“What’s In a Name?—A Brief History of Saks Fifth Avenue

by Mark L. Gardner

 

The department store chain known today as Saks Fifth Avenue began in 1902 as a men’s clothing store in Washington, DC.  The name “Fifth Avenue” was added in 1924 when the New York store moved to fashionable Fifth Avenue from Herald Square.  In order to finance this move the Saks family gave control of the firm to the Gimbel’s family.  Under the leadership of Adam Long Gimbel from 1925 to 1969 the firm established its reputation as one of the premier luxury retailers in the world.  By 1978 the number of stores reached 30, and in 2004 there were 63 including the Off 5th outlet stores.  At the beginning of the 21st century, Saks Fifth Avenue faced a number of internal and external challenges to its survival.

 

The department store chain known today as Saks Fifth Avenue was founded by Andrew Saks in 1902 in Washington, D C as a men’s clothing store. 

It all began with a young boy named Andrew Saks, who sold newspapers and then became a peddler in Washington, D.C., after leaving home in Philadelphia.  Andrew Saks saved until he accumulated enough money to open a men’s clothing store in Washington. (2, pp. 173-4)

Saks next opened branches in Richmond and Indianapolis and then in New York City.  When Andrew died in 1912, his son Horace took over the business. (2, pp.173-4)   Known originally as Saks & Company, the family added “Fifth Avenue” to the name when they moved the New York store from Herald Square to a brand new store on Fifth Avenue at 50th Street in 1924.  In order to finance this move, the Saks family gave control in 1923 to another well-known family in department stores—the Gimbel’s—for $8 million in Gimbel’s Brothers stock.  Horace died unexpectedly in 1925 and leadership of the Saks stores was given to Adam Long Gimbel, the 32-year-old grandson of the Gimbel’s founder, Adam Gimbel. (1, p.279)   The younger Gimbel began by renovating the barely one-year-old Fifth Avenue store with more modernistic decor. (2, p. 175)   By doing so, “(h)e felt that the new society around Park and Fifth avenues during the easy-money twenties would be willing to pay well for things a cut above the ordinary and he bought the finest European merchandise and introduced exclusivity under the Saks labels. (1, p. 279)”   New stores catering to beachgoers were opened in Palm Beach, Florida, in 1926 and Southampton, New York in 1928.  Stores were also opened in Chicago in 1936 and in Beverly Hills, California, in 1938. (1, pp. 297-280)  According to Nan Tillson Birmingham in her book entitled Store, Saks Fifth Avenue lost almost $600,000 in 1932.  Gimbel was found to be equal to the challenge by offering ski merchandise and ski trips to Europe among his other innovations. (1, p. 281)  Another writer, Leon Harris, author of Merchant Princes:  An Intimate History of Jewish Families Who Built Great Department Stores, reported that Saks made large profits during the Great Depression. (3, p. 181).   More than any two people--Adam Gimbel, who retired and subsequently died in 1969, and his next-in-command, F. Raymond Johnson, were responsible for establishing the reputation of Saks Fifth Avenue as it stands today. (2. p. 175)

            The naming of a department store can be a tricky business.  According to Robert Hendrickson, the author of The Grand Emporiums:  The Illustrated History of America’s Great Department Stores, the name, Saks Fifth Avenue, was well chosen.

Naming the store Saks Fifth Avenue was a stroke of genius, for by combining the name Saks, already famous for quality, with that of the fashionable avenue on which it stands, the store was given a cachet that embodies the character of its business (2, p. 175).

For years the expression “Very Saks Fifth Avenue” has been synonymous with fine fashion almost everywhere in the United States and Europe. (1, p. 281)  The sale of the chain in 1973 to a subsidiary of the British American Tobacco Company (B.A.T.) may have negatively affected the image of the company in the minds of some of its sophisticated and well-heeled shoppers.  On the positive side, between 1973 and 1989 B.A.T. opened twenty new Saks stores across the country and eight older stores were replaced with newer ones. (4, p.20)  Another piece of negative news may have tarnished Saks’ reputation in 1977 when Saks and several others were charged with price-fixing and made to pay penalties. (3, p. 196)  By 1978 more than 30 Saks Fifth Avenue stores had been established throughout the United States. (2, p. 176)    In 1990 a group of investors acquired Saks & Company from B.A.T. (4. p. 20), and in 1992 the company created its first outlet store known as “Off 5th.” (4, p. 20)   Off 5th stores, in addition to their own labels, usually carry overstocked or discontinued merchandise at 40 to 60 percent off the prices in the full-service Saks Fifth Avenue stores.  The group also acquired four I. Magnin department stores in the western United States in 1994.  Saks became a publicly-traded company when its stock was offered under the name of Saks Holdings, Inc. in 1995. (4, p. 20) 

