Systemax Restructure Closes Retail Business, Ignites Companywide Layoffs And Cutbacks

Systemax is the latest major solution provider to undergo a drastic company shift in the face of a significant industry change. As the company, No. 19 on the CRN SP500 list, saw another multimillion loss in its year-end earnings report, it announced in its fourth-quarter earnings call that it would shutter its retail business and significantly cut back on costs across the business.

After difficulty in the company's consumer business quarter after quarter, Systemax announced it would close 31 out of 34 of its retail stores by the end of its second quarter. The three locations that will remain open are a technology products distribution center, a Puerto Rico store with significant B2B operations and a Miami-based location near the company's headquarters. The company will maintain its online portion of TigerDirect, an online retail store for computers and computer products.

In addition to drastic cuts to its retail business, the Port Washington, N.Y.-based company also announced operational cuts to optimize cost structure in its remaining business units. Systemax will consolidate and restructure its operations at its headquarters.

[Related: NPD Group: 10 Fastest (And Slowest) Growing Technologies Or Brands In The Channel]

These restructuring changes will include a "general reduction in force across most functions," CEO Richard Leeds said on the earnings call Tuesday. Total severance costs for the consolidation and retail business closures will total between $50 million and $55 million, Leeds said. A company spokesperson told CRN that the total number of employees affected would be around 1,500 out of the company's 4,000 total employees in North America. The spokesperson said the majority of eliminated positions would be related to the closing of the company's retail stores.

Sponsored post

CRN reached out to Systemax for additional comment on the changes and total number of employees that would be affected, but did not hear back before publication.

Leeds said on the earnings call that the change is part of a strategic decision to focus on the company's B2B business, which grew 8.9 percent to $3.4 billion for the full fiscal 2014. By comparison, consumer channel sales declined 11.7 percent to $900 million.

"These are difficult decisions to make," Leeds said on the earnings call. "But, the dynamics of the consumer market make them necessary and we're moving forward with them at an extensive review and planning process ... We expect the majority of these actions to be completed in the second quarter of the year, and we'll emerge from this process as a focused B2B IT products and solutions provider with a streamlined operating structure that will place great resources and investments in our growing B2B business."

Leeds said he believes that once the changes are complete, Systemax will be able to increase its financial performance and improve its bottom line. Both are areas that Systemax has struggled with in recent years. In the company's most recent year-end earnings report, announced Tuesday, the company reported sales of $3.4 billion, up 3 percent from 2013. However, margins have slipped, with Systemax reporting a loss of $37.5 million, following a loss of $43.8 million the year before.

The CEO said the company expects to see immediate improvement in operation results between $18 million and $22 million once one-time costs have been realized. However, Executive Vice President and CFO Lawrence Reinhold said Systemax expects the greater benefit will come from its new full focus on the B2B channel.

"We expect that the business performance will be enhanced by more than the cost structure reductions," Reinhold said on the earnings call. "We talked about the ability to focus our investments on B2B growth and the number of other actions ... We expect that the business, the losses in the North America Tech, will be curtailed and it will be a significant improvement to our bottom line of our tech operations and the consolidated operations."

Going forward, Leeds said Systemax is optimistic based on its growing B2B businesses in Europe and North America.

"We're making investments to strengthen our market positions and capitalizing our opportunities," Leeds said.