Saks Holdings Inc.

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Saks Holdings Inc.

also known as: saks fifth avenue founded: 1924

Contact Information:

headquarters: 12 e. 49th st.
new york, ny 10017 phone: (212)940-4048 fax: (212)940-4299

OVERVIEW

Since its beginning in 1924, Saks Fifth Avenue has grown to the top of the line in fashion retailing. As of 1998, Saks operated more than 90 full-line and smaller stores, including several Off 5th outlet stores. In its retail outlets, Saks offers men's and women's clothing, accessories, gifts, and home furnishings. Saks also sells by mail order through its Folio catalogs. It has added personalized services and launched the Fifth Avenue Club, a private shopping area where members are assisted by a personal shopper, who gathers clothing and accessories to be tried on when visiting a Saks store.

With many prestigious locations, including Bal Harbour in Greater Miami and Beverly Hills, Saks Fifth Avenue has developed a strong following among women in the 40-55 age group. The company also focused on the market for special sizes, including petites and Salon Z for larger women.

In the latter half of the 1990s, Saks was moving aggressively to expand its Off 5th chain of discount outlets, from 2 in 1993 to more than 40 by mid-1998. Analysts, however, worried that the effect of the outlet stores would dilute Saks' upscale image and divert managers from concentrating on the core full-line store business.

Saks Fifth Avenue has been bought by Proffitt's, the nation's fourth-largest department store chain with 230 stores in 24 states, mainly in the South and Midwest. The acquisition was announced on July 5, 1998. Proffitt's will keep its headquarters in Birmingham, Alabama, but will change its name to Saks Inc. The all-stock deal valued Saks at $2.1 billion.

COMPANY FINANCES

Saks Holdings posted net earnings of $344 million on revenue of $2.19 billion in the fiscal year ending January 31, 1998. This compared with net income of $24 million on revenue of $1.95 billion in fiscal 1997. In fiscal 1996, the company reported a net loss of $64 million on revenue of $1.69 billion, compared with a loss of $10 million on revenue of $1.42 billion in fiscal 1995. Sales in Saks' full-line stores accounted for 84 percent of total revenue in fiscal 1998, followed by sales at Off 5th outlets with 12 percent of total revenue and Folio catalog sales at 4 percent.

ANALYSTS' OPINIONS

In the first half of 1998, several analysts expressed confidence in the outlook for Saks, underlining their optimism with buy recommendations. Among those looking for a strong performance were Thomas Tashijan, an analyst with NationsBanc Montgomery Securities; Bruce Missett of Morgan Stanley, Dean Witter; and Kimberly Walin of Furman Selz.

In his late January report on Saks, Tashijan said the company appeared well positioned in the high-end market and could be expected to benefit "from the strong domestic economy, increasing disposable income, and high consumer confidence." In a March report, Missett wrote that Saks, as a dominant luxury goods retailer, was expected "to benefit from the continuing wealth effect in the United States. The company is also seen as having long-term growth opportunities in its full-line and other stores." Citing the company's "good operating momentum," Walin in May predicted earnings growth of 25 percent over the next five years.

HISTORY

In 1841 Adam Gimbel, grandfather of one of the founders of Saks Fifth Avenue, was a 16-year-old Bavarian immigrant who made his way northward along the Mississippi River selling hairpins and other accessories. The next year, he opened his own store in Indiana, which proved to be quite successful. As time progressed, Gimbel brought his family into the business. His children opened stores in other locations, including Milwaukee in 1887 and Philadelphia in 1894. In 1910 Adam's grandson, Bernard, opened a store catering to lower middle-class customers, locating it near the already well-established Macy's in New York City's Herald Square.

In 1924, Gimbel joined forces with Horace Saks, who had been a successful merchant since 1867, and opened the first Saks Fifth Avenue store. The store catered to an upper-class crowd and was one of the first retailers to move uptown. In 1926 Saks died suddenly, and it was at that time that his assistant, Bernard's son Adam Gimbel, was named president. One of the first decisions Gimbel made as president was to create smaller specialty stores within the main store and remodel them in an "Art Moderne" style, which had been popularized by the 1925 Paris Exposition. Along with his wife Sophie, a fashion designer, Adam brought the store great success with the carriage trade. It soon became the most profitable fashion specialty store in the United States. Gimbel was at the helm of the store for more than four decades and was known as a caring employer who traveled the world looking for exclusive merchandise.

