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Luxury of Leadership

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Steve Sadove
Chairman and CEO
Saks Fifth Avenue
New York

Incoming NRF chairman Steve Sadove uses the term ‘nimbleness’ to describe Saks’ business. He encourages the team at Saks Fifth Avenue, the New York-based luxury retail chain, to be agile in the adoption of new technologies and innovative thinking. “You have to be alert to change and willing to continuously adjust your perspective when it comes to technology shifts and strategic changes,” says Sadove. “There needs to be clarity of strategy and a steadfast commitment to over-communication so that as a team we remain focused on the same goals.”

It’s that clarity of mission that industry insiders say helped Saks survive some difficult economic times back in 2008 and 2009 — and has helped to position the company as a leading retailer today. With Sadove at the helm, Saks not only weathered the recession, it has emerged stronger than ever: posting impressive comparable-store sales gains; strengthening its store base; improving the balance sheet; and making strategic inventory and capital investments. The company ended the first nine months of the fiscal year with a 3.9 percent increase in total sales. Sadove expects comparable-store sales for the fourth quarter to be relatively flat, in part due to the negative sales impact of superstorm Sandy, which kept some stores closed from one to seven days.

Sadove, who joined the management team at Saks nearly 11 years ago, is now chairman and CEO. Over the years he has served as vice chairman and COO before stepping into his current role in May 2007. Prior to joining Saks, he built a distinguished marketing and consumer products career, including 17 years at Kraft General Foods and a decade running the non-pharmaceutical side of Bristol-Myers Squibb.

This month he adds a new title to his resume: chairman of the board of the National Retail Federation. He has served as both second- and first-vice chairman of NRF for the last four years and is a champion of the retail industry’s efforts to make its voice heard on Capitol Hill.

STORES Editor Susan Reda recently spoke with Sadove.

What role has Saks’ collaborative, teamwork-driven culture played in the company’s recent success?
Culture is a primary driver of corporate performance. We’ve tried to get the organization working much more collaboratively. Saks was very silo-driven years back; today it’s more horizontal, with the various functions working together closely. We’ve focused on having much better communication across the functions and working together as a team. Having a team-based organization drives results; each of the functions are valued, and people understand why they’re doing what they’re doing and how it’s supporting the overall objective.

Part of what the leadership of an organization does is set the strategy, direction and overall environment, and communication is integral. During the recession, we faced some very difficult times and had to make some tough decisions. We wanted to be sure our people understood why we were doing what we were doing. We started something called Straight Talk with Steve. We set up a video camera in my office, and I would talk about what was on my mind and why it was necessary to take certain actions. Straight Talk became extremely popular, and we continue to produce this today. It’s become a way for me to touch the organization on a very regular basis in an informal manner and let them understand the strategies.

How does Saks handle the convergence of business strategy and technology?
Consumers have changed; they’ve become fluent with technology. They want to be able to buy product anywhere, anytime and they want to be able to shop across channels. We have to have the technology to accommodate that. If we want to understand our customers and their behavior across channels we need a single view of them and a single view of the inventory. For us it’s important to have technology in the stores to be able to do clienteling, too.

The technology required will vary from company to company. For us, nimbleness is important; so are customer-facing technologies and selectivity. We need to understand what the drivers are for our customers and make technology investment decisions based on understanding what’s going to make a difference.

There are so many technology enablers out there — clienteling tools, mobile POS, RFID, etc. Still, it comes down to being a cross-functional organization. It can’t be solely a technology-driven process, because the business owners have to be a part of it. If you don’t have the entire organization engaged in it, then you’re going to end up with what may be solid technology solutions that may not be the appropriate business solutions.

As the new NRF chairman, what’s on your agenda?
NRF has made enormous strides over the last several years under the leadership of Terry Lundgren and Matt Shay. Matt was coming in off of a very strong base, and he’s taken it to another level. NRF is recognized as the voice of the retail industry, and our voice is starting to be heard by legislators. We’re taking positions on a number of important issues, and we’ve assembled a world-class team at NRF to represent the industry. I plan to continue to build off an increasingly strong base of committed retail companies and an ever-more confident team at NRF. Retail represents a very substantial portion of the American workforce, and we have a great foundation on which to continue building.

There are a lot of issues that are important to us, whether it’s third-party interchange fees or Internet taxation. Job growth is of foremost importance because the consumer represents two-thirds of the economy, and if he or she is not working and we’re not increasing their ability to consume, then that’s an issue. Another critical issue is corporate tax reform because retailers pay the highest tax rates in the country. We believe that getting some equity in the corporate tax base is important.

