Despite inflation and concerns about a recession, people still want to buy luxury brands. Luckily for Saks Off 5th, that’s an area they can win.
The off-price sister of Saks Fifth Avenue appeals to a recession-resilient luxury customer, offering high end brands like Versace and Valentino. But it also offers them at a discount, which draws in inflation-stricken shoppers in search of a deal.
“Value is key for our teams to focus on,” said Saks Off 5th president and CEO Paige Thomas, in a Sunday morning keynote session at the National Retail Federation’s Big Show. “And the opportunity to really showcase our differentiation, which is providing modern luxury at accessible prices to everyone.”
By living at the nexus of off-price and luxury — two solid sectors amid an economic downturn — Thomas says the retailer is positioned for enduring success throughout 2023. Higher income consumers have been less impacted by inflation as it relates to their shopping habits. At the same time, people want to capitalize on deals wherever they can be found.
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“The off-price industry actually has shown over the years, outperforming and exceeding expectations in a volatile environment, particularly for consumers,” Thomas said. TJX Companies, which owns T.J. Maxx and Marshalls, topped profit estimates in the third quarter. Ross Stores Inc. in November raised its guidance given its third quarter sales momentum and improved holiday assortments.
While Saks Off 5th caters to a higher-income consumer, the company still experienced the same “drop-off” in demand as the rest of the retail industry in the second half of 2022, Thomas said. At the same time, value and promotions were becoming the norm across retail, as retailers looked to offload excess inventory and win over deal-hungry shoppers.
To stand out in this competitive environment, Saks Off 5th focused on its brands, its enduring defining factor within the off-price segment. Thomas specifically called out brands like Golden Goose and YSL which outperformed in the holiday season.
“Our customers absolutely responded to luxury at a deal,” Thomas noted.
Inventory excesses across the industry also played well for Saks Off 5th, which relies on cancelled orders of excess supply to populate its off-price assortment. Saks Off 5th jumped on the opportunity present in the high levels of available assortment to select the best products for consumers in that moment. This set-up also offered the off-price retailer the added benefit of being able to adapt to rapidly shifting consumer trends in real-time.
“We don’t have to overcommit,” Thomas said, regarding the company’s product-selection process. “They actually can monitor that consumer behavior and respond to it in a much more agile, in-season way.”
This idea of accessible luxury will be a key theme in Off 5th’s performance in a more volatile fourth quarter and first half of the year.
“We have the luxury to lean on off-price and we also have the opportunity to play to our bullseye customer, a high earning individual. And they’re not as price sensitive,” Thomas said. “So I feel like we’re in a really good position to keep winning.”