The period from 1995 until the present has been one of consolidation throughout the entire department store industry.  In 1998 Saks Holdings agreed to be acquired by the Birmingham, Alabama-based, department store chain known as Proffitt’s.   Other well-known department store chains owned by Proffitt’s included Carson Pirie Scott, Bergner’s, McRae’s, Herberger’s, Younkers, Boston Store, and Parisian. (4, p. 21)  Realizing the drawing power of the Saks name, Proffitt’s changed its name to Saks, Incorporated, which in 2004 controlled 357 stores in 39 states. (4, p. 20)   In 2000 and again in 2005, Saks Fifth Avenue sought to distance itself from the other department stores in the former Proffitt’s chain by splitting itself off. (4, p. 21 & 18, p. B1)  R. Brad Martin, the current CEO of Saks, Inc., said that the time to sell Saks Fifth Avenue as a separate entity was not right in 2000.

In mid-2000, we contemplated a possible spin-off of the Saks Fifth Avenue businesses from the department store businesses into a separate publicly owned company.  This was considered in order to take advantage of the premium values being placed on luxury businesses at that time.  However, market conditions changed.  We are committed to operating the business as it is currently structured. (4. p. 21)

By 2004 the number of stores under the Saks name had reached 63, but the management was thinking about cutting back the number of stores in order to protect its reputation as a luxury retailer. (22, p. C1)  In 2005 the Saks Fifth Avenue nameplate as well as that of Nieman Marcus, its chief rival in the luxury clothing market, were again up for sale. (11) According to Ellen Byron of The Wall Street Journal by 2005 market conditions had improved.

Breaking the two businesses up isn’t a new idea.  Saks contemplated spinning off its luxury retail division in 2000 but abandoned the idea in 2001 after determining that luxury retailers weren’t getting a premium valuation in the market.  But conditions have changed since then.  Today, luxury retail stocks are enjoying above-average sales growth and premium stock valuations. (19, p. B9)

In April and May 2005, the dreams of Saks Fifth Avenue’s management were partially realized with the sale of the Proffitt’s and McRae’s department store chains to privately-owned Belk, Inc., of Charlotte, N. C. for $622 million in cash. (25, p. 6B)  Despite the sale of some of its stores in mid-2005, Saks, Inc., was in technical default on some of its bonds for not filing its financial reports with the Securities and Exchange Commission in a timely manner. (27, p. C5)

One may ask what motivated the numerous divestitures, mergers and acquisitions of numerous regional and national department store chains during the last two decades of the twentieth century and the first decade of the twenty-first.  It may have been a search for greater economies of scale and scope in buying and selling as well as the ability to offer types of merchandise different from those offered by the rapidly growing discount chains such as Wal-Mart.  Or it may have been in part a search for greater national name recognition than that of a local or regional chain.  For example, during this period Federated Department Stores purchased Macy’s, Rich’s, and several other local and regional chains.  It took some names such as Macy’s nationwide, while it allowed other names such as Rich’s to die.   In February 2005 Federated agreed to purchase May Department Stores, which would more than double the number of stores under its control from 458 to 949. (20, p. A6)   Federated is headed by 52-year-old Terry Lundgren, who has thirty years of experience in retailing. 

Under Mr. Lundgren’s leadership, Federated has taken steps to create a national chain and brand, rather than operating and advertising each division regionally.  By applying the same strategy to May, the companies would enjoy more efficiencies in advertising, and bring a department-store brand to a national stage, where the sector’s retailing competitors advertise. (20, P. A6)

In the case of the chain still included under Saks, Inc., one wonders whether a similar strategy will be followed.  The recognition of a name can be very important when it comes to survival in the increasingly competitive national, international, and internet markets.

