Hudson’s Bay CEO – give retail customers better stores, complemented by digital

SUMMARY:

People do like department stores, says Hudson’s Bay CEO, just not the poor quality ones. So, get your digital strategy up to speed while focusing on what a store should be like.

People don’t dislike department stores – they dislike bad department stores and they like good ones.

As the future role of the offline department store has become an increasingly upfront topic in omni-channel retail circles over the past twelve months, there has been a lot of talk about the need to offload shops as real estate or to re-invent their function as distribution centers for online order fulfilment.

There are plenty of examples of both in action and there’s validity in both points of view. But the statement quoted above, from Hudson’s Bay Company’s CEO Gerry Storch comes across as one of the obviously commonsense statements on the subject. It’s a point of view that is pragmatic and drills down on the need for a good online/offline mix centered around mutually great customer experiences.

This, says Storch, is “the answer to the online-only threat”. He expands on his point:

There is a dialog that the internet is killing department stores, a pretty bold dialog out there right now. We all hear and read it and we know that there is truth to the fact that there is a threat from the internet in general. But the answer to that can’t be to dis-invest in the business. The answer is to invest to make the department store experience better.

It’s a complementary mix that needs to be struck, he adds:

I think one of the most important [things] strategically is recognizing that we do have stores. And so, the internet is also a tool to help us to grow and that stores are competitive advantage…Along with having stores come the sales people, and so we have service and personal relationships with our customers. So, the tools that enable us to deepen those personal relationships, and the relationships between the customer and the store are those that are uniquely valuable for us from a competitive standpoint, because internet-only competitors can’t have those.

Storch goes further, arguing that far from cowering in fear from the disruptive clout of online-only businesses, it’s time for those with offline assets to stand proud:

When I talk to internet-only people, they are jealous of our service, they’re jealous of our fitting room, they’re jealous of things that you can only have because you’re bricks -and-mortar retailer.

Digital thinking

None of this is to suggest that Hudson’s Bay doesn’t place a high importance on onilne business, with double digit year-on-year digital sales growth reported across all of its various department store banners:

The answer I give the team all the time is that in order to win it’s not simply a matter of getting better online and getting more efficient, we have to be better in stores too. One of the core principles of our Transformation Plan was that it doesn’t matter where we save money, we need to save money. The most efficient providers in the future are going to be the ones that prevail. So, we focus very heavily on reducing the cost of doing the business in the store base model, but we also are focused very heavily on the cost of doing business and the digital model. The digital model is less mature and so there are many more opportunities to automate, for example with robotic technology or to process design with other technology in the online world. We have to do both and be very heavily focused on both.

One major initiative underway at present is to get all of its various brands onto a common platform. Lord & Taylor is moving onto the same online platform as Saks Fifth Avenue and Saks OFF 5TH, while Hudson’s Bay itself is expected to migrate over in early 2018. Storch explains:

Using a combined platform across North America allows us to leverage the same infrastructure across all of our banners, improving our ability to test and implement new features… just functionality, just having them work well and to be state-of-the-art. That’s why we’re pleased as we continue that banners to our common platform because it’s just a much better experience than what we’ve had in the past.

As part of that, I would highlight the mobile experience on our common platform is so much better than what we’ve had on our other the platforms in the past. And the growth in mobile is important, as you know, it’s the most rapidly growing sector or source of traffic, [so] that’s important to have a great mobile site. We’re just trying to get that in all of our banners as we go forward.

Meanwhile a redesigned website for the Gilt online business that Hudson’s Bay acquired in 2016 for $250 million went live last week. This hasn’t always been viewed by investors as a wise investment, but Storch remains confident that it was a good move:

It’s been year and a half, two years and finally, we’re making some of the improvements that we always intended on making. But systems can be that way, that it takes some time to get the engineering work done…Gilt is our highest online penetration, that being numerous but it’s 100% online. And I bring it up because it was a deteriorating business when we bought it. We have been very pleased, I emphasize, by the technology and by the team that came with deal.

That technology has been transferred across to other Hudson’s Bay brand, he adds, citring the example of the Saks 5th Avenue app:

[This] was developed and sponsored with the Gilt [technology and] has come on light years from what I thought was little bit behind as an app to one of the leading apps in the retail industry today. The penetration of sales that are done on that app are approaching double digits, which are rarely seen in department store. So, I think we’ve gotten a lot of Gilt from the technology side that we kept, that we bought the company for and we wanted.

Looking ahead, Storch sees further digital innovation making inroads into the retail sector, pointing to voice-enabled tech as a case in point:

I think it’s lot like the internet itself, where when it first start people think that it’s the exclusive domain of the people who do it first. I don’t believe that’s true. I think voice-enabled technology will be important just like voice recognition technology’s grown in general in commerce. Just like the internet itself, the analogy might be the internal combustion engine, where when it first came out, well, that’s only for car companies or something that you should invest in.

I would say the same thing with voice-enabled shopping that initially [will] be effective particularly for replenishment items or more commoditized items. It’s going to be very difficult to buy fashion that way – if we can’t see it and get some sense as to what the fabric is like and all the complexities in fashion online in general [are] magnified if we’re just doing it through the voice.

But over time the voice will be very important as an element of net just the mobile has come up in the comparing point. But it will be for everyone, not just for the companies that start out that way. There will be competitors, there will be Amazon, there will be Google and there will be Apple, everyone will have one.

Having said the A-word, Storch acknowledges that Amazon has changed the nature of the retail sector:

There is no doubt that we’re going through a period of much more rapid change than any of us have witnessed in retail before. That’s why we’re so focused on the digital side of the business and why we highlight the 20% growth in our digital business in our department stores and why we’ve made the investments in the new Gilt in order to get that business move in the right direction as well, and also the investments we’re making in fulfillment in everything else. There is no reason, why we can’t keep up or even exceed the best in class when it’s comes to digital performance, and I think we’re doing that.

My take

This ‘not afraid to love the department store’ meme is something that we’ve seen more and more of this year and it’s a development I thoroughly welcome. Storch is absolutely correct – it’s not the basic idea of the department store that people don’t care for, it’s the poor customer experience that has been allowed to flourish within them that matters. Getting that right and complementing it with a superb online experience is the retail challenge that really needs to be met head on.

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Image credit - Hudson's Bay

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