Are the reductions in travel visa delays cited recently by the White House helping? Do we need to do more?
We’re making some progress, but we have a long way to go. I give the administration a lot of credit for starting the process and listening. A while back, a contingent of senior executives met President Obama’s chief of staff to talk about this issue. Shortly after, the President issued an executive order indicating that he wanted to see the wait times for visas reduced from over 100 days to less than three weeks in China and Brazil, where an in-person interview is required to obtain a visa to visit the U.S. (Tourists from those countries visiting Europe don’t need to do an in-person interview.)

We’re not going to get to visa waiver in the near term; Congress needs to be involved in that. Still, we’ve succeeded in being heard. The administration has increased staffing and lengthened hours in the visa offices, and the wait time has diminished from well over 100 days to somewhere around 14 days. It’s been a great effort, and it has had an impact. Saks’ tourism numbers from China and Brazil are up substantially; the increased business from China and Brazil during the first half of [2012] helped offset some weakness in European tourism.

The swipe fee settlement was especially onerous. How would you hope to see that resolved?
There are some fundamental flaws in the settlement that was announced. While it gives some cash to the retailers, it doesn’t solve the fundamental, structural problem of the high fees we’re dealing with and the ability of processors to continue to increase the fees. We’re paying the highest fees in the world right now and don’t have any control over the cost; in most cases we’re paying in excess of 2 percent of revenues generated on third-party cards. For retailers, that’s an enormously large portion of the cost structure. Not having any limitations or ability to control what is — in effect — monopolistic pricing and not dealing with structural reform is a huge concern. Having a Band-Aid fix that doesn’t deal with the structural issue is not the solution.

As you look ahead to 2013, how are you feeling about the economy, business in general and shoppers’ penchant for purchasing luxury goods?
Luxury is a great place to be. There’s a cultural element to it; people love brands and they aspire to own what’s on the runway and what people are wearing on the red carpet. Luxury retailing is all a part of that and it’s thriving.

I feel very good about the longer-term outlook for the industry. We have a number of issues that we have to solve in the near term, but I’m optimistic about our ability to resolve these issues. It’s going to require cooperation and collaboration, but we’ll get there.

The most talked about topic in retail is mobile. How has Saks deployed mobile, and what’s ahead for 2013?
If there’s one word that I think is driving consumer behavior it’s “omni-channel” and it goes back to the “anywhere, anytime” conversation. Having a robust Internet business is absolutely critical, and having a mobile component of an Internet business is equally important. Consumers are using mobile for commerce; they tend to shop more on tablets than smartphones, but there’s no question mobile is changing the business. It’s also changing the way our associates are communicating with their customers, whether it’s sending photos or look books or e-mailing them to set up an appointment. The social aspect of mobile is very important when interacting with customers. I consider mobile a transformational technology.

People talk about the value of running a business like a start-up. What’s your view of that approach?
I think you have to run a business with an entrepreneurial spirit whether you’re a start-up or an established business. The challenge is always going to be to keep the focus on innovation — how are you going to innovate in product, how are you going to innovate in service and relationships with your customers, and how can you use technology to support those innovations?

What innovation challenges are ahead for retail?
The reality is that there are only two reasons that you come to a Saks: We have brands that shoppers want and service and relationships that they value. Whether we’re talking about innovation or technology, everything circles back to how we enhance those two elements. How do you enhance the in-store shopping experience, the ease of getting product? How do you innovate in terms of the kinds of product [being offered]? It could be in technology relative to fabrications or sustainability. It relates to the store experience or online vs. store interaction. There are so many forms that innovation can take but, in the end, they are all about how you enhance the product or the service.

What are the biggest challenges facing the retail industry?
The biggest challenge is a tough economic environment. Unemployment is still at roughly 8 percent, so getting people working again is a must.
There’s also the ongoing challenge of coming up with the capital to invest for the long term in things such as technology or energy independence. For retail executives, an important challenge is determining what type of technologies to invest in that will allow you to effectively compete and thrive in the new world. Given that we’re doing business in an environment of relatively lower growth, some of these investments are costly, and decision-makers have to make some trade-offs. Another piece of the puzzle is figuring out how to attract the kind of talent needed to compete in the future. Then, of course, we’re doing this all against the backdrop of increasing shareholder value and generating growth. It will certainly make for interesting times ahead.