The successful grocery chain, Loblaws Companies Ltd., announced on Thursday that they are planning on closing 52 unprofitable stores across Canada within the next year, according to CBC News. Divulged on its second-quarter earnings report, the closures will affect all of its banners and formats, including gas bars, Joe Fresh standalone stores, and select pharmacies and grocery stores – presumably the ones that aren’t turning enough of a profit.
In a conference call with several analysts, Loblaws president and executive chairman Galen Weston Jr. said that the move is focused on ‘finding efficiencies as growth slows’. He maintains that while it may be an increase from the typical yearly closure of 10-15 stores, it’s not ‘radically different’ and serves a larger purpose, saying “It doesn’t signal any kind of change from a strategic perspective.”
The terminations will be distributed across the country, affecting nearly one percent of the company’s total retail square footage of the 2,300+ stores. Weston notes that despite the closures, Loblaws is foreseeing a major growth of the number of jobs within its network of stores this year.
“Looking ahead, the grocery industry remains highly competitive and health-care reform continues to put pressure on our pharmacy business,” he said in a statement.
In fact, Mandeep Malik, an assistant professor of marketing at McMaster university stated on CBC that this is quite a regular decision within the industry.
“Time and again, these big retailers, whether it’s Metro or Sobeys or Loblaws’, they reorganize, reconfigure their locations, clean up house,” says Malik. “In my perspective, they’re just closing down a handful of underperforming stores and probably reassigning monies to intensely populated, core-urban markets.”
Loblaws stated that the closures will bring their annual sales down almost $300 million this year, however it will also result in a $35 million – $40 million raise in its operating income (earnings before interest and taxes). Overall, the stores’ closing is expected to cost the company around $120 million, but $45 million of this was charged in the second quarter (ending June 20) and $30 million was charged for severance and lease termination costs. The earnings report also reveals that Loblaws’ combined sales rose 2.2 percent to 10.54 billion during the same quarter of last year, and it made a profit of $185 million that quarter, compared to the $456 million it lost a year ago. Furthermore, on an adjusted basis the report said that the grocery retailer earned $350 million (or 85 cents per share) in the second-quarter contrasting with a profit of $297 million (74 cents per share) the previous year, so the company will definitely not be going under any time soon.