            The selection of a nationally recognized name may be a moot point if the profitably of department store chains does not improve significantly in the next few years.  The department store’s share of the domestic clothing market has fallen dramatically because of competition from discounters such as Wal-Mart, Target, and Kohl’s as well as middle-market, specialty, and mass-market retail stores.  For example, the department store’s share of the men’s apparel market has fallen from about 70 percent in 1982 to about 38 percent in 2004.  In women’s casual apparel the drop has been even greater—from 75 percent to 35 percent.  The drop in the share of children’s wear has been nearly as steep—from 64 percent to 36 percent. (18, p. A1)  In light of these trends, what is a luxury department store chain such as Saks to do?

            One way to enhance profitability would be to retreat even further into the niche that it is trying to create for itself--to become the number one premium retailer of men’s and women’s clothing in the United States—a position now held by rival Nieman-Marcus. (11)   Diane Cohen, the assistant general manager of the Saks Fifth Avenue store at Phipps Plaza in Atlanta was very excited about its new management team at Saks Fifth Avenue that joined the firm in late 2004.  While R. Brad Martin remained CEO of Saks, Incorporated, Andrew Jennings and Ron Frasch were named president and vice chairman and chief merchant of Saks Fifth Avenue, respectively, in November, 2004.  Both newcomers have had extensive retail experience. (23)   Cohen also noted that the full-service,  Phipps Plaza store in Atlanta was being extensively renovated to provide more space between clothing racks with less merchandise on each rack.  This technique gave the store an uncluttered look and may have given the customer the impression that they were purchasing a truly unique piece of merchandise.  Designer boutiques appealing to traditional shoppers were strategically located throughout the store.    Sales associates were given extensive training, and the motto of the firm was changed to be“Expertly Delivering Personalized Style.”   (12)  Customers were encouraged to ask the sales associate to help find a certain size or color of merchandise.  If it was not available on the rack, the sales associate would offer to look in the “back room.”   Formerly, most of the merchandise was placed out on the floor.  Another strategy, which was not new, was to use the direct mailing of colorful and beautifully-designed mini-catalogs showing seasonal merchandise.  These catalogs are distributed nationwide and sent to primarily customers who might visit the store, call the 800 number, or log on to the Saks online shopping service at www.saks.com.   Full or even half-page advertising in the local, daily newspapers has been cut back in certain markets such as Atlanta since the number of well-heeled customers that Saks normally reaches through this type of media is relatively small. (12)

            A second strategy for bringing Saks merchandise to a wider audience would be to expand the Off 5th outlet stores.  Todd Boeke, the operations manager of the North Georgia Premium Outlets in Dawsonville, Georgia, also provided some insight into Saks Fifth Avenue’s strategy to appeal to the contemporary customer.  He said that the Off 5th outlets make extensive use of discount coupons on the merchandise that has already been discounted 40 to 60 percent.  On Tuesdays one can receive an additional 10 percent off all merchandise purchased.  The atmosphere of the outlet store was definitely more upbeat than the full-service Saks stores.  On the day that the author visited, the sound system was blaring out a light rock tune.  The ceilings were about 18 to 20 feet high with exposed steel beams and girders, which gave the impression of being in a warehouse.  The racks were overflowing with relatively low-cost merchandise, much of which came directly from the factory rather than from a full-service Saks store.  At the Dawsonville outlet mall, there was no real competition for what Off 5th offers, according to Mr. Boeke.  At the other Off 5th store in the Atlanta area at Discover Mills, there was a Last Call store which is the outlet for Nieman Marcus. (13)

            One of my colleagues at Piedmont College, Dr. Pat Sherrer, has enjoyed shopping at one of the two Off 5th outlet stores in the Atlanta area.   She said that she enjoyed shopping there because of its convenient location and the ease of finding a parking place compared with the downtown full-service store at Phipps Plaza.  Another reason that she liked the outlet was because there were fewer sales people to follow her around or to examine what she bought as she exited the store. The cash registers were in the back of the store, and she waited in a queue with other customers to be checked out.  The prices were more reasonable than those at the downtown store—“approaching affordable” was the phrase that she used.  She said she was usually able to find a something original for herself or a unique gift from someone else. (14)