In 1953 Bruce Gimbel, who was the only one of Bernard's five children to enter the business, was named president of Gimbel Bros., which owned Saks Fifth Avenue. He expanded operations, and by 1969, there were 28 Saks stores in 16 states. With this growth, however, the company began experiencing severe problems. In 1973 Bruce welcomed an offer from the U.S. subsidiary of British-American Tobacco. BAT remodeled Saks' flagship store in 1978, and by 1987, BAT announced a $300 million expansion plan. To avoid an unsolicited takeover bid, BAT announced in 1989 that it would sell Saks along with some of its other U.S. retail operations, including Chicago retailer Marshall Fields. In 1990, after reviewing several offers, BAT sold Saks for $1.5 billion to Investcorp, a Bahrain-based investment group that also owned Gucci and Tiffany.

Saks Fifth Avenue opened its first outlet store in 1992. (It became Off 5th in 1995.) Also in 1995 the company opened Saks West, the largest store in Beverly Hills. This was done in an effort to expand its markets on the west coast. The company's primary interest had been on the east coast, but it felt the expansion would be beneficial. It also planned to open outlets in Florida and Texas. The company went public in 1996, at which time it became known as Saks Holdings. Saks continued to expand its full-line and Off 5th stores, and in 1996 began testing "Main Street," a smaller market for local shopping areas in affluent suburbs.

In mid-1997 Saks withdrew its $290 million bid to acquire New York-based apparel retailer Barney's, saying it had decided the 13-store chain was not worth that much. Barney's, which operated large clothing stores in New York, Chicago, and Beverly Hills as well as six smaller specialty shops, was in bankruptcy proceedings at the time and had announced plans to close 4 of its 13 stores.

STRATEGY

From the very beginning, Saks Fifth Avenue was designed to be the nation's finest specialty store. Saks was the first major retailer to move uptown in New York City away from the cluster of department stores at Herald Square, and its presence there impressed consumers who were in search of quality merchandise. New Yorkers were lured by windows that displayed luxury items ranging from a $1,000 raccoon coat to a $3,000 pigskin trunk. On its opening day in 1924 the store was packed with curious shoppers.

Saks has always tried to be an innovator in the retailing industry. In the 1920s the store offered riding clothes and automobile robes along with bar supplies during Prohibition. In the 1930s the store began to sell ski clothing and accessories, as well as a slide complete with artificial snow. Saks also prided itself on selling apparel from the world's top designers from around the world. It was this idea that made the phrase, "Very Saks Fifth Avenue," a trademark for the finest men's and women's clothing. The company continued to enhance its image, and by the 1990s was providing its customers with the best merchandise available. It also responded to the customer's needs by providing the finest service and continuing relationships with world famous designers. Saks held its place in the retailing industry as an international icon for quality, fashion, and service. It was among the first major retailers to add designer boutiques within its larger department stores.

FAST FACTS: About Saks Holdings Inc.

Ownership: Saks Holdings is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: SKS

Officers: Philip B. Miller, Chmn. & CEO, 57, base salary $1,800,000; Brian E. Kendrick, VChmn. & COO, 43, base salary $1,100,000

Employees: 15,636

Chief Competitors: Major competitors of Saks Fifth Avenue stores include: Ann Taylor; Barneys; Carson Pirie Scott; Christian Dior; Benetton; Dayton Hudson; DFS Group; Dillard; Donna Karan; Federated; The Gap; Gucci; Harcourt Genera; Hartmarx; J. Crew; Jacobson Stores; Jones Apparel; Liz Clai-borne; Loehmann's; Marks and Spencer; May; Mercantile Stores; Nordstrom; Polo/Ralph Lauren; Talbots; and Tiffany.

INFLUENCES

In an effort to strengthen its merchandising strategy, Saks in January 1998 drafted Jeanne B. Daniel, who was executive vice president of merchandising and marketing at Tiffany & Co., to assume responsibility for all aspects of the company's merchandising and fashion initiatives. In order to free himself to work more closely with Daniel, Saks CEO Philip Miller transferred some of his responsibilities for the direct supervision of the company's Off 5th and Folio divisions to COO Brian Kendrick.

