Saks' New Initiatives Driving Sales

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Saks (NYSE: SKS) stock recently made a five year high because of the Saks-Neiman Marcus merger related news floating in the media. The stock has corrected since then and I believe this correction gives a good buying opportunity in this stock.

The company has taken initiatives to develop itself into a much focused organization with its loyal customer base. It has taken initiatives to improve its omni-channel network under Project Evolution with investment in information technology. Its SaksFirst loyalty program and discounts offered through promotional events are expected to drive traffic. Its merchandising assortment of the “9 Box Grid” system at Saks Fifth Avenue stores and store expansion of OFF 5th stores will attract targeted customers.

Saks has been able to maintain its strong brand image in high-end department stores with its initiatives. Now, let’s discuss these initiatives in detail.

Saks-Neiman Marcus merger deal created a hike, but things are coming back on track

The Saks-Neiman Marcus Merger deal made buzz in the market when news of a Goldman Sachs appointment came in the media. Its stock jumped 17.63% in pre-market trading on May 21. Neiman Marcus rejected the deal, and since then the stock has come back down, dropping around 9% in the last month. It is expected to drop further, but will pick up in the long term.

Project Evolution with omni-channel approach will drive sales

Project Evolution is a multi-year transformational program under which the company invested in information technology and offers its products to the customers through its omni-channel network. Saks has taken initiatives to integrate its sales channels to make transactions smooth for customers. It has introduced iPad stores, “Buy online, ship from store” and extended “select store only” inventories to offer at saks.com.

The company is promoting its store customers to use the omni-channel network, because multichannel customers spend 3-4 times more annually than the single channel users. Its initiatives to improve the customer experience with Project Evolution will drive sales growth.

SaksFirst Loyalty program and promotional events will increase loyalty

Saks has relaunched its SaksFirst loyalty program this year and eliminated the minimum threshold limit to participate in it. The program will use enhanced information technology and consumer analytics to personalize the company's marketing initiatives.

Saks has also launched the triple-point electronic gift card event, and increased discounts to 25% from 20% for its Friends & Family event. These initiatives provide incentives to its loyal customers to purchase now rather than later.

Store expansion and merchandising initiative will pull traffic to stores

Saks has developed 66 OFF 5th stores and 43 Saks Fifth Avenue stores by the end of the first quarter. In Saks Fifth Avenue stores, it has improved merchandising assortment with categorization of its “9 Box Grid.” In this assortment, products are divided in Good, Better and Best categories of Classic, Modern and Contemporary life styles. It will rationalize its stores by closure of the underperforming ones and giving more focus to its best performing stores. It has plans to open 7 new OFF 5th stores and the renovation of four stores during this fiscal year. It has also accelerated its efforts on its planned launch of the website OFF5TH.com for OFF 5th stores.

Peer Analysis

In the departmental stores segment, two major peers are Macy’s (NYSE: M) and Nordstrom (NYSE: JWN).

Macy’s has taken initiatives of localized offerings with segmentation of its stores under its My Macy’s strategy. This initiative has led to minimal complaints from stores. It has also focused on the omni-channel network with delivery available at 292 stores.

It is targeting the millennial customer base which is young, active and buys on impulse. It has launched new brands Qmack and Maison Jules along with the extension of its Bar III Carnaby collection. These initiatives will increase the reach of its stores and drive long term sales growth.

Nordstrom is investing in the direct online channel and Rack stores this year. Its direct channel was one of the growth drivers last year with 44% growth in sales, and this year to date it has grown 25%. Its Fashion Reward program is able to increase sales by 15% with 3.5 million active members in the first quarter this year.

It has growth plans for Rack stores with 24-25 store openings scheduled this fiscal year, and it has planned to increase its store count to 260 by 2016. These investments have created some pressure on margins with a slight drag of 50 basis points in the first quarter, but will drive long term growth.

Company

P/S

1 Year Fwd. P/E

Op. Margin

Saks

0.69

26.91

5.35%

Macy's

0.73

10.81

6.81%

Nordstrom Co.

1.05

13.89

10%

Source: Google Finance and Yahoo Finance

Saks has the lowest price to sales ratio among the three mentioned peers of 0.69 with moderate operating margin of 5.35%. Macy’s has operating margin of 6.81%, and the lowest forward P/E of 10.90. Nordstrom has the highest operating margin of 10%, but has the highest P/S ratio of 1.06 among the peers.

Conclusion

Saks stock has been sliding back in the last month after the sudden spike because of the news of Saks-Neiman Marcus merger. It has taken some initiatives for the development of its customer experience with its omni-channel network and relaunch of SaksFirst Loyalty program. It has also introduced promotional events and merchandising assortments targeted at its loyal customer base. These initiatives along with store-count expansion are expected to drive long term growth of the company. 


Ash Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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