If Saks Fifth Avenue CEO Stephen I. Sadove seemed to have a jingle in his step during a recent Houston visit, there's a reason. The luxury retailer is having a good year and, even with the turbulent economy, Sadove expects a solid holiday season.

While shoppers on a budget are cutting back on staples at Walmart, the high-end consumer that Saks caters to is paying full price for handbags, shoes and designer dresses.

"We're a company that is on a bit of a roll," Sadove said during an interview in the executive office of the Galleria store, which he said is one of the best performers in the 46-store chain. (The company also operates 60 Saks Fifth Avenue OFF 5th stories, as well as Saks licensed stores in Saudia Arabia, Bahrain, Dubai and Mexico City.)

It's been a wild roller coaster ride for Saks' main man, who joined the management team as vice chairman in 2002 and became chairman and CEO in 2007, a year before the bottom dropped out of the luxury market in the wake of the fall of Lehman Brothers and the plunge in the stock market.

"You've got to imagine waking up one morning, and 25 percent of your business went away overnight," Sadove recalled. "No matter what you had, you didn't feel wealthy anymore, so the customer stopped shopping. We had to do some Herculean things in terms of rethinking who we are and what we stood for and what the product would be and our cost structure and we made a lot of changes."

More exclusive brands

Saks was roundly criticized for slashing prices on luxury goods as much as 75 percent during the holiday season of 2008. But Sadove believes it's something the chain had to do for survival. But the debacle had a silver lining.

"We used the opportunity to create more exclusives and differentiated products and a better understanding of what the right mix of products should be," he said. "We've tried to have more unique brands like Ralph Lauren Black Label, which are only sold in Ralph shops and our own, and La Via, made by Piazza Sempione, and is exclusive to Saks. During the recession a lot of this got created."

Sadove says that consumers told store officials they didn't want to trade down brands, but they wanted less expensive goods within the brands. "The word that became operative was value, not price alone, but quality and understanding why the product is worth what it sells for," he said.

But now that the economy is better for the upper-income shopper, habits have changed again. "What's actually selling more now is some of the higher price point goods, and it's the more unique — the more exotic skins in handbags, the more fashion-forward shoes. The consumer has moved away from just the basic mentality to a lot more in the way of fashion," he said.

If you like it, buy it

Sadove says shoppers should expect normal promotions during the holiday season, particularly as Christmas approaches. "In luxury goods, you have a normal full-price selling season and then at the the end of the season the remaining inventory is sold at a discount. I'm sure you will see that. But will you see excessive discounting? I'm not sure that will be the case," he said.

What's changed is that luxury stores are controlling inventories a lot more tightly. Some store sales at Saks were up more than 12 percent in the first six months of the year, while inventories rose only 2.7 percent, which tells Sadove that customers are paying full price for the products they want.

"That's what we've been training the associates (to tell the customers). You'd better buy it now, because there may only be two size 7 shoes. If you don't buy it now, it won't be there. And that's been the case for the last year or two. So our full-price selling is at record levels."

Fewer store openings

While the chain plans to open a store in San Juan, Puerto Rico, it hasn't opened many new stores in recent years, and in fact has closed stores in Denver, Plano, Charleston, Portland, Oreg., San Diego, Mission Viejo, Calif., and Southampton, N.Y.

"I think you will see more closures than openings. And the reason is you want to have stores in major cities; we have them already. Houston has an enormous growth opportunity. We see this as being one of the most important growth stores in the company. I'd rather focus resources on investing in Houston than in opening up a second-tier market," Sadove said.

Saks recently opened an in-store Miu Miu boutique in the Houston store, and before that, expanded the shoe department. More improvements to the Houston store are on their way, although Sadove won't divulge details because he doesn't want to tip off its major competitor, Neiman Marcus.

"In some ways because we're smaller than Neiman's, we have to try harder. We're in Texas, which is Neiman's home territory. (Houstonians) love Saks, though. I have a lot of respect for Neiman's. They're a great competitor and great people, but I think there's a role for both companies to service the customer."

Rather than store openings, Saks is concentrating on technological innovation and customer service. "The only reason somebody comes to a store like ours is product and service. So you will see a lot of initiatives in both of those areas," Sadove said.

Saks has invested heavily in the Internet. Just this week, it introduced a revamped site, Saks POV, that looks like a fashion magazine, with designer profiles (Tom Ford is the first subject), lifestyle pieces and insider views of brands carried at the store.

Sadove says in a few weeks, an enhanced e-commerce site will enable shoppers to go online, type in a zip code, look at product availability and even reserve the product in some stores.

"The world's changing," he said. "If I had to pick a word that is driving everything it's 'multichannel.' The growth of the Internet, people shopping online, people looking online, buying in the store. Everything is emerging. You have to have the right technology to be able to play in the space."

"One of the greatest sources of how people buy is recommendations from their friends, and that's why we put in product reviews online. We have an active Facebook presence, we Tweet, we have a team focused just on social media and blogging."

"That will continue to be a presence, because our fundamental marketing strategy is not as much about national as it is about local. Being able to have a presence in the local community is an important part of how we do our marketing."