Will physical and digital retail operations perform better on their own?
The lure of high valuation, standalone digital businesses is leading some retailers in a new strategic direction.
While most sales come through stores, online is accelerating because of shopping trends begun at the onset of the pandemic. The challenges of operating a growing and profitable omnichannel business, however, have some seeing a windfall in retailers spinning off online operations.
A Wall Street Journal reported earlier this week on plans by the Hudson’s Bay Company to split Saks Fifth Avenue physical and digital retail businesses into two units. The digital unit, which is preparing for an initial public offering, will be known as Saks going forward. The company expects Saks to be valued at $6 billion.
The activist investor Jana Partners, which has taken a stake in Macy’s, Inc., is pushing for the retailer to follow the Saks’ example. Jana Partners sent a letter to Macy’s board last week urging it to spin off the online business, which generates about $8 billion in annual revenues, according to another Journal report.
In a lot of ways, this approach contradicts both expert advice and retailer investments to weave physical and online into unified shopping experiences.
“Headless commerce,” which leverages application programming interfaces (APIs) to reap the benefits of bringing together loosely coupled processes, has become the e-commerce architecture du jour. It has added flexibility for retailers and consumer-direct brands to separate considerations for consumer-facing experiences from back-end processes like order management. Before, these were monolithic with no choices.
The same logic applies to the separation of physical and digital businesses. Practicing “headless retail” should enable both online and physical operations to flourish independently, given their distinct strengths and assets.
The pandemic rewards those who move fastest, and the ability of a digital business to keep pace with shoppers without the financial, technical and cultural constraints of the legacy business will help achieve that.
Newly isolated physical businesses will also need to step up their games and similarly leverage APIs to orchestrate more competitive face-to-face retail.
While we can expect newly pure-play banners to collaborate as unified entities, the fact they will operate independently opens possibilities with the broader retail community. New forms of partnerships and alliances are likely to spring up. Testing and learning will increase as each looks to leverage APIs to access all manner of technologies to deliver more unique, compelling and seamless experiences.
- Saks E-Commerce Unit Begins IPO Preparations – The Wall Street Journal
- Jana Partners Takes Stake in Macy’s, Urges E-Commerce Spinoff – The Wall Street Journal
- Why Levi’s is opening 100 new stores even as pandemic online sales boom keeps growing – CNBC
DISCUSSION QUESTIONS: Are retailers’ sales and profit objectives more likely to be achieved by separating physical and digital operations or by taking a unified approach? Will more companies look to unify operations or do you see more following the lead of Saks?