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WIKI ANALYSIS
Saks Incorporated (NYSE:SKS) sells luxury apparel, shoes, jewelry and accessories in the U.S. through its Saks Fifth Avenue (SFA), Saks Fifth Avenue Off Fifth and Club Libby Lu (CLL) stores. In fiscal 2010, SKS posted net sales of $2.786 billion and net income of $47.85 million.[1]
Saks—and most other luxury goods retailers—are relatively shielded from trends such as rising oil prices because it targets a lower-income demographic; however, luxury consumption exaggerates more fundamental up and down swings, typically rising and declining at a faster rate than the overall economy. Due to healthier U.S. economic conditions, Saks made profits in fiscal 2010, compared to losses suffered in 2008 and 2009.[1]
Company Overview
Saks owns and operates luxury retail stores, selling high-end fashion apparel, accessories and furnishings to its traditionally middle-aged, higher-income female customers.
Business Segments
The Saks, OFF 5TH and Saks Direct businesses are aggregated in one business segment.[1] SKS product categories are listed below:
- Women's Apparel: 37.5% of Fiscal 2010 net sales.[1]
- Accessories: 18.9%
- Cosmetics: 12.1%
- Men's Apparel: 15.2%
- Women's Shoes: 12.8%
- Other: 3.3%
Geographic Presence
Most of Saks stores are in the U.S., but the company does have SFA stores in Riyadh, Saudi Arabia; Dubai, United Arab Emirates, Mexico City, Mexico, Kazakhstan, and Shanghai, China.[1]
Business Growth
Fiscal 2010 (ended January 29th, 2011)
As a whole, SKS had a rebounding fiscal 2010 compared to their net losses in 2008 and 2009.
- Net sales increased 5.9% to $2.786 billion.[1]
- SKS posted net income of $47.85 million, compared with a $57.9 million loss in fiscal 2009.[1]
Trends and Forces
Luxury retail exaggerates swings in economic cycles
While luxury goods consumption is well-insulated from trends such as rising oil prices, the industry is sensitive to longer-term changes in economic cycles, as luxury goods exaggerate up and down swings. During a boom, consumers' demand tends to increase faster than the growth rate of economies while slowdowns can lead to rapid declines in sales. Reduced demand for luxury items might induce the company to take inventory markdowns or offer discounted items, which detract from the cache of expensive items.
Tourism drives 20% of sales
A substantial number of Saks’ department stores are actually not in tourist markets, including the flagship SFA store on Fifth Avenue in New York City, and approximately 2.43% of the company’s annual sales come from tourists. Global instability, such as terrorist activity would discourage tourism. Furthermore, many tourists take advantage of the U.S dollar’s weakness in relation to other currencies when buying from Saks; a strengthening of the dollar may discourage tourist business for the company. While most of its stores are in the U.S., the company does have SFA stores in Riyadh, Saudi Arabia, Dubai, United Arab Emirates, but not Mexico.
High dependence on fashion trends
Much of success in the retail business depends on the company’s ability to predict and anticipate consumer tendencies as order agreements are made months in advance of sales to consumers. Consequently, if the company inaccurately predicts consumer preferences, it could face lower sales, an overflow in inventories and lower profit margins—all of which would adversely affect the company’s financial health.
Competition
The luxury retail market has become increasingly competitive, and Saks’ prime competitors include Neiman Marcus (privately held), Nordstrom (JWN), Bloomingdale’s, and Barney’s (privately held), all of which offer comparable merchandise and cater to a customer demographic that earns roughly $175,000 to $200,000 a year, though Nordstrom targets a slightly less affluent average customer.
- Saks (SKS) merchandise is dominated by apparel, which constitutes about 55% of the total assortment
- Nordstrom (JWN) derives a sizeable portion of sales from shoes
- Bloomingdale’s derives a high portion of its revenue from home goods.
References
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