Saks Off 5th is a great place to find great deals on top-quality merchandise. The story behind the outlet’s expansion is fascinating and a great way to examine how corporations adapt to change.
As written the New Yorker’s 2013 article “The End of Saks as
We Knew It,” the 2008 financial crisis had much of the same effect on Saks as
the Great Depression of the 1920s. The Great Recession caused a huge drop in
luxury retail sales. Luxury retailers lost a substantial amount of their
customer base during the Great Recession. In Q4 2008, retailers turned in the weakest
sales figures in 35 years. Luxury goods were the first things customers
sacrificed. In 2013, The Hudson Bay company bought Saks for ~$3B including
debt.
Their solution was to expand their affiliated discount
stores to sell off the excess inventory from their flagship stores and to reach
a wider customer base. Since 2008, the number of Saks Off Fifth locations has
surpassed the number of Saks locations (110 to 40). Their competitors have also
followed suit with expansions of Neiman Marcus Last Chance, Nordstrom Rack, and
Barneys Warehouse.
Outlet stores are often as profitable if not more profitable
than full price stores. They have lower capital costs for opening (spend less money on high end architectural details and prime locations) and
significantly lower operating costs as they do not provide the same high-end,
personalized service as their full-price equivalents. You can see in the image below that the company spends much less money on high-end architectural details and presentation in its outlet stores than in its full-price stores.
