Add Best Buy Canada and its sister chain, Future Shop, to the growing list of retailers struggling in Canada.
The U.S.-based retailer posted better-than-expected earnings for the first quarter, turning an $81-million loss this time last year into a $461 million profit this year, despite falling revenues. But the company’s Canadian division proved a drag on the numbers.
Best Buy doesn’t break out numbers specifically for Canada, but its international division covering Canada, China and Mexico saw revenue plunge 10.5 per cent, to $1.25 billion U.S. Same-store sales (excluding newly-opened or closed stores) fell 5.8 per cent, the company reported.
“Canada, at this point in consumer electronics, is a very, very soft market,” Best Buy CEO Hubert Joly said in a conference call Thursday, as quoted at the Financial Post.
“We’ve seen significant industry declines. We’re holding our own very well in comparison to the market.”
Best Buy has been struggling in recent years, both in Canada and elsewhere, as consumers turn to online retailers like Amazon and to specialized retailers like Apple and Samsung stores.
The company abruptly shut down 15 Best Buy and Future Shop locations last year, laying off 900 people. It announced another 950 layoffs this January.
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Abercrombie & Fitch first announced its plans to close 180 stores by 2015 more than two years ago. In its most recent quarterly report, the company said it had closed 10 stores by November of last year and would close another 40 stores by the end of its fiscal year. This total does not include the 20 stand-alone Gilly Hicks brand stores, which the company also plans to shutter this year. Abercrombie & Fitch’s stock has struggled, posting one of the largest declines in the S&P 500 during 2013. To improve performance, the retailer is planning to shift marketing for its Abercrombie & Fitch to older shoppers while transforming its Hollister stores to a fast-fashion approach in line with H&M and Zara. A succession plan for CEO Mike Jeffries is also in the works. Last year, shareholders from Engaged Capital publicly campaigned for Jefferies’ dismissal, citing the retailer’s failure to adapt to fast-fashion, and Jeffries’ statements about excluding customers that he thought were too heavy for the brand. Read more at 24/7 Wall St.
Early last year, Barnes & Noble announced plans to shut a third of its stores over the next 10 years. As of this January, the company had already closed some 14 retail locations, dropping its store count to 663 from the 677 it had when the announcement was first made. Particularly painful for many book-lovers, the retailer chose to close its one-time flagship store in New York City this January. While cost-cutting has helped the company post profits, by some measures the company’s prognosis remains bleak. Book retail has increasingly shifted to online and e-books, dominated by Amazon.com. But while Amazon.com has noted strong sales of its Kindle e-reader, Barnes & Noble’s own e-reader, the Nook, has struggled. Revenue of the bookstore’s Nook division, which include hardware and digital sales, fell by more than 50% year-over-year, and the segment remains unprofitable. Read more at 24/7 Wall St.
Aeropostale is the in the midst of closing 40 to 50 stores in 2014, and plans to shutter some 175 stores in total over the next few years. The teen clothing retailer’s net income dropped to $34.92 million in 2013 from $229.5 million in 2010, and its EBITDA fell to $157.89 million last year from $435.45 million in 2010. Pressure from competitors such as Gap and Abercrombie & Fitch, as well as declining mall sales, has driven the company’s share price from $32.08 in 2010 to $7 as of March 2014. Private equity firm Hirzel acquired 6% of Aeropostale in November 2013. Currently, the company is rumored to be in talks with Barclays Plc. because it is seeking either additional financing or to be acquired. Aeropostale’s fast-fashion shipment model, which it took up last year, has largely been unsuccessful. Read more at 24/7 Wall St.
After J.C. Penney’s sales began to steadily decline, the company tasked Ron Johnson, formerly retail head at Apple, with reinventing the retailer’s pricing strategy, only to see sales, earnings, and cash flow fall off a cliff. After years of avoiding closing stores, the company has recently said it would be shuttering several locations. At the start of 2014, J.C. Penney announced 33 store closings, to be completed by May, leading to the loss of about 2,000 jobs. Some investors and pundits believe the company has not been aggressive enough in cutting stores. As of November, the company had 1,095 department stores, down only slightly from past years. Not all news has been bad for the retailer, which reported surprisingly strong earnings in February. Additionally, Standard & Poor’s recently upgraded the retailer’s credit outlook, although it noted changes will still be necessary to improve its credit long-term. Read more at 24/7 Wall St.
