We know we can do better.
That’s quite an understatement from Gerald Storch, CEO of retail institution Hudson’s Bay Company (HBC), as the firm announces 2000 layoffs as part of a bid to cut $350 million a year in operating costs by the end of fiscal 2018. This comes on top of a doubling of quarterly losses.
So what’s to be done to rescue the retailer which was founded in London in 1670 and counts brands such as Saks Fifth Avenue and Lord & Taylor among its assets?
The answer is a transformation plan built around the foundation of beefing up its digital infrastructure. It’s a multi-year project that is going to take a lot of focus and effort, but it’s essential, argues Storch:
The company is fully integrating HBC digital throughout the business, so that strategic decisions are made holistically around a seamless in-store and online shopping experience, further supporting HBC's all-channel retail model in the future. As a result of this change, the digital strategy for each banner will be even more tightly integrated into the banners overall strategy and direction.
That’s going to involve some organisational restructuring as well, with the firm’s Digital Technology Unit being rolled into the broader IT organisation to form a new HBC Technology Group. This is charged with integrating store technology with online platforms into a single center-of-excellence to address customer needs today and in the future.
Meanwhile digital marketing services will be integrated with a second newly-created marketing center of excellence, which will work with the company's individual brands to develop all-channel marketing strategies to support each brand’s “distinct voice and methods and reach consumers across all touch points”.
Finally HBC Digital Operations functions will be rolled into HBC”s logistics and supply chain center of excellence. The plan is to increase efficiencies and leverage HBC's scale to generate cost savings in digital, in addition to improving customer service.
Of these centers of excellence, the most important is the technology group, says Storch:
That’s the technology, not the direction for the digital banners that lies in the banners, but the technology behind it. We’ve had those separated and that resulted in some duplication and we feel inefficiency, having a separate digital tech group and an IT group. Now those are consolidated into one technology function that focuses on all technology for the company.
Consolidation is also underpinning marketing as well, he adds:
Marketing support functions at HBC, including digital marketing, have now been centralized to allow for cohesive all-channel marketing development across all of HBC's banners. This marketing center of excellence, operating like a world-class in-house agency, will support the execution of each banners distinct marketing strategy with comprehensive media, creative and marketing support and will leverage best practices across the organization. This change enables banners to focus on strategy that will drive business, streamlined activities across marketing functions, and leverages the scale of combined resources.
The objective behind all this, apart from the cost-cutting, is to create a digital strategy that is built into each of the HBC brands or banners, explains Storch:
We basically shifted more of the strategy and direction for digital inside each banner, so it can be integrated tightly into the all-channel model. As we go forward, we can see digital is growing very rapidly, stores are going to have a more difficult time, traffic is down in stores across the board. What we will have built is a really tightly integrated model for stores and digital, so that digital responsibility needs to lie in the banner. Much of the strategy and direction will come from the banner.
Luxury made for digital?
Previously on diginomica we’ve looked at the high end of the retail market as the final frontier of e-commerce, a challenge to certain luxury brands. In contrast, HBC sees its Saks Fifth Avenue luxury business as a potential growth area, says Storch:
At Saks Fifth Avenue, not only do we have a very established business there, but a deeply-penetrated and highly-profitable business online. We love the Saks Fifth Avenue digital business. Luxury was made in some ways for digital. What we’re really working on is making sure that we’ve got that link between the salesperson and the sale online, that we don't lose that in the process of digital growth at Saks and the luxury business.
We’re doing that through things like sales floor and the widget you see on the website, ways that we integrate the personal selling with the Internet, so it just becomes one more tool for the selling associate to use and just one more way in which the customer interacts with their salespersons by using the Internet.
Saks Fifth Avenue is in fact HBC’s most digitally successful brand. It helps, says Storch, that the high end nature of the merchanise on sales means that the profit margins remain similar between offline and online. In other words, customers aren’t coming to the web site in search of discounts.
But there are other digital investments that have not paid off as quickly as they might. HBC paid out $250 milion to buy Gilt Groupe Holdings, a membership-based online retailer that targets itsself at millennial shoppers, with around half of revenue coming from mobile purchasing. With nine million members, Gilt was expected to add around $500-million to HBC’s overall revenue this year.
It hasn’t quite worked out like that, admits Storch, at least, not yet:
In terms of the Gilt business itself, it has been a drag. I want to highlight, however, that the technology we got from Gilt and the people we got from Gilt had been a fantastic part of our business…The business itself is definitely struggling. It was struggling before we bought it and it continues to struggle. Most of what we intended on doing with that business really won’t take place until this fall. We’re certainly disappointed that we weren't able to move faster, but the technological changes to accomplish those things are taking longer than we thought.
But there have been some early returns, most notably when it comes to mobile app technology. Again Saks Fifth Avenue is the poster child here, says Storch;
Download the saks.com app from the Apple store. This app continues to fly and exceed expectations. That app is blowing by any expectations I’ve ever had for what a retail app should be able to do in business. And that’s because of the technology with Gilt and the ideas from the Gilt team and from the programmers from Gilt, who have taken a hold of that app and turned it into something very popular. Last week it was for the second time, on the Apple homepage, on the App Store homepage, as one of their favorite apps for the innovation that's there.
Overall, the Gilt experience is perhaps symbolic of the long journey that this venerable US retailer is embarked on. The direction is set, the travel is taking longer than expected - and the external conditions aren’t making life any easier. Storch insists that HBC is being very realistic about the challenges ahead:
We’re planning for industry conditions to remain very tough. We want to develop a business model that can succeed even in tough conditions and that’s where our heads are, that’s what we are doing. We aren't acting like the sun is going to come out and its going to be all sunny and people are going to throng to the malls and want to buy at department stores.
We are operating under the assumption that the business will remain difficult and that we’re going to have to have a more efficient, nimbler model than our competitors, lower our cost of doing business, particularly in bricks-and-mortar and we’re going to grow rapidly online to compensate for that. We want to have the shift that’s able to do that in these turbulent condition. We are focused on no excuses, leading the pack, doing the things we have to do to get ahead of this, so that we don’t have to sit here and apologize quarter after quarter for not doing our numbers.
It’s a big job ahead. The long proud history of HBC as a retail institution has done nothing to protect it from the digital disruption of the retail sector. There is however an underlying confidence among the HBC management, summed up by executive chairman Richard Baker when he says:
At this critical moment of change in the retail industry, I believe in the future of our all-channel model as we adapt to meet the evolving needs of our customers.
So the belief is there; now it’s all about the delivery. We’ll be keeping a close eye on this one.