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Saks Says Steep Discounting Is Behind It Now

Saks says it will not aggressively discount prestige brands in the year ahead as it did in the last quarter, Jonathan Birchall reports. CEO Stephen Sadove compares the price cuts of up to 70% that Saks rolled out in early December with the discounting produced by the slump in demand following the 9/11 attacks. He says the retailer had had no option but to cut prices and to cancel and return orders to its vendors.

"It was an ugly period; we ruffled some feathers," he admits in a reference to the retailer's relationships with suppliers. The discounting reduced Saks' gross profit margins to about 20% from 37% a year ago. It predicts that the gross margin rates will recover by the second half as the exceptional discounting ends.

Robert Drbul, a retail analyst at Barclays Capital, warns that it will be difficult for Saks to wean customers from steep discounts. "The customer has become accustomed to the clearance sales, the discounting, the 70 or 80% off, and ending that thinking is a huge challenge," he says.

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