Stephen I. Sadove, chairman and chief executive of Saks, in the New York City store on Nov. 10, 2009. "We're out of stock on a number of hot items people want," said Sadove. (NYT image)
New York:
All around Saks Fifth Avenue, merchandise is sold out. The $2,520 Marni shearling vest? Gone. The $5,295 Brioni leather bomber jacket? Only one left. The $1,995 over-the-knee, Christian Louboutin boots?
"All gone, except for this," said Nick Passerelli, a Saks employee, dangling a size 11 boot from his fingers.
After a brutal year in which the nation's luxury retailers were forced to offer their wares at stunning discounts, they are trying to get their magic back. And they may have found a way: deliberately running low on merchandise.
Saks, the posh Manhattan department store, is a prime example. Its inventory is down by double digits compared with last year. That is partly a response to lower demand, of course, but it is also a business strategy designed to wean consumers from deep discounts. By carrying fewer goods and selling them at full price, Saks is essentially telling customers: Buy it now or live without it.
"Upscale stores want to train the customer that luxury equals exclusivity and that they cannot assume they can wait and they're able to buy it on sale," said William S. Taubman, chief operating officer of Taubman Centers, a mall developer and owner.
This less-is-more strategy is risky, of course. If retailers sell out of goods too soon, they will lose profits they need. But they think it is even riskier to stock up too much.
This time last year, purveyors of high-end goods were drowning in merchandise. Consumers had stopped spending amid the economic downturn, forcing stores to cut prices sharply to unload designer goods. At 50 or 70 percent off, once-pricey stilettos and suits flew off the shelves.
But the discounts prompted some consumers to wonder what those items were really worth in the first place. And to the distress of retailers, shoppers began to feel entitled to those eye-popping discounts - not just at big-box stores like Wal-Mart and Kohl's, but at Saks and Neiman Marcus, too.
Now, as the economy stabilizes, luxury retailers are taking measures to stamp out discount fever.
They have significantly cut their inventories and are trying, with some early success, to sell their wares at full price. Both Saks and Neiman Marcus have gently told customers that there are fewer goods to go around this year.
Burton M. Tansky, president and chief executive of the Neiman Marcus Group, does not think he is retraining consumers. Rather, he said, he is doing what is best for the health of his company.
"We've told our customers that the availability is less than they're used to seeing in the stores," Tansky said. "We've suggested that it would be prudent to shop early."
If a particular item sells out at Neiman Marcus, the ability to restock the shelves will depend on the merchandise category. In general, though, lead times for manufacturing luxury goods are long.
"As you go up the ladder to European designers, it's virtually impossible," Tansky said. "But in contemporary apparel, women's shoes, it's possible."
Saks, too, has told customers its inventories are lean.
"We're out of stock on a number of hot items people want," Stephen I. Sadove, chairman and chief executive, said this month as he walked through the sprawling shoe department at Saks in Manhattan. "Our associates are telling people 'If you want this item in your size, we only have three of them, we only have two.' "
That strategy might be working. "I've been running out of sizes because I'm selling out," said Lera Alexkseyeva, a Saks employee who sells clothing by Brunello Cucinelli. Saks bought 21 gray cashmere and fox fur jackets designed by Cucinelli in the medieval village of Solomeo, Italy. All but one jacket sold out - at $2,695 each.
A big question this Christmas will be how successful retailers are with the strategy. Some surveys have found that, so far, the prospect of lean inventories is not prompting consumers to hasten their holiday shopping. Shoppers could wait out the retailers until late in the season, in the hope that they will panic and put high-grade merchandise on sale.
"Bargains seemingly may matter more than selection for the consumer," Michael P. Niemira, the director of research and chief economist for the International Council of Shopping Centers, said in a news release this month.
Regardless of when consumers choose to shop, retailers are glad to have a better handle on customer demand.
Speaking about the luxury market, Peter E. Nordstrom, executive vice president and president of merchandising for Nordstrom, said "the business might not be exactly where we want it, but it is relatively stable."
Nordstrom has always had a wider range of prices than Saks and Neiman Marcus, and so has less need to hit the reset button with shoppers. The chain weathered the downturn better than its competitors. And while it has less inventory than last year, Nordstrom said when it came to Christmas, "we think we're going to have enough."
Saks came in for sharp criticism from designers last year for the magnitude of its discounting. Sadove is being aggressive this year about managing inventory, and acknowledged the possibility of not having enough merchandise even for customers willing to pay full price.
"I think we in the industry may go too far and cut back too much," he said. "You're going to lose some sales. And that's OK versus having too much and having to sell it at these very high markdowns."
In fact, chains said they were selling more merchandise at full price today than they were a year ago. And while the stores will not reveal exact numbers, they say a reason their earnings are improving is that they are selling a higher proportion of goods at full price. This month, Saks posted a profit for the first time in months, and Nordstrom said its profit rose as well. Neiman Marcus will report its earnings in December.
While there will be sales this season, as there are every year, most analysts are predicting they will be less drastic than last year.
