Hudson’s Bay Co., parent of American banners Saks Fifth Avenue (plus its off-price unit, Off 5th) and Lord & Taylor, on Thursday unveiled a "Transformation Plan for North American Operations" that includes cutting some 2,000 positions in order to create a “flatter, more nimble organization,” according to a company press release.
In February, the company launched a comprehensive review of its business operations to identify efficiencies, streamline processes and improve back of store productivity. That means floor associates in stores will largely be spared from the workforce reduction. Once fully implemented by the end of Fiscal 2018, the move will save more than $350 million annually, including $75 million in savings previously announced in February, while $170 million in savings is anticipated to be realized during Fiscal 2017 with $125 million accruing from actions taken Thursday.
Part of the plan is to create two leadership teams, one focused on Hudson’s Bay (to accelerate plans to build upon its successful transformation in Canada) and the other on Lord & Taylor (to increase the pace of change there, with an emphasis on driving e-commerce and operating stores more efficiently), the company said.
Hudson's Bay, a self-described "global consolidator," has been gobbling up department store chains in North America and abroad, but now it's taking a closer look at streamlining its own operations.
A year ago, the company said it would make some $750 million to $850 million in capital investments, with about 70% going to growth and 30% to maintenance. Tech investments, the company said then, would see 30% of that budget, including robot-based automation of the its Toronto distribution center and a new U.S.-based fulfillment center. About 40% was slated to remodel stores, including its Saks Fifth Avenue flagship in Manhattan.
But that dedication to physical expansion and real estate investments appears now to be getting checked by the need to examine its size, explore efficiencies and give attention to its digital side.
“We are reallocating resources to accelerate the opportunity we see online, as we run our brick and mortar operations more efficiently," HBC Governor and Executive Chairman Richard Baker said in a statement. "Our team is taking the right steps to optimize our North American business and create efficiencies by leveraging the scale of our company. At this critical moment of change in the retail industry, I believe in the future of our all-channel model and we are adapting to meet the evolving needs of our customers.”
The company is well aware of the impact of the internet. Last year the company announced a robot-supported distribution center near Toronto that uses automated distribution technology to improve e-commerce fulfillment processes, and late last year said those systems would be expanded to its U.S. distribution center, all to aid fast-rising e-commerce sales. On Thursday, the company outlined plans to integrate digital functions in order to develop and maximize the impact of all-channel solutions for marketing, operations and technology. To increase efficiencies and leverage the company's scale, its IT and Digital, Store Operations & Visual Merchandising, Buying & Planning and Marketing operations will be realigned, the company also said.
But the move suggests that Hudson's executives may not have foreseen the current flux in physical retail, which is affecting the department store sector in particular. Moody's Investors Service has released a series of reports noting that the segment is under pressure. “The majority of retailers remain fundamentally healthy,” Moody’s Lead Retail Analyst Charlie O’Shea said in a statement emailed to Retail Dive Wednesday. “But as select groups of retailers continue to deteriorate — in particular department stores and specialty retailers — we believe the distressed ranks will keep growing, fueled in part by distinct vulnerabilities within the B2/B3 retail population.”
In his statement Thursday, CEO Jerry Storch suggested the company has to speed up its response to the rapidly evolving retail environment. "These changes will enable us to react faster to the ever-changing environment and evolving customer preferences to get ahead of industry developments," he said. "I appreciate the diligent work of our team to transform our organization as we move forward.”