, , , , , ,

The CEO of Saks Fifth Avenue, Steve Sadove, has a clear view of the state of the luxury consumer, one that offers an interesting perspective overall.

The luxury industry plummeted in 2008, with the start of the modern recession, but it largely has returned to pre-recessionary levels. The reason has to do with the structure of markets. Specifically, lower end markets are tied to unemployment rates, mortgage rates and availability, housing prices, and gas prices. Higher end markets instead are tied to how consumers feel about their net worth. A stock market at 6500 makes consumers feel terrible, but when it rises to 12,000, consumers feel completely differently. Understanding that different factors drive various types of consumers gives retailers important insights into the best strategy. For example, Saks has developed different levels within its assortments—good, better, and best—to appeal to different customers.

Luxury always has been entailed limited distribution and exclusivity, which also tend to require higher price points without discounts. The crisis of 2008 changed the rules of the game somewhat, making discounting necessary to reduce inventory levels that had been chosen during a period of double-digit growth. Today though, the industry, and Saks in particular, is moving away from discounts. Inventory levels at Saks have increased by 2.7 percent, in response to 15 percent sales growth. Even if consumer spending were to change again, it could manage its inventory adjustment better this time around.

Overall, Saks Fifth Avenue is focused on growing its multichannel business. Online consumers shop for specific items; in-store consumers buy head-to-toe collections. But consumers who shop in both channels are the very best customers for Saks.

Discussion Questions:

  1. Does the luxury market still exist?
  2. What adjustments have vendors made with respect to their product mix?

Elizabeth Holmes, “At Saks, It’s Full Price Ahead as CEO Pares Back Discounts,” September 12, 2011.