Should luxury retailers follow Saks Fifth Avenue's example and open discount chains?

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You’re undoubtedly familiar with Saks Fifth Avenue, right? With corporate headquarters located in the plush Midtown, Manhattan, New York City area, the American department store often competes with other luxury retailers, including Neiman Marcus, Nordstrom, Lord & Taylor, Bergdorf Goodman, Barney New York and Bloomingdales.

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Originally established in 1898, the store will finally find itself in Canada in the fall of 2015. Specifically, downtown Toronto—the Queen Street building—will be hosting the department store, with a second Toronto location coming in spring 2016.  

However, in an even bigger attempt to increase business, the store that offers everything from designer clothing for both men and women to jewelry and accessories, has decided to expand its discount option—Off 5th. Usually reserved for outlet-mall locations, Saks has been known for spacing out their mainstream and discount stores. But to widen their customer base, Off 5th stores are being opened relatively close to their mainstream sites.

“It’s a meaningful growth platform,” Chief Executive Officer Jerry Storch originally reported to The Globe and Mail.

Everyone likes to save money; more and more, consumers are looking for deals and discounts—and that’s exactly what Off 5th is offering the public: great clothes, great style and great prices.

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As Saks Fifth Avenue continues to embark on the discount journey, it’s interesting to take a look at other stores that will also venture into this new territory.  For example, Holt Renfrew & Co. Ltd. and Nordstrom Inc. are just two well known cases in point that will be exploring different options for customers—hr2 (which opened a couple of years ago in Canada) and Nordstrom Rack, which will hit the country in 2017.

So, is this a new trend? Are luxury retailers creating more options to expand their customer base? And if so, should other stores follow suit?

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It would appear that “yes” is the simple answer for all of the questions listed above. Discount or off-price stores often charge 20 to 60 per cent less than initial prices at mainstream stores. Furthermore, well-known brands that are usually from previous seasons are often available.

Sales show that customers are no longer just shopping at one store, but many. Specifically, consumers are thirsty for fashion and saving money. If each of the stores offer different options at different prices, then an expansion of clientele is more likely. In short, retailers can make more money and create long lasting customers.

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