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 5% of its workforce, according to the company’s Canadian head office in Burnaby, B.C.
Retail analyst John Winter said 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.
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“Everybody is just about to get hit by a tornado,” said Winter.
Retail analyst Wendy Evans said 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 said 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.
