Recession Chic: Saks, a Luxury Icon, Invests in Discount Stores

Here's another sign of the times. Saks Inc. (SKS) is closing some of its premium department stores, and opening more discount stores.

An unspecified number of Fifth Avenue stores will close when their leases expire, and two Saks in Portland, Oregon are scheduled to shut their doors, said CEO Stephen Sadove. Meanwhile, the retailer will expand its Off 5th chain, which sells high-end goods at a discount. It could open as many as five of those locations this year, bringing its total to 60.

The move makes sense. Though Saks' department stores are showing some signs of recovery, they're not performing as well as some peers. Saks' fourth-quarter same-store sales fell 4.8 percent year over year and it posted a loss. Competitor Nordstrom (JWN) posted earnings of $172 million and sales at stores open at least a year increased 6.9 percent.

In a larger sense, even the luxury retailers appear accept that the discount mentality has imbedded itself in the consumer psyche. Discount chains are still popular with consumers, especially the deep discounters in the apparel sector, such as TJX Cos. (TJX) and Ross Stores (ROST). So it is no wonder that Nordstrom is expanding its Nordstrom Rack discount chain or that Bloomingdale's has similar plans in the works.

In the case of Saks, Wall Street seems to approve. JPMorgan upgraded the company's stock from "neutral" to "overweight" and said it has "significant long-term opportunities."

Saks boasts one of the most recognizable names in luxury. And while its discount stores are certainly more stylish than most -- Off Fifth is for the "discerning outlet shopper," according to the retailer -- it says something about how Saks sees the economy, and its future, that this is where it is putting its money.

Image by Flickr user afagen.