Rocky road for retailers as more consumers move online,
As Macy’s cuts about 5,000 jobs, several online decisions point to a rocky road in the sector
A launch, an acquisition and 4,800 jobs lost point to a rocky road for retail in 2016 as more shopping shifts online.
Thursday saw the official launch in Canada of the popular online shopping site Wayfair, which sells furniture and home decor at value prices. And Hudson’s Bay Co. announced that it has agreed to buy online retailer Gilt Groupe Holdings for $250 million (U.S.) in cash to advance the company’s off-price business by integrating it with Saks OFF 5TH stores.
Meanwhile, U.S. retailer Macy’s announced it is cutting up to 4,800 jobs and trimming its profit outlook after disappointing holiday sales.
“I think Macy’s is likely to be a canary in a coal mine,” said Ken Perkins, president of research firm Retail Metrics. He said retailers witnessed an acceleration of the shift toward online and mobile holiday spending in 2015.
Retailers are struggling to compete in a world where increasingly demanding shoppers are going back and forth between stores and mobile devices when they buy. Overall retail sales meanwhile, remain sluggish.
As a result, analysts expect more chains will close doors in 2016 and take other steps to cut costs.
“I think we’re going to see select Canadian bricksand-mortar stores closing and in some cases chains disappearing,” said David Ian Gray, principal of the national retail strategy firm DIG360, based in Vancouver. “We’re really in flux.” Although Canadians lag behind U.S. shoppers when it comes to online shopping, they are starting to become more comfortable with it and are beginning to buy a greater variety of items online, Gray said.
“I think we’re going to see select Canadian bricks-and-mortar stores closing and in some cases chains disappearing. We’re really in flux.” DAVID IAN GRAY PRINCIPAL OF THE NATIONAL RETAIL STRATEGY FIRM DIG360
The launch: Wayfair.ca Already the biggest online-only furniture and home decor store in the U.S., Wayfair is moving into Canada, pitting itself against Ikea, Winners and HomeSense (owned by TJX Canada), and Home Outfitters (owned by Hudson’s Bay Co.).
Online competitors include Overstock.com, which also ships to customers in Canada.
Canadians are already shopping Wayfair.com, co-founder and CEO Niraj Shah said. The Canadian website will make it easier and cheaper for Canadian customers and increase market share, he added. “We were nowhere near maximizing the opportunity,” said Shah, adding that products will be priced differently from the U.S. site, based on delivery costs, but many will be sold at the same price plus the exchange rate.
Orders will be shipped from consolidation centres in Kentucky and Utah. Wayfair, based in Boston, employs more than 3,000. The Wayfair.ca site will include products from DwellStudio.com and Birchlane.com.
“We think there’s a big opportunity in Canada. The Canadian market doesn’t get serviced the same way as the U.S. market, despite the fact that so many Canadian shoppers are close to the border,” Shah said, adding that shipping is free on orders over $75 and the average order is triple that much. According to the company’s most recent annual report, Wayfair delivered 5.2 million orders in 2014, reaching $1.3 billion in net revenue. The company was founded in 2002.
The acquisition: HBC and Gilt Groupe Hudson’s Bay Co. announced Thursday it will fold new acquisition Gilt Groupe into its operations as part of an effort to beef up its online offering across its banners, which include Saks Fifth Avenue and its discount arm, Saks OFF 5TH.
A spokesman for HBC would not say whether the move could eventually lead to job losses. Gilt has more than nine million members, including a devoted millennial following, according to HBC. “HBC and Saks OFF 5TH are the ideal home for Gilt and our members,” said Michelle Peluso, chief executive officer of Gilt. “HBC understands our proposition and is committed to positioning our business for further success. Our members will find having a brick-and-mortar presence valuable and a positive addition to the Gilt experience”
Gilt returns will be accepted at Saks OFF 5TH stores in the hopes of increasing customer traffic. Gilt concept stores will be opened in Saks OFF 5TH locations. The move will allow the two companies to streamline shipping costs, increase purchasing power and share inventories.
HBC expects to fund the $250 million purchase price plus transaction costs using cash on hand.
The first Saks Fifth Avenue and Saks OFF 5TH stores are scheduled to open in Canada this year.
The job cuts: Macy’s Macy’s, which also operates Bloomingdale’s, is the largest department store chain in the U.S. On Thursday, the retailer announced it was slashing nearly 5,000 jobs, about 2,110 of which will come from reducing staffing at stores, eliminating duplications in back-office operations and consolidating regional store groups. The remaining cuts will come from the store closings that Macy’s announced last fall, a spokesman said.
As of Wednesday, Macy’s had about 163,000 workers. It will close 40 of its 770 stores under the Macy’s name in the U.S., most of them in the spring.
Macy’s says sales at existing stores fell 5.2 per cent in November and December. It said the warm weather was the biggest culprit and business was also hurt by lower spending by international tourists.
But increasingly, Amazon.com and other online rivals are becoming a threat. In response, Macy’s has expanded its online services. It purchased upscale beauty brand Bluemercury last year and made its first foray into discount stores under Macy’s Backstage.
“In some cases, there will be short-term pain as we tighten our belt and realign our resources,” said Terry J. Lundgren, chairman and chief executive at Macy’s Inc. in a statement. Lundgren said that the company is buoyed by a strong performance in its online business. For the November and December period, Macys.com and bloomingdales.com filled nearly 17 million online orders, up 25 per cent from the same year-ago period.
Macy’s said Wednesday it expects profit for its fiscal fourth quarter and full year to fall short of its previous estimate. With files from Star news services