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Former Saks CEO: Big retailers must 'fundamentally transform'

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Amazon is best in the internet retail experience right now, says former Saks Fifth Avenue CEO Steve Sadove. So how can the traditional brick-and-mortar department stores keep up?

"Department stores have to fundamentally transform themselves," Steve Sadove told CNBC's "Power Lunch" on Wednesday.

The former Saks chairman suggests a differentiated product, with more privately owned brands exclusive to their store. Then, they have to provide an experience that is different. It's not just about the physical product, which can be bought online, but about the customer relationship, the shopping experience and offering something they can't get anywhere else.

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"Retail is going through a major transformation — I call it a disruption — and there's going to be winners and losers," he said.

He expects fewer stores and omnipresent companies like Macy's and J.C. Penney to expand further over the next 10 years. High-end malls — like the Mall at Short Hills in New Jersey — will remain, but others will turn into health clubs or be otherwise repurposed.

"I think the big stores — like the Macy's 34th Street, the Saks on Fifth Ave — they will be fine. They're going to be fundamental to the idea of providing the experience, but they've got to change."