Going Down Market May Dilute Saks Brand

It seems no luxury retailer has been immune to the seismic shift in consumer shopping habits. Now the unthinkable has happened: Saks is emphasizing price over quality.

The Saks name has been inextricably linked with New York's tony Fifth Avenue since the opening of its flagship store in 1924. As such, Saks became a symbol of the luxury market -- a store where, if a customer had to ask the price of an item, they couldn't afford it. You didn't shop at Saks as much as you experienced it.

Today's affluent shoppers are changing, however, and Saks is changing with them. The luxury department store is not only selling items at lower prices, it is discounting, using coupons, and offering gift cards as purchase incentives.

The store's website represents a whole different Saks. For as little as a $250 purchase, for example, a consumer can receive a $25 Saks Gift Card for free. The site is currently running a "Designer Sale" featuring 40% off women's and men's styles. Earlier this year, Saks launched a men's clothing collection that represented value pricing for the retailer. Sales have been so encouraging that Saks may be considering other private lines.

Despite the harsh reality of weak luxury sales, some experts believe Saks risks brand dilution with its down market strategy. Milton Pedraza, head of the Luxury Institute, says "All these tactics erode the halo effect of a luxury brand." Still, he admits, "There is no question that aspirational consumers are out of the market now -- they're gone."

What's left is a damned if you do, damned if you don't dilemma for luxury stores like Saks, with same-store sales falling 26.1 percent last month, and Neiman Marcus, with a 12.7 percent decline in same-store sales last month.

These renowned retailers have no choice but to cut prices and boost sales -- even though the end result may mean damaging their brand image.