In announcing her appointment, Miller said: "Ms. Daniel's merchandising acumen, product development expertise, both domestically and internationally, and understanding of our customer will empower her to lead Saks' seasoned merchandising team and build upon the company's franchise position as a premier fashion authority."

CURRENT TRENDS

Founded in New York City, Saks for many years operated almost exclusively on the east coast. In recent years the company has moved aggressively to stake out prime retailing space on the West Coast, while continuing to build its presence in Florida and Texas. In all its stores, it took steps to appeal to women in the 40-55 age group, a market segment that had proven most successful for the company.

Saks began its move into the West Coast market in 1994 with the purchase of four I. Magnin stores. A year later, with a great deal of fanfare, the company opened Saks West, the largest store in Beverly Hills, California.

In 1997 and 1998 the company opened a number of new retail outlets in Texas, an effort expected to more than double Saks' presence in that market by the end of 1998. The company opened a 210,000 square foot full-line store, the second largest in the Saks chain, at Houston's Galleria Mall in the second half of 1997. In 1998, the company was scheduled to open a new 175,000 square foot store in the Dallas Galleria to replace a smaller existing store and to expand its existing full-line store in San Antonio. In July 1998 word came of an expansion of the Chicago Michigan Avenue store, adding a new 30,000 square foot freestanding men's store scheduled to open in the fall of 1999.

In late 1997 Saks Holdings announced plans to open its first full-line store outside the continental United States. The company unveiled plans for a 150,000 square foot store in Honolulu, Hawaii, which was expected to open in the fall of 2001. The Saks store will anchor a proposed 800,000 square foot retail and entertainment complex to be developed jointly by Victoria Ward Ltd., a Hawaii-based real estate company, and Simon DeBar-tolo Group.

PRODUCTS

In its Saks Fifth Avenue full-line stores, the company offers a wide variety of merchandise, including men's, women's, and children's clothing, fashion accessories, cosmetics and fragrances, shoes, jewelry, and gifts. Many of Saks' full-line stores include designer boutiques featuring the fashions of Anne Klein, Bill Blass, Brioni, Calvin Klein, Chanel, Donna Karan, Armani, Gucci, Hugo Boss, Oscar de la Renta, Ralph Lauren, Valentino, and Yves Saint Laurent.

Saks' discount chain of Off 5th outlets feature regular Saks Fifth Avenue merchandise at deeply discounted prices, while the company's Folio direct mail catalog offers women's clothing and accessories, gifts, and home furnishings.

CHRONOLOGY: Key Dates for Saks Holdings Inc.

1924:: Bernard Gimbel and Horace Saks open the first Saks Fifth Avenue store
1926:: Adam Gimbel takes over the store and remodels the stores into small specialty stores within the main store
1973:: British-American Tobacco Company buys Gimbel Bros., the owner of Saks
1990:: British-American Tobacco sells Bimbel to Investcorp
1992:: Saks opens its first outlet store called Off 5th
1995:: Opens Saks West
1996:: The company goes public and changes its name to Saks Holdings

GLOBAL PRESENCE

All of Saks Holdings retail operations are within the United States. As of mid-1998 the company had no announced intention of opening retail outlets outside the country.

SOURCES OF INFORMATION

Bibliography

bongiorno, lori. "is saks fraying at the seams?" business week, 22 september 1997.

"saks announces 38.5 percent increase in 1996 operating income and 142.1 percent increase in pro forma net income." market guide news, 1997. available at http://www.marketguide.com.

"saks announces plans to open new store in honolulu, hawaii." business wire, 11 november 1997.

"saks fifth avenue expands into texas with the opening of the houston galleria full-line store." business wire, 11 september 1997.

"saks holdings announces expansion of chicago flagship store." business wire, 27 july 1998.

"saks holdings withdraws bid for barney's." los angeles times, 8 july 1997.

"saks holdings, inc." hoover's online, march 1998. available at http://www.hoovers.com.

steinhauer, jennifer. "saks planning stock offering and growth in outlet stores." new york times, 15 march 1996.

sutel, seth. "proffitt's to buy saks fifth avenue." associated press, 5 july 1998.