… and figure out where you can add value. One of the things you learn as a CEO is: if you wanted to, you could jump into every [issue], but you don’t have the time.  The most important thing you do is pick the right people and give them freedom to do their [jobs].

EA: What is your favorite pastime?

SS: Golf and reading.

EA: Thank you for your time Mr. Sadove.

SS: Thank You.