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NRF 2023: Saks OFF 5TH CEO Foresees Smooth Sailing for Off-Price Despite ‘Choppy’ Economic Waters

As other retailers brace for the impact of a looming recession, Saks OFF 5TH, has a rosier outlook.
Paige Thomas, President and CEO of Saks OFF 5TH (right) speaks with Melissa Repko of CNBC.com at the NRF Big Show. Source: NRF

The mood on the street these days could generally be described as gloomy. But as other retailers brace for the impact of a spending slowdown and looming recession, Paige Thomas, President and CEO of Saks OFF 5TH, has a rosier outlook.

The segment she plays in — off-price — is a big factor in her positivity, as is the fact that Saks OFF 5TH serves a relatively affluent customer within that segment. “Off-price has tended to be a bit insulated across the board,” said Thomas at a session during the NRF Big Show on Jan. 15, 2023. “We’ve done a lot of work on understanding what happened in the 2008 time period [the last major economic recession], and off-price was more of a ‘U’ — it doesn’t go down as far, and it comes back quicker versus a ‘V’ rebound. I think the off-price industry will [fare] well in this volatile environment. Also, our ‘bullseye’ customer is a high-earning individual — they’re not as price-sensitive or [tied to the] restraints of a weekly paycheck — so I feel like we’re in a really good position to keep winning.”

But while off-price certainly has inherent advantages during challenging economic periods, Thomas pointed out a few other factors that bode well for the sector in general, and Saks OFF 5TH in particular, including:

  • The unique buying cycle of off-price means the sector can be more agile and reactive to trends and consumer demand;
  • The current inventory overload that is putting pressure on most retailers is actually an opportunity for off-price; and
  • Saks OFF 5TH has invested in a number of customer experience improvements, most notably in ecommerce, which the company expects will eventually become a larger piece of the business than its stores.

Focused on Being ‘Conservative and Agile’

“I do think that coming into 2023, the first half will be more challenging than the second half,” predicted Thomas. Her response to that? Advising her team to be “a little bit more conservative and chase the business as we see it.”

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Unlike in other sectors, off-price has the opportunity to “chase the customer,” said Thomas, explaining that “we’re not having to make these decisions six to 12 months in advance. We can monitor that consumer behavior and respond to it in a much more agile, in-season way, and that really bodes well for us over time.

That’s particularly helpful, because at the same time Thomas said “the trend lines are happening so much faster than what I experienced growing up as a merchant, and a lot of it comes back to social media.”

“The greatest strength and differentiation that we have is our buying model to actually see what’s happening and make a decision for next month or next quarter and remain liquid in our financial decisions so that we can respond quickly,” she added. “Winning in off-price is really all about the chase. When we don’t stay in that position [of following consumers’ lead], we hurt ourselves.”

As an example, Thomas pointed to the luggage business. “When you think about going into the global pandemic, I mean talk about the crash of the category — nobody was traveling, nobody was moving, the planes were empty. And then as quickly as it dropped, it came back, so that is definitely a category we’re chasing [right now].”

One Retailer’s Excess is Another Retailer’s Treasure

Traditional retailers’ excess inventory woes have been something of a good news/bad news development for off-price. On the one hand, competition has increased, with Thomas noting that full-price players “were in our sandbox a little bit” as discounts ramped up markedly during the recent holiday season.

On the other hand, “the inventory levels actually end up playing out very, very well for us over time,” noted Thomas. “From a buying perspective, that excess inventory creates a really unbelievable environment for our teams to pick and choose the best of the best.”

The key for Saks OFF 5TH is to stay focused on their own specific “value equation,” said Thomas, which is a combination of value and in-demand brands. For example, during the holidays the retailer ran a flash sale strategy with brands like YSL and Golden Goose that Thomas said was very successful.

Differentiate on Customer Experience

Thomas was careful to note, though, that it’s not all about price. “If we rely entirely just on the price equation then we start to battle in places that are not sustainable,” she said. “So we think about our core customer and what matters to them — that’s really the entire shopping experience, and that’s how you can really differentiate yourself.

Over the course of the last two years, Thomas said her company has invested significantly in adding new capabilities and enhancing its customer experience through:

  • The launch of a mobile app in 2021;
  • The debut of a new loyalty program in spring 2022 that already has more than half a million members;
  • Diving into resale through partnerships with LXR, Rent the Runway and several other brands, with more to be added this year; and
  • A number of improvements to the company’s ecommerce offering, enabled by a $200 million investment from Insight Partners in June 2021.

Most of these improvements have been tech-enabled, according to Thomas, and none more so than at the ecommerce division, which now operates as an independent entity, separate from the store side of the business.

The company has experienced a decade of double-digit growth in its dot.com division, including in 2022, and Thomas expects that to continue with the new investment. “We had a distorted online business,” Thomas shared, explaining that while penetration and sales were good and growing, the experience itself wasn’t really up to par. “We were performing in spite of ourselves.”

Now the company is taking Insight Partners’ cash injection and investing in the people, marketing and tech needed to ramp up its digital offering. As a result, Thomas said that “while our store business is growing as well, we absolutely have line of sight and a roadmap that our ecommerce business will eventually be larger than our brick-and-mortar business.”

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