Wednesday, May 21, 2008

What can we learn from Saks???

The wider economy was the scapegoat for Home Depot, which posted a 66% drop in net income. However, Saks Fifth Avenue appeared unbowed by the difficulties and continues to illustrate the way luxury brands can avert some of the pain felt by other retailers.

The economic downturn has been particularly difficult for home-improvement chains such as Home Depot and rival Lowe’s. The retailers are double-teamed by a drop in the housing market and a slowdown in consumer spending.

Saks was the inverse of Home Depot, posting a 66% increase in net income. How does this happen? How does a firm selling in the luxury market experience an increase in sales during a period of economic contraction?

The answer, for the umpteenth time, is differentiation. In this case, a level of service and perceived value (notice I did not say low price) that is unparalleled by other stores. For related rantings, see my earlier post regarding the elasticity effects of successful differentiation.

In a recent American City Business Journal interview, entrepreneur brewer Karan Bilimoria describes the type of innovative thinking that helped him build his business. Bilimoria said the keys to success can be described in three key points: Be different; be better and create new markets.

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