U.S. luxury retailer Saks Fifth Avenue, which arrives in Canada next spring, is putting a big push on expanding its discount chain Off 5th – and moving it beyond its typical outlet-mall locations.
In the past, Saks put its mainstream and discount stores in different areas to prevent them from taking business from each other, Jerry Storch, chief executive officer of Hudson's Bay Co., which owns Saks, said on Tuesday.
But the retailer has changed its thinking in response to shifting shopping habits in which consumers go to both high-end and value stores for different occasions, Mr. Storch said.
In a bid to draw a wider array of customers, Saks is looking at new options for Off 5th stores, including locations downtown or near its mainstream sites, he said.
"It's a meaningful growth platform," Mr. Storch added in an interview after addressing the Retail Council of Canada annual conference.
Saks' move to focus on Off 5th underscores a race among upscale chains to expand into the lower end to cash in on consumers' appetite for deals.
Holt Renfrew & Co. Ltd. relaunched its outlet chain as hr2 a couple of years ago, while Nordstrom Inc., which opened its first stores in Canada last year, will roll out its discount Rack stores here starting in 2017.
Nordstrom, which is also enjoying strong sales at its off-price division, has opened some of its discount stores near its namesake ones.
Saks' efforts to boost Off 5th are showing signs of paying off. In its fourth quarter, parent HBC reported that same-store sales gains at its existing Off 5th outlets surpassed those of HBC's other chains – rising 12.1 per cent at Off 5th compared with 3.2 per cent (excluding foreign exchange effects) at HBC over all.
Off-price stores say they charge 20 to 60 per cent less than the initial price of goods, carrying well-known brands that often are from a previous season or year. Winners, which is owned by U.S.-based TJX Cos. Inc., also runs stores with the same concept, including Marshalls and HomeSense.
John Torella, senior partner at retail consultancy J. C. Williams Group, said customers are no longer agnostic to any one type of retailer. "There is just little loyalty. The attitude among customers is: 'What have you done for me today?'"
He said Saks' decision to put Off 5th stores in new areas – and sometimes near a mainstream Saks – should bolster its business.
"The risk is that [customers] get addicted to one or another and it cannibalizes one," he added. But he said the risk is low.
Electronics chain Best Buy Canada recently closed its Future Shop stores, many of which were close to each other, sometimes in the same parking lot. But in that case, shoppers were confused because the two stores carried similar products, Mr. Torella said. And physical electronics stores are suffering a steep sales declines because of online competition, eliminating the need for two chains.
Mr. Stork said Saks last month opened an Off 5th store in downtown San Francisco, a departure for the discount chain to locate in a city.
"The company used to think that it was important to separate the 5th store from the full-line Saks store as if they were competitive in some fashion," he said. "Our conclusion is that they're additive and that they reinforce each other."
HBC plans up to 25 Off 5th and seven Saks Fifth Avenue stores in Canada.