The e-commerce sector has experienced significant growth in recent years. As a result, many businesses have decided to spin off their e-commerce sites into separate entities to bring focus and modularity to their digital operations. Customer needs, competition, and technology typically drive this decision.
By spinning off into a separate entity, companies hope to take advantage of emerging trends and opportunities while remaining agile in response to customer demands and requirements.
In this paper, we will explore the reasons behind this choice and the potential benefits of spinning off an e-commerce site. We will also consider some common challenges associated with this decision such as customer retention and cost. Lastly, we will discuss how a spinoff can be executed successfully and guide companies considering this option.
Saks Fifth Avenue owner spins e-commerce site into separate business
Saks Fifth Avenue’s parent company, Hudson’s Bay Company, recently announced its decision to spin off Saks Fifth Avenue’s e-commerce site as a separate business.
The decision comes as part of the company’s plans to focus on expanding their e-commerce operations and pushing for digital transformation.
In this article, we will explore the background behind this decision and look at the potential reasons why the company chose to take this route.
History of Saks Fifth Avenue
Saks Fifth Avenue began as a luxury retail institution in 1924, when Horace Saks and Bernard Gimbel opened the first Saks Fifth Avenue location in Manhattan. The store provided customers with a carefully chosen collection of designer apparel, accessories, cosmetics and home furnishings that distinguished it from its competitors. This commitment to quality was reflected in their iconic slogan: “A Saks Fifth Avenue Customer is Always Right.”
The company expanded its product offerings and grew its presence across the United States with more than 20 stores nationwide. In 2013, Hudson’s Bay Company acquired Saks Fifth Avenue and announced plans to spin off its e-commerce site under “Saks Off 5th,” to focus on the younger customers.
Saks Off 5th was launched to provide customers with an online shopping experience that offered high-quality goods from some of the world’s top designers at competitive prices. To differentiate itself from other online retailers, Saks Off 5th prioritised customer service by providing personalised shopping experiences for their customers, regardless of how they shop. By opening stores nationwide and continuing their online platform’s success, Saks Off 5th became one of North America’s most successful high-end discount outlets within just three years since its launch.
Overview of e-commerce market
The e-commerce market has grown substantially in recent years, with businesses and consumers increasingly prefer shopping and conducting transactions online. According to data from the U.S. Department of Commerce, total retail sales in the United States were $3.36 trillion in 2018, with 14% coming from e-commerce purchases made online or through other digital channels such as mobile apps. This growth is expected to continue, with some estimates predicting e-commerce sales will reach 17% of total retail sales by 2022.
With the increasing popularity of online shopping, many companies are looking for ways to capitalise on this trend by launching their e-commerce sites or spinning off existing businesses into separate entities focused entirely on digital sales. A spin off is a corporate structure that creates a new company either from an existing division within the parent or from assets owned by the parent company. The main purpose of a spin off is to unlock shareholder value by allowing a business to focus on its core competencies without worrying about broader corporate strategy decisions that may be outside its scope or ability to influence. In this arrangement, both parent and daughter companies can benefit financially while retaining an ownership stake in each other’s operations.
Spinning off an existing business into an independent entity can also be beneficial strategically, as it can help the original company refocus on its core competencies while also enabling more agility in responding quickly to changes in customer preferences and behaviours without having to worry about potential conflicts between different departmental goals within a larger organisation. By splitting off an existing portion of their business into a separate entity focused solely on e-commerce operations (ie: building a stand-alone site or platform devoted entirely to digital sales), companies can better meet customer demands while capitalising on industry trends driven by technological advances such as increased mobility and improved security protocols for online purchases .
Reasons for Spinning Off
In April 2021, Saks Fifth Avenue owner Hudson’s Bay Company (HBC) announced their decision to spin off its e-commerce site into a separate business. The decision to spin off this business segment was met with anticipation and curiosity.
What reasons did HBC have to undertake this endeavour? Let’s take a look.
Increased focus on e-commerce
Spinning off an e-commerce site is usually done to increase focus on the growth and performance of that particular company segment. Establishing a separate entity for the e-commerce business allows for more personalised strategies, better customer support, and increased resources.
It also enables a clear delineation between a company’s core business and e-commerce operations, allowing them to prioritise activities according to what best serves their customers’ needs. It can also open up new investment opportunities as e-commerce sites have greater growth potential than other sectors.
Another benefit of spinning off your e-commerce site is gaining access to more capital. By establishing it as its legal entity, you can apply for financing separately from your main organisation or take advantage of special incentives only available to new businesses. Furthermore, successful spin offs tend to receive more attention from investors due their high success rate, expanding businesses with greater efficiency and attracting beneficial partnerships that help further fuel growth.
Leveraging expertise of e-commerce team
A spin-off is a corporate action in which a business creates a new and distinct organisation to move some of its assets and operations, allowing it to increase efficiency, leverage the expertise of an e-commerce team, create value for shareholders, and deliver better services.
One rationale for spinning off the e-commerce team is that it allows the company to draw on the specialised skills and technical know-how they possess while increasing efficiency. This allows them to focus solely on developing their e-commerce presence, where their specific skills would best be used. Additionally, it grants them freedom from many impediments that can arise when working in large corporations including bureaucracy and red tape.
Spinning off also drives down costs and increases customer satisfaction by focusing efforts that are not customer facing activities within the main organisation while excelling in customer facing activities under the spin-off. This maximises efficiency as well as value created from customer expenditures. Furthermore, spinning off could provide expansion opportunities. Since it would have its independent corporate identity established there are opportunities for raising capital through equity investor relations which would allow for greater investment capability within the e-commerce world. All these points come together to show leveraged expertise of the e-commerce team is a major reason companies opt for corporate spinoffs as part of their overall growth strategies.
Opportunity to expand customer base
Spinning off an e-commerce site provides companies with the opportunity to better expand their customer base. In addition, as operating on a separate and independent website, the storefront can be completely tailored to suit its specific audience, offering them a unique shopping experience and dedicated content to capture and engage more and more customers.
Furthermore, a spin-off e-commerce site allows for more agility about marketing and promotions specific to that particular website rather than being shared with other sites in today’s competitive markets. This allows for targeted marketing efforts targeted at a particular group of customers – e.g large families or elderly shoppers – allowing for targeted promotions to potentially greater profits.
Furthermore, as no part of the spinning off process involves developing new technologies or inventory management systems, companies can quickly gain access into a new market within minimal risks. Regarding warehouse operations costs, spinning off can provide benefits in using existing infrastructure while keeping any related costs aside from those associated with personnel and transportation of goods incurred when products are shipped from one location in another under separate circumstances at lower costs.
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