Saks to end discounts of prestige brands
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By Jonathan Birchall in New York
Published: February 25 2009 19:00 | Last updated: February 26 2009 02:33
Saks, the US luxury retailer, on Wednesday said its aggressive discounting of prestige brands would not be repeated in the year ahead but predicted falls in sales and a shift to a lower-priced mix of products.
Stephen Sadove, chief executive, compared the price cuts of up to 70 per cent that Saks rolled out in early December with the discounting produced by the slump in demand following the September 11 2001 attacks.
"Is demand going to be as high as it was? In the short term, no," he said.
"But I anticipate that if you have more of a balance between the supply and demand, it is unlikely you will see the same kind of discounting going on."
The retailer said it expected comparable store sales to fall 20 per cent in the first half and to be down in the mid to high single digits in the second half.
Yet it predicted that its gross margin rates would recover by the second half as its exceptional discounting ended.
Robert Drbul, a retail analyst at Barclays Capital, said ending the luxury customer's taste for steep discounts was "one of the biggest challenges" facing Saks.
"The customer has become accustomed to the clearance sales, the discounting, the 70 or 80 per cent off, and ending that thinking is a huge challenge," he said.
Saks reported that its network of 104 stores lost $98.8m in the Christmas quarter as its forecast of a sales increase of more than 4 per cent turned into a 15.3 per cent decline.
Mr Sadove said the retailer had had no option but to cut prices and to cancel and return orders to its vendors around the world, leading to it ending the year with inventories down about 14 per cent on a year ago.
"It was an ugly period - we ruffled some feathers," he said in a reference to the retailer's relationships with suppliers.
The discounting reduced Saks' gross profit margins to about 20 per cent from 37 per cent a year ago, a steeper drop than analysts had expected.
Saks said it was expecting its vendors to provide products at price points more in line with the current climate.
Net sales for the chain fell 14.9 per cent to $835.5m during its fourth quarter.
Its shares, which were trading above $17 a year ago, closed up 15 per cent at $2.13 in New York.
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By Jonathan Birchall in New York
Published: February 25 2009 19:00 | Last updated: February 26 2009 02:33
Saks, the US luxury retailer, on Wednesday said its aggressive discounting of prestige brands would not be repeated in the year ahead but predicted falls in sales and a shift to a lower-priced mix of products.
Stephen Sadove, chief executive, compared the price cuts of up to 70 per cent that Saks rolled out in early December with the discounting produced by the slump in demand following the September 11 2001 attacks.
"Is demand going to be as high as it was? In the short term, no," he said.
"But I anticipate that if you have more of a balance between the supply and demand, it is unlikely you will see the same kind of discounting going on."
The retailer said it expected comparable store sales to fall 20 per cent in the first half and to be down in the mid to high single digits in the second half.
Yet it predicted that its gross margin rates would recover by the second half as its exceptional discounting ended.
Robert Drbul, a retail analyst at Barclays Capital, said ending the luxury customer's taste for steep discounts was "one of the biggest challenges" facing Saks.
"The customer has become accustomed to the clearance sales, the discounting, the 70 or 80 per cent off, and ending that thinking is a huge challenge," he said.
Saks reported that its network of 104 stores lost $98.8m in the Christmas quarter as its forecast of a sales increase of more than 4 per cent turned into a 15.3 per cent decline.
Mr Sadove said the retailer had had no option but to cut prices and to cancel and return orders to its vendors around the world, leading to it ending the year with inventories down about 14 per cent on a year ago.
"It was an ugly period - we ruffled some feathers," he said in a reference to the retailer's relationships with suppliers.
The discounting reduced Saks' gross profit margins to about 20 per cent from 37 per cent a year ago, a steeper drop than analysts had expected.
Saks said it was expecting its vendors to provide products at price points more in line with the current climate.
Net sales for the chain fell 14.9 per cent to $835.5m during its fourth quarter.
Its shares, which were trading above $17 a year ago, closed up 15 per cent at $2.13 in New York.