TORONTO – Major Canadian retailers Best Buy Canada and Sears Canada announced layoffs totalling some 1,600 on Thursday, a move analysts are blaming on the popularity of online shopping and the shrinking demand for supersized brick-and-mortar stores.
Sears Canada says it’s letting go 700 workers across the country in a bid to “right-size” and restructure its business. About 360 jobs will be from its department stores, and another 300 will be from its distribution centres. The remaining will be cuts to head office and other support areas.
Meanwhile, electronics retailer Best Buy also confirmed that it will close eight Future Shop and seven Best Buy big box stores across the country as part of a “transformational plan” to replace them with small concept web and mobile locations over the next two and half years.
The closures will result in 900 job losses, around five per cent of its workforce, according to the company’s Canadian head office in Burnaby, B.C.
Retail analyst John Winter says layoffs following the frenzied Christmas shopping season are commonplace.
“February is the cruelest month in retail because you find out how you’ve done in the holiday season,” he said. “It’s cyclical.”
Despite this, the layoffs and the store closures can also be a signal that consumers are still not spending as much money in stores compared to pre-recession levels, and when they are making purchases — they’re increasingly doing so online.
Winter says the electronics sector has been particularly hurt by declining sales in music and large-screen television screens, two areas that used to be big money-makers.
They’re also facing tough competition from discounters and online stores, a victim of what’s known as “showrooming” — when people browse in stores and then buy the products more cheaply online from competitors such as Amazon.
Retailers are also preparing for the entry of U.S. discount chain Target, which will be making its Canadian debut in March. Target plans to open between 125 to 135 stores in former properties owned by homegrown retailer Zellers.
“Everybody is just about to get hit by a tornado,” said Winter.
“(Target) is great news for consumers but it’s bad news for existing and traditional big boxes like department stores and big boxes such as Best Buy.”
Retail analyst Wendy Evans says these latest job cuts and store closures show that Canadian retailers are learning that they don’t need a lot of space, or employees, if a large share of their business is coming from online.
“This is a beginning of restructuring of the retail structure that’s been in the works for a while,” she said. “Obviously with the increase of online selling, there is more market share… therefore the need for bricks-and-mortar is changing.”
Evans says storefronts will never be eliminated, but with the rising cost of retail space, and lack of vacancies in Canada, many companies are looking at this area first to “fine-tune” their business models.
“I think we’ll find that the big boxes are going to develop smaller boxes to fit themselves into the urban market,” she said. “We’ve been seeing that for some time. I think there will be a general decline over time in the size of retailers.”
She notes it will be particularly interesting to see how Sears transforms itself in the coming months, as it competes with Target and discount retailers for consumers in the areas of home goods, appliances and clothing.
“We have a lot of low-end competitors and you really have to be different,” said Evans. “Everybody is nipping at their heels.”
Sears Canada has been revamping operations to encourage more customers to return to its stores after years of declining sales.
Earlier this month, it announced it was partnering up with the Aldo Group and Buffalo International Inc., who will be designing footwear and clothing lines for the company.
Sears currently has 195 corporate stores, 269 hometown dealer stores, eight home services show rooms and more than 1,500 merchandise pick-up locations.
Last December, it announced it was closing four of its prime stores in three cities — Vancouver, Calgary and Ottawa. The locations are being taken over by major U.S. retailer Nordstrom for its first Canadian locations.
By Thursday’s close, its shares were down a penny, or 0.10 per cent, to $9.54 on the Toronto Stock Exchange.
Meanwhile, Best Buy Canada says it continues to operate more than 120 Best Buy and Best Buy Mobile locations along with over 140 Future Shop stores across the country, with the immediate closures affecting stores in B.C., Quebec, Ontario, Alberta and Manitoba.
Best Buy Canada and Future Shop are both owned by Best Buy Co. Inc., the American consumer electronics giant that controls nearly 20 per cent of the American market.
Note to readers: This is a corrected story. An earlier version said Sear’s stock price declined 10 per cent
Thursday, January 31, 2013