As Hudson's Bay Co. struggles with soft sales in its core women's apparel business, it is shifting more attention to another, less prominent, category that is starting to get a bounce: home goods.
Toronto-based HBC isn't alone in trying to cash in on a rise in home-related sales. Across North America, those businesses are benefiting from consumers increasing their spending on new homes and fixing up existing ones and then buying other items to enhance their houses, HBC executives say.
As a result, HBC is racing to stock more home goods at its chains, especially its U.S.-based Lord & Taylor, which essentially hasn't carried home decor items in the past.
"One of the better categories is home over all – much better than apparel," Jerry Storch, chief executive officer of HBC, said on an analyst conference call on Tuesday after the company reported disappointing third-quarter results. "That's not just true for us – it's true economy-wide."
Retailers have grappled with weakening demand for fashion as shoppers shift their spending to home goods, tech items and experience-related activities such as travelling and eating out, pinching the bottom line of retailers such as HBC and forcing them to rejig priorities and offerings.
The changes were reflected in HBC's third quarter. It reported a loss of $125-million or 69 cents a share, compared with a profit of $7-million or 4 cents a year earlier. Sales grew to $3.3-billion from $2.57-billion, helped by the acquisition last year of the European Galeria Kaufhof.
Its sales from stores that were open at least a year fell by 3.6 per cent, after adjusting for currency fluctuations, and by 4 per cent when including foreign-exchange effects. Those sales, a key retail measure, grew 12.9 per cent on a constant currency basis in its digital business at HBC's legacy chains, which exclude its European operations and Gilt.com. HBC had already last month lowered its 2016 outlook, citing lower-than-expected third-quarter sales.
On Tuesday, HBC shares fell 7 per cent to $13.52, hitting their lowest point since the company went public again in late 2012 on the Toronto Stock Exchange.
Still, the company's results can be confusing because of last year's Kaufhof acquisition and the rents that are now paid to real estate income trusts, company executives said.
The results should become easier to compare year-over-year in the next couple of quarters, they said.
And one of the brighter notes for HBC is the burgeoning demand for home goods, they said. HBC in Canada and Kaufhof in Europe are already well stocked in those lines, while the company is testing home furnishings at Lord & Taylor.
"The beauty of the department store concept is that we are able to shrink businesses that get weak, in cyclical weakness, and we can grow businesses that are getting strong," HBC's executive chairman and a U.S. real estate mogul Richard Baker said.
Maureen Atkinson, senior partner at retail consultancy J.C. Williams Group, said traditional retailers are feeling the heat of online players, especially Amazon, which has bolstered its fashion offerings.
Other fashion specialists, such as Zara and H&M, have also added home goods, she noted. In the case of H&M, "it fits in with their fashion: good prices and they change the goods all the time … cheap and cheerful."
She added the downturn in apparel is more acute among mid- to high-priced players such as HBC, rather than fast-fashion players such as Zara and H&M.
At HBC, sales are declining in women's handbags as well, although on a tear in its athletic wear department – known as athleisure because many of the items are worn in leisure time as well – and in the men's clothing and shoe categories, he said.
"We say, 'Men are the new women,'" Mr. Storch added, noting women's apparel sales are under pressure globally except in Australia.
"There's been a shift from
apparel to home goods."
Last year, when HBC and other North American retailers felt a slump in apparel sales amid unusually warm fall and winter weather, they got stuck with excess inventory, which they had to clear out at discounts, hurting their margins. HBC is among chains that lowered their inventory levels in 2016 to avoid last year's margin squeeze.
In HBC's third quarter, those levels dropped about 2 per cent from a year earlier "as a result of the company's disciplined focus on this area," it said.
As for the upcoming and crucial holiday shopping season, retailers will enjoy two extra days compared with 2015.
"I would expect it to come late and strong for this holiday season given the calendar and the extra days before Christmas."