Saks holds a secret sale online, takes on the fashionista websites
According to the Wall Street Journal, Saks Inc. (SKS) is experimenting with online private sales on top-of-the-line designer goods. A 36-hour sale kicked off this week and another will follow in November.
It's no secret that luxury retail has been struggling this year. Barneys New York is trying to avoid a second trip to bankruptcy court and Neiman Marcus has scaled down its notoriously extravagant holiday catalog in a recession concession. Saks CEO Steve Sadove acknowledged his stores have trimmed back prices somewhat, because even the rich are on a budget these days.
But what's really driving Saks's move online is the rise of fashionista sites like Gilt.com, RueLaLa.com, Billion Dollar Babes and others. These sites run limited-time sales of top designer merchandise for members only and are one bright corner in the luxury market this year.
It's basically a high-tech twist on the old-fashioned invitation-only sample sale, but the market is maturing, acquiring better merchandise and investor attention. According to the annual Bain & Co. luxury market survey, online sales of luxury goods will rise 20 percent this year -- and it's only three percent of total luxury sales, so there's plenty of room to grow.
The day before Saks opened its sale, e-commerce firm GSI Commerce Inc. announced it had agreed to buy Retail Convergence, the parent of RueLaLa, in a deal that will be worth up to $350 million.
The sites are popular with designers, who'd rather have their goods sold there than hung in clearance racks at department stores. Designers know their brands are their currency and they are very wary about cheapening them; it's a constant point of friction between designers and department stores. That's why you'll never find Hermes sold off-price.
Meanwhile, luxury department stores continue to struggle with the recession. The surge in the stock markets has given them all hope, but no one is expecting a blowout holiday for luxury retail this year. Nearly every forecast says shoppers will stay frugal, no matter how much encouraging economic news they hear. That plays into the secret sales, too; if conspicuous consumption is still seen as unseemly, shopping online is one way around it.
That puts luxury retailers in a bind; they have to respond to the frugality in the short term, but protect their image for the long haul. They've responded by ceding part of the fight and focusing more on private labels at the lower-priced end and exclusive designer lines at the high end.
"Retailers are creating value for the new luxury shopper, (but) the way they are defining value is different than how they would have viewed value a year ago," said D'Anna Hawthorne, strategy director of Miller Zell, an Atlanta-based retail consulting firm.
While discussing a study that shows only some thrifty behaviors will survive the recession, Hawthorne and the study's authors agreed that price-cutting will only hurt luxury retail. So stores will have to get creative to satisfy the demand for bargains while protecting their images.
That also works in favor of invitation-only sales: They let Saks maintain an aura of exclusivity while offering discounts to good customers. That's no different than the salesperson who warns regular customers when that certain hot item goes on sale.
"The last thing you want to do is start cutting your price. That will denigrate what you have done to build equity up to this point," said Ray Jones, managing director of Dechert-Hampe & Co., the consulting firm that authored the study.
There are ways to give customers incentives, such as free gifts with purchase or complimentary services, said Ben Ball, senior vice president of Dechert-Hampe.
"If you lose ground as a luxury retailer, you simply can't gain that back," he said. "That's key, you have to remain aspirational."