Office Depot merged with rival OfficeMax in November. Since the merger, the company has been cutting jobs at its combined headquarters. The next stage in integrating the two retailers, the company has stated, will be to cut store count. CEO Roland Smith admitted the company’s merger was difficult for many workers, telling the Orlando Sun-Sentinel that “it is difficult to focus on business when your personal future is uncertain.” The company had 1,912 retail stores at the end of its latest fiscal year, including 823 OfficeMax stores. Since the merger, the company has closed 15 of its Office Depot stores and seven OfficeMax locations. Read more at 24/7 Wall St.
During the Super Bowl, RadioShack attempted to poke fun at itself, running an ad touting its store remodelling that playfully referenced the store’s reputation as a throwback to the 1980s. But a reinvention alone may not save the electronics retailer — its previous attempt at rebranding itself as “The Shack” never caught on. The retailer recently announced it would close 1,100 out of its more-than 5,000 stores. The company has deemed these closings as critical to its cash-management and turnaround plans, which it hopes would help reverse recent poor results. Both the company’s top and bottom lines have declined considerably in recent years, and its operating cash flow is also down from years past. The fourth quarter of last year, which coincides with the holiday season, was especially troubling. Sales declined 19% at stores open at least a year because of lower foot traffic and weak performance in mobile sales. Read more at 24/7 Wall St.
Sears has been heading downhill since 2005, when Wall Street billionaire Edward Lampert merged Sears Roebuck & Co. with Kmart in a deal worth $11 billion. Since 2010, the company has closed roughly 300 stores. One of the few surges in the company’s share price came at the end of January, after it announced the closing of its flagship store in Chicago in April. Shedding its assets has been a major part of the company’s business for years. The company has not only dumped stores, but entire businesses, including Orchard Supplies Hardware Stores, Sears Hometown & Outlet Stores, Lands End, and a part of its stake in Sears Canada. Cowen analyst John Kernan recently noted that he expected Sears Holdings to close an additional 500 stores going-forward. Read more at 24/7 Wall St.
Staples recently announced plans to close 225 stores, or roughly 12% of its total count, by the end of 2015. The closures reflect both the company’s struggling sales totals, as well as its shift away from brick-and-mortar business to online retail. In its recent earnings release, the company said almost half of its sales come from online orders, and store closures reflect an opportunity to save money while improving the company’s bottom line. This is not the first time headwinds have lead the company to close stores. In 2012, Staples shut 60 stores, mostly in Europe, as part of its plans to cut costs. The company referred to its shift to online sales. Read more at 24/7 Wall St.
A Toys “R” Us was taken private by a consortium of companies in 2005. Nearly a decade later, disagreements among the company’s ownership and a high debt burden have weighed down the retailer. In all, Toys “R” Us spent nearly three years trying to time an IPO, before backtracking last May. In early March of this year, industry sources told The Record’s NorthJersey.com that the company would soon close some 100 stores. Whether or not the company decides to close stores, major changes may be needed. Real estate giant Vornado, one of the three co-owners of Toys “R” Us, recently announced a more than $240 million writedown on its investment in the company. Among the reasons it gave were the company’s 2013 holiday sales results, “and our inability to forecast a recovery in the near term.” Toys “R” Us has struggled to keep up with online competition as well. A December report from Bloomberg indicated it was easier to find the holidays’ hottest toys on Amazon.com than through Toys “R” Us’ website. Read more at 24/7 Wall St.
Best Buy is not alone in the growing crisis among traditional retailers. The Post notes revenue from electronics retail sales has fallen for the past half year, sliding 2.6 per cent in the quarter ending May 3.
Overall retail sales in Canada have seen tepid growth. The latest numbers showed a decline of 0.1 per cent in retail in March, surprising economists who had expected to see growth.
In this harsh environment, Sears Canada has been busily closing stores and the U.S.-based parent company has been musing about selling off the Canadian operation. (Question: Who would buy it, and why?)
Target entered Canada last year with expectations it would turn a profit by the end of 2013, but has so far lost $1.5 billion since opening its first stores last spring.
Homegrown retailers are also struggling, with fashion chain Jacob announcing recently it will close all its stores.
And as if that wasn’t enough pressure on the industry, a new problem is emerging: Gas prices.
In a report released this week, National Bank of Canada noted that the percentage of retail spending going to gas is near an all-time high, above 13 per cent of all retail spending in Canada.
By comparison, in the U.S. gas amounts to about 10.5 per cent of retail spending -- a record high gap between the U.S. and Canada. Canadians now pay about 30 per cent more for gas than Americans.
National Bank says this is eating into spending in the rest of the economy, helping to explain sluggish retail sales.The report also noted that Canada’s job growth has hit a weak patch, with essentially no net new jobs created in the six months to April. That, too, impacts retailers’ ability to grow sales.