Saturday, January 20, 2018
Business

HSN acquired by rival retail giant QVC for $2.1 billion

ST. PETERSBURG — The parent company of the shopping network giant QVC Group is acquiring St. Petersburg-based HSN, the digital and TV retailer best known as the modern-day version of the iconic Home Shopping Network.

Liberty Interactive Corp., the Englewood, Colo.-based parent company of QVC, announced the $2.1 billion deal Thursday morning. Liberty already owned a 38 percent stake in HSN. Even though QVC is clearly the larger, more profitable television retailer of the two brands, the merger indicates dismal times for television shopping, as viewership slips and both companies scramble to turn their business models into digital, online strategies.

"By combining forces we'll be able to accelerate our personalization and innovation," Mike George, president and CEO of QVC, said in an interview with the Tampa Bay Times.

GROSSMAN LEAVES HSN: CEO for 11 years to head Weight Watchers

QVC officials said the deal will bolster revenues for both companies as they'll share resources to strengthen their ecommerce platforms and digital operations. The sale is expected to close in the fourth quarter of this year.

It's likely that the new ownership will affect some HSN employees, said Rod Little, HSN's chief financial officer, on an investor conference call Thursday. Little did not elaborate on how many employees could be laid off or when.

QVC and HSN will operate as separate brands. However, QVC's George, will oversee HSN operations. It's likely HSN will still have its own management team in place, similar to Zulily, an online fashion brand Liberty Interactive bought in 2015 for $2.6 billion. HSNi's board of directors will be dissolved, though one HSN director will be appointed to the Liberty Interactive board at closing.

"We're going to kind of work together on (HSN leadership plans)," George said. "We don't have any specific organizational plans to discuss at this point."

HSN's headquarters will remain in St. Petersburg.

The future of HSNi's Cornerstone Brands, a portfolio of ecommerce and catalog businesses like Ballard Designs and Garnet Hill, is uncertain. Executives on an investors' call hinted at a possible sale in the near future, but George said in an interview with the Times that Cornerstone is "an important part of the portfolio."

George said during the call that QVC and HSN will compliment one another and play on each other's strengths.

"We're taking full advantage of sharing best practices," George said, noting that the goal is to create a platform where shoppers buy across channels. QVC and HSN, which are best known for their live television broadcast style of selling merchandise, have struggled in recent years to remain relevant. QVC's stronghold has always been fashion and beauty, whereas HSN's focus is on electronics, fitness and health. Both companies have invested substantially in its digital operations to better compete with online merchants, like Amazon and others, as television viewership declines. HSN sales declined 3 percent last year.

MORE: The internet finds the humor in QVC buying HSN

"When companies merge, it doesn't always create a win-win situation," said Budd Margolis, a TV shopping consultant based in London. "Both of these companies are very conservative. And whenever they change anything, the customer will instantly react. Maybe they can cross-promote between themselves, but their customers aren't necessarily discriminant. It's like people who like Burger King or McDonalds. They're loyal to their brand."

While HSN and QVC have relied heavily on its partners, brand names and celebrities that help build their brand's credibility, the two companies have not been immune to the challenges nearly all retailers face these days. They too are struggling to compete with nimble, digital competitors like Amazon and others that continue to surge ahead in sales and innovation.

"HSN is very vulnerable in this deal," Margolis said. "But both companies need to be more aggressive and innovative if they want to survive. Amazon is a tremendous threat. Everyone was blaming the election for the decline in sales last year, but in reality, their format hasn't changed in so long and there are new customers out there that they're behind in trying to reach. HSN and QVC need to become much more compelling if they want to reach them."

But some analysts think it might be too late for that.

"The consumers who buy on TV aren't the ones who buy online," said Britt Beemer, chairman and CEO of America's Research Group, a consulting firm. "The youngest consumers don't know who they are at all, so their interest has been minimal. They're going to have to develop a whole new strategy to reach them if they want to expand their online discovery base."

Previous Coverage:HSN executives seek digital solution to TV, shopping challenges

The timing of the sale was crucial. HSN's struggling performance over the year plus the recent departure of CEO Mindy Grossman to become president and CEO of Weight Watchers International Inc. combined to make this a prime time for an acquisition, said Greg Maffei, Liberty president and CEO.

During her 11-year tenure at HSN, Grossman orchestrated its conversion to a publicly held company in 2008. HSN's financial performance has suffered in recent years, however, and its market value has tumbled to half its peak price as retail stores close and shopping habits change rapidly.

"Now is the right time to join forces with QVC," Little said. "We will share resources, ideas and better leverage sales channels in new ways. This will benefit our customers and accelerate our growth trajectory faster."

Stock in HSN quickly rocketed up nearly 35 percent on the news reaching $42 a share, or up $10.70 apiece, by 9:30 a.m. Its shares closed at $39.70, up about 27 percent.

With 6,000 employees, including 2,500 in St. Petersburg, HSN ranks among Tampa Bay's largest public companies. Combined, Liberty Interactive's companies — HSN, QVC and Zulily — will reach $14 billion in revenue, 23 million global customers, and 2 billion visits to its various websites, with a reach of over 360 million households.

Liberty executives say the size and scope of the company, after the HSN sale, will put it in line behind mega retailers Amazon and Walmart in terms of reach.

Contact Justine Griffin at [email protected] Follow @SunBizGriffin on Twitter.

     
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