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Saks Fifth Avenue, the high-end department store, adopted a drastic strategy at the end of 2008 to sell the last of the season’s merchandise. Rumors swarmed that the discounting was so severe that the company would go bankrupt.

In the fall of 2008, the financial crisis had hit, and retailers were already discounting merchandise. But no one thought luxury brands would be included in this frenzy. Luxury brands typically go on sale twice per year at a modest discount.Saks Fifth Avenuestarted its 40 percent off sale in early November, but customers did not respond. For its Thanksgiving sale, it discounted all of its merchandise 75 percent off. Competitors were offering markdowns of 30–40 percent and only on select merchandise.

ButSaks Fifth Avenuepredicted that customers would not be buying at the same levels. Its CEO believes that 55–60 percent off of some merchandise might have been enough, but for apparel, the deep discounting was necessary. These discounts probably will never happen again, but the financial crisis was so unexpected, and never appeared in merchandise planning, so Saks had no choice.

Saks was able to rid itself of all of its previous season’s merchandise long before its competitors, such as Neiman Marcus and Barneys New York, so it is back to selling luxury. It is investing in its women’s collection floor space and opening a Kiton boutique where it will sell $7000 suits.

Saks is not going in blindly; it realizes that its customers are not shopping the same way. With this in mind, Saks sales associates are helping women to add wardrobe-building items to their closets and suggesting pieces that are unique and offer either a great color or design that can freshen up existing clothing collections.

Discussion Questions:

  1. Why did Saks discount its merchandise 75 percent?
  2. Will Saks have a problem restoring its luxury image?

Stephanie Rosenbloom, “As Saks Reports a Loss, Its Chief Offers a Plan,” The New York Times, February 26, 2009.