Tags
discounting, exclusive merchandie, good better best, limited distribution, luxury, saks, saks fifth ave
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:
- Does the luxury market still exist?
- 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.
Grewal Levy Marketing News 
I wonder if the luxury consumer is really back or if Saks just wants us to think that?
It surprises me that Saks has seen such a huge sales growth recently. Although we have moved past the recession of 2008, one does not go a day without hearing or reading about the nearing possibility of another recession. With the memory of the last one not even 3 years old the fact that an increasing number of people are interested in luxury consumption makes me think that people aren’t taking the possibility of another recession seriously and that is concerning.
I believe there will always be a luxury market. No matter what circumstances there will always be wealthy people trying to wear the more exclusive, higher end brands. Vendors have probably decreased their on-hand inventory and moved a lot of their products to online shopping and warehouses. This allows for much more product control and data gathering about consumer trends.
One thing that strikes me about Saks is their movement away from discounting. Since the market crash in 2008, Neiman Marcus has changed their pricing strategy, and now has many sales daily. One of the sales I frequently shop is an exclusive “Mid-day dash” where for only a couple of hours, shoppers can find items up to 70% off that are in season, all by signing up to be a part of an e-mail list. Since Neiman Marcus has instituted this type of sale, as well as an extensive portion of their web site is devoted to sale items, I wonder if Saks will ever try this same strategy. As an online shopper myself, I now shop for luxury good almost always on Neiman Marcus because I know that they will have up to date sale prices on every item. When I check Saks for comparative prices, many times the same item will not be on sale at all. Is it just me, or are some loyal shoppers of Saks switching over to shopping at other luxury department stores like Neiman Marcus, Barneys or Nordstrom that offer more sales?
I too find it surprising that Saks has returned largeley to pre crisis levels. I think that they are playing a dangerous game of being multiple levels of luxury to multiple clientele. Traditionally, I would assume that they should focus on having some lower end items thrown in with their higher end merchandise, but offering products across the spectrum eliminates in the consumers mind the idea of exclusive luxury. And that idea is why Saks is in business.
The connection between consumer expectations of their net worth for luxury brands instead of worrying about employment. This shows that luxury brands may be volatile at times, but there will always be a market for them. Even while they are struggling, their large margins should allow them to get by without going under, and during their good periods, their growth can be astronomical. Since the wealthy are always looking to indulge in luxury brands, the market should be quick to recover as expectations rise. Also their categories in terms of quality make them slightly less affected by recessions because they are more diversified and reach further down the economic classes.
Maybe luxury is back, but I do not think the luxury consumer is back. They are not flocking to Walmart, but they are flocking to find more value than just the “luxury brand.” We will have to late and see, but I think its a little early to throw a welcome back to 2006-2007 party for Saks 5th Ave.
The recession really hit hard, which has caused people to not buy the most expensive items even if they have the income to afford it. People are more interested in finding high value and quality goods at affordable prices. Right now the economy is still trying to exit the recession, which is the reason why the luxury consumer is still not back to his regular spending habits. I feel that if we give it a few more years, perhaps people will go back to their original trends once the economy stabilizes.