A third possibility of increasing sales and profit margins would be to change the types of merchandise that are offered.   Items such as skincare products, cosmetics, and accessories are less dependent on the whims of designers or of those who decide what colors and materials are “in” or “out” in a given year. (17, pp. B1 & B2)  This shift has already begun at all types of the retailers.  For example, Amy Merrrick has reported in The Wall Street Journal that in 1994 apparel accounted for more than 70 percent of sales for Limited Brands, Inc.  Ten years later that percentage has dropped to about 30 percent.  Through a series of strategic divestitures and acquisitions in the 1980’s and 1990’s Limited’s sales from non-apparel sources had risen to about 70 percent.  The non-apparel sources were primarily personal care products and lingerie.  (18, p. A1)  Saks Fifth Avenue has added new displays offering cosmetics and skin-care products within its clothing departments.   Designer clothing manufacturers such as Liz Claiborne are going in a slightly different direction, according to Teri Agins writing in The Wall Street Journal in 2005.

Liz Claiborne Inc. has staked out new territory in branded wallpaper, carpeting, upholstered furniture and bedding over the past 18 months. (5,  p. A6)

Once established as an international brand name, it appears that practically anything that can be sold under a designer label.

            A fourth means of expanding one’s reach and profitability is through the internet.  Saks fashions and other merchandise can be sold and serviced electronically.  Saks’ liberal return policy will probably encourage more people to try online shopping.  If the customer returns the merchandise in saleable condition with receipt within a reasonable period of time, they may exchange the item, obtain a refund, or receive full credit towards their next purchase. (24)   Saks in order to stimulate greater sales has also established a bonus award system in connection with the use of its Saksfirst credit card. (24)  Online transactions may account for an increasingly large share of sales in retailing in the future.

In the future improved computer graphics may allow customers to see themselves modeling the merchandise that they are planning to buy in virtual reality without leaving the comfort of their homes.  As Peter Drucker stated in his recent article entitled “Trading Places” in The National Interest, the consumer is gaining more power every day.

…Internet customers are becoming a new and distinct market.  In the early years of the 21st century, power is shifting to the ultimate consumer.

 

There is no distance in this world economy.  Everything is “local.”

The potential customers searching for a product do not know—and do not care—where the products come from. (6)

 

Drucker may not be correct about all of Saks Fifth Avenue’s customers—especially the traditional customers who frequent the full-service department stores.  They may want to know the origin of the merchandise that they purchase.  They may want to handle it and try it on before they buy it.  To accomplish this, Saks Fifth Avenue and other luxury stores are increasingly turning to public relations, design, and event planning.  According to Ken Auletta, advertising agencies and their clients are increasingly relying on these types of activities to promote their products rather than use the traditional print, television, and radio media. (7, p. 2)

The main question facing the department store in the twenty-first century is whether it will be able to change quickly enough to insure its continued existence.  There have been those who have seen advertising as a form of manipulation that may lead to disillusionment, especially among the lower classes.  Vance Packard, writing primarily in the 1950’s and 1960’s was concerned about the rigid stratification that he thought was taking place within our mass-consumption society.

The status seekers, as I use the term, are people who are continually straining to surround themselves with visible evidence of the superior rank they are claiming.  The preoccupation of millions of Americans with status is intensifying social stratification in the United States. (15, p.5)

 

But S. I. Hayakawa criticized Packard’s views in his 1950 book entitled Symbol, Status, and Personality.

Because he has not clarified his concept of status, Packard sounds as if he thinks that status seeking is something wicked in itself, although what he clearly desires is a society in which achievement is the principal measure of status.  He fails to point out that both status-by-consumption and status-by-achievement run counter to status-by-definition.  In a world of status-by-definition, you can’t go up or down. (16, p. 92)

Hayakawa preferred to consider the ability to better oneself through achievement or consumption as positive aspects of American society.

But Packard overlooks the possibility that America’s addiction to conspicuous consumption is evidence of immature strength, rather than the decay of the American dream. (16, p. 93)

Saks Fifth Avenue’s ability to survive in the twenty-first century will depend in part on its ability to take advantage of the “immature strength” that characterizes our economic system.  The desire to move from one social class to another might not be as strong without the incentives provided by luxury retailers such as Nieman Marcus and Saks Fifth Avenue.

