Jan. 15 (Bloomberg) -- Saks Inc., the U.S. luxury clothing chain, said it will cut about 1,100 corporate and store positions, 9 percent of its total workforce, because of the deteriorating economy.

The company also said it eliminated merit-based wage increases this year for all employees and suspended its matching contribution to the 401(k) retirement-savings plan.

The highest unemployment in almost 16 years and declines in financial markets and home values have deterred wealthy consumers, causing the worst holiday season in four decades. Saks’ announcement may be just the beginning, according to Pete Hastings, a fixed-income analyst with Morgan Keegan & Co. in Memphis who tracks department-store companies.

“It just reflects the severity of the economic downturn and the impact on luxury retailers,” Hastings said today in a telephone interview. “Saks is taking difficult but prudent steps to try to control expenses as the top line shrinks.”

The New York-based retailer rose 10 cents, or 3 percent, to $3.45 today in New York Stock Exchange composite trading. It has plunged 77 percent in the past year.

Saks aims to reduce the inventory it receives in 2009 by 20 percent, as well as cut its capital expenditures to about $60 million, more than 50 percent less than it projected for 2008.

The company will record expenses of about $9 million in severance charges in the fourth quarter that ends Jan. 31.

84-Year History

“Our financial performance is increasingly being challenged by some of the most difficult economic conditions our company has faced in its 84-year history,” Chief Executive Officer Steve Sadove said today in a statement. “The economic environment will remain extremely challenging through 2009, if not beyond.”

Sadove said the company has flexibility under its existing debt facilities, with no short-term maturities of senior debt.

Starbucks Corp., FedEx Corp., Motorola Inc. and General Motors Corp. are among companies that have already suspended matching contributions to employees’ 401(k) retirement plans.

The International Council of Shopping Centers said last week that holiday sales fell 2.2 percent, the most since it started tracking the data 40 years ago.

Saks posted a 20 percent sales decline in December, twice as large as analysts estimated, after markdowns of as much as 70 percent on designer goods.

Neiman Marcus Group Inc., the luxury retailer owned by Warburg Pincus LLC and TPG Inc., said yesterday it is cutting 375 jobs, or 2.3 percent of its workforce, as spending slows. Neiman reported a 28 percent drop in December sales at stores open at least a year.

To contact the reporter on this story: Allison Abell Schwartz in New York at aabell@bloomberg.net.

Last Updated: January 15, 2009 18:05 EST