That is good news for tony chains that suffered after years of giddy, double-digit growth fueled by easy credit. While those days are gone, for now at least, some industry veterans say luxury retailing will thrive again by returning to its roots.
"What's luxury retailing about?" Sadove said. "It is about a scarcity of supply."
"All gone, except for this," said Nick Passerelli, a Saks employee, dangling a size 11 boot from his fingers.
After a brutal year in which the nation's luxury retailers were forced to offer their wares at stunning discounts, they are trying to get their magic back. And they may have found a way: deliberately running low on merchandise.
Saks, the posh Manhattan department store, is a prime example. Its inventory is down by double digits compared with last year. That is partly a response to lower demand, of course, but it is also a business strategy designed to wean consumers from deep discounts. By carrying fewer goods and selling them at full price, Saks is essentially telling customers: Buy it now or live without it.
"Upscale stores want to train the customer that luxury equals exclusivity and that they cannot assume they can wait and they're able to buy it on sale," said William S. Taubman, chief operating officer of Taubman Centers, a mall developer and owner.
This less-is-more strategy is risky, of course. If retailers sell out of goods too soon, they will lose profits they need. But they think it is even riskier to stock up too much.
This time last year, purveyors of high-end goods were drowning in merchandise. Consumers had stopped spending amid the economic downturn, forcing stores to cut prices sharply to unload designer goods. At 50 or 70 percent off, once-pricey stilettos and suits flew off the shelves.
But the discounts prompted some consumers to wonder what those items were really worth in the first place. And to the distress of retailers, shoppers began to feel entitled to those eye-popping discounts - not just at big-box stores like Wal-Mart and Kohl's, but at Saks and Neiman Marcus, too.
Now, as the economy stabilizes, luxury retailers are taking measures to stamp out discount fever.
They have significantly cut their inventories and are trying, with some early success, to sell their wares at full price. Both Saks and Neiman Marcus have gently told customers that there are fewer goods to go around this year.
Burton M. Tansky, president and chief executive of the Neiman Marcus Group, does not think he is retraining consumers. Rather, he said, he is doing what is best for the health of his company.
"We've told our customers that the availability is less than they're used to seeing in the stores," Tansky said. "We've suggested that it would be prudent to shop early."
If a particular item sells out at Neiman Marcus, the ability to restock the shelves will depend on the merchandise category. In general, though, lead times for manufacturing luxury goods are long.
"As you go up the ladder to European designers, it's virtually impossible," Tansky said. "But in contemporary apparel, women's shoes, it's possible."
Saks, too, has told customers its inventories are lean.
"We're out of stock on a number of hot items people want," Stephen I. Sadove, chairman and chief executive, said this month as he walked through the sprawling shoe department at Saks in Manhattan. "Our associates are telling people 'If you want this item in your size, we only have three of them, we only have two.' "
That strategy might be working. "I've been running out of sizes because I'm selling out," said Lera Alexkseyeva, a Saks employee who sells clothing by Brunello Cucinelli. Saks bought 21 gray cashmere and fox fur jackets designed by Cucinelli in the medieval village of Solomeo, Italy. All but one jacket sold out - at $2,695 each.
A big question this Christmas will be how successful retailers are with the strategy. Some surveys have found that, so far, the prospect of lean inventories is not prompting consumers to hasten their holiday shopping. Shoppers could wait out the retailers until late in the season, in the hope that they will panic and put high-grade merchandise on sale.
"Bargains seemingly may matter more than selection for the consumer," Michael P. Niemira, the director of research and chief economist for the International Council of Shopping Centers, said in a news release this month.
Regardless of when consumers choose to shop, retailers are glad to have a better handle on customer demand.
Speaking about the luxury market, Peter E. Nordstrom, executive vice president and president of merchandising for Nordstrom, said "the business might not be exactly where we want it, but it is relatively stable."
Nordstrom has always had a wider range of prices than Saks and Neiman Marcus, and so has less need to hit the reset button with shoppers. The chain weathered the downturn better than its competitors. And while it has less inventory than last year, Nordstrom said when it came to Christmas, "we think we're going to have enough."
Saks came in for sharp criticism from designers last year for the magnitude of its discounting. Sadove is being aggressive this year about managing inventory, and acknowledged the possibility of not having enough merchandise even for customers willing to pay full price.
"I think we in the industry may go too far and cut back too much," he said. "You're going to lose some sales. And that's OK versus having too much and having to sell it at these very high markdowns."
In fact, chains said they were selling more merchandise at full price today than they were a year ago. And while the stores will not reveal exact numbers, they say a reason their earnings are improving is that they are selling a higher proportion of goods at full price. This month, Saks posted a profit for the first time in months, and Nordstrom said its profit rose as well. Neiman Marcus will report its earnings in December.
While there will be sales this season, as there are every year, most analysts are predicting they will be less drastic than last year.
That is good news for tony chains that suffered after years of giddy, double-digit growth fueled by easy credit. While those days are gone, for now at least, some industry veterans say luxury retailing will thrive again by returning to its roots.
"What's luxury retailing about?" Sadove said. "It is about a scarcity of supply."
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