 

                                                            Notes

  1. Nan Tillson Birmingham, Store, (New York:  G. P. Putnam’s Sons, 1978).
  2. Robert Hendrickson, The Grand Emporiums:  The Illustrated History of America’s Great Department Stores, (New York:  Stein and Day, 1979).
  3. Leon Harris, Merchant Princes:  An Intimate History of Jewish Families Who Built Great Department Stores, (New York:  Harper & Row, Publishers:  New York, 1979).
  4. R. Brad Martin, Saks Incorporated:  The Saks Story, ( New York:  The Newcomen Society of the United States, 2003).
  5. Teri Agins, “As Consumers Find Other Ways To Splurge, Apparel Hits a Snag,” The Wall Street Journal, (Feb. 4, 2005): A1 & A6.
  6. Peter F. Drucker, “Trading Places,”  The National Interest, (Spring 2005),:

Available at http://www.nationalinterest.org/ME@/Segments/Publications/Print.asp?

  1. Ken Auletta,  “The New Pitch,”  The New Yorker, (March 28, 2005):

Available at http://www.newyorker.com/printables/fact/050328fa_fact, 8 pages.

  1. “Saks to Close Store and Cut 120 Jobs,”  The New York Times, (Dec. 10, 2004). page unknown.
  2. Renee DeGross, “Saks:  Expansion still on in metro Atlanta,”  The Atlanta Constitution, (July 21, 2000):  F1 & F4.
  3. “Pressure on Saks, Inc.:  Speculation Mounting Over Split-Up Scenarios,”  Women’s Wear Daily, (Feb. 8, 2005):   available at http://www.womensweardaily.com.
  4. “Financial Players Lead Race to Snap Up Neiman Marcus,”  Women’s Wear Daily, (March 17, 2005):  available at http://www.womensweardaily.com
  5.   Diane Cohen, Assistant General Manager, Saks Fifth Avenue, Phipps Plaza, Atlanta, GA., (March 8, 2005):  Interview and follow-up Telephone Interview on March 30, 2005
  6. Todd Boeke, Operations Manager, Off 5th Store, North Georgia Premium Outlets, Dawsonville, GA., (April 1, 2005): Interview.
  7.   Pat Sherrer, Customer at Discover Mills Off 5th Store, Duluth, GA.  (March 23, 2005):  Interview.
  8. Vance Packard, The Status Seekers, (New York:  Pocket Books, 1961).
  9. S. I. Hayakawa, Symbol, Status, and Personality, ( New York:  Harcourt Brace & World, Inc., 1953).
  10. For an indication of the power of those who influence color changes in apparel, see Sally Beatty,  “Fashion’s ‘It’ Colors:  How Runway Dresses, Cars—Even Washer-Dryers—Turned Shades of Blue, Brown,” The Wall Street Journal, (February 4, 2005): B1 & B2.
  11.   Amy Merrick, “For Limited Brands, Clothes Become The Accessories,”  The Wall Street Journal, (March 8, 2005):  A1 & A14.
  12. Ellen Byron, “Saks Inc. Mulls Splitting Units, Possible Sale,”  The Wall Street Journal, (February 9, 2005):  B1 & B9.
  13. Ellen Byron and Dennis K. Berman, “Federated Agrees To Acquire May In $11 Billion Deal:  Move by Two Top Players Places Big Bet on Survival of Department-Store Sector,”  The Wall Street Journal,  (February 28, 2005):  A1 & A6.
  14. Aymar Jean,  “Designer goods get even pricier,”  The Atlanta Journal-Constitution, (March 11, 2005):  G1
  15. Tracie Rozhon, “Saks Seeking Riches in Yet Another Incarnation,”  The New York Times, (July 27, 2004), Late Edition – Final, Section C, Page 1, Column 2.
  16. “Company News;  Saks Fifth Avenue Promotes Two Executives,”  The New York Times, (November 13, 2004):  page unknown.
  17. SAKS FIFTH AVENUE :  saks.com  Catalog (March 2005):  Inside back cover.
  18. Anne D’Innocenzio, “Belk buys stores from Saks,”  The High Point Enterprise, (April 30, 2005):  6B.
  19. Reuters, “Nieman Marcus Nears $5 Bln Takeover Deal,”  The New York TimesOnline, (May 1, 2005) available at http://www.nytimes.com

27.  Mike Esterl, “Saks Offers to Buy Back Over Half of Its Bonds,”  The Wall Street Journal, (June 21, 2005):  5C.