American owners surprise conference with talk of public stock offering for iconic retailer by 2011

September 24, 2009
Dana Flavelle
Business Reporter

Ownership of Hudson’s Bay Co., Canada’s oldest retailer, could be returned to Canadians as soon as the first half of 2011 through a public stock offering, the American owner of the company said yesterday.

NRDC Equity Partners, a New York-based private equity firm, would remain involved in Hudson’s Bay after the initial public offering, both as an owner and operator, said president and chief executive Richard Baker.

Baker, whose company has owned the iconic Canadian retailer for just over a year, made the surprise announcement at the International Council of Shopping Centres conference in Toronto.

“Our great hope is to return the Hudson’s Bay Company to the people of Canada through an initial public offering, perhaps as early as the first half of 2011,” said Baker.

“Nothing’s final, but we are beginning discussions about giving the HBC back to the Canadian public, as a public company on the Toronto stock exchange,” Baker told reporters in a later interview. “We would still be involved and very active in the business.”

The offering could include all or part of Hudson’s Bay Co., which operates nearly 500 stores across Canada under the names The Bay, Zellers, Home Outfitters and Fields, Baker said. It could even include a stake in Lord & Taylor, The Bay’s sister department store chain in the U.S., he added.

No decisions have been made about how much of the company would be offered for sale to the public, he said, or at what price.

Many Canadians mourned the passing of the country’s oldest company into American hands when Jerry Zucker acquired Hudson’s Bay and took it private in 2006.

Zucker died suddenly two years later and ownership of the retailer passed to NRDC, which had a minority stake in the firm at the time.

Since acquiring the Hudson’s Bay Co. last August, NRDC has plowed $500 million into the stores and cut $400 million in expenses, Baker said. By boosting the stores’ performance, he said, the company will also increase the value of the real estate beneath them. However, he was quick to say his investment in HBC is more than a “real estate play.”

He said the company has a seven-year plan for the stores. Having spent the first year cutting costs, including eliminating 1,000 jobs, it plans to begin experimenting with a variety of initiatives aimed at boosting sales and profits.

In an unusually frank review of the retailer’s performance under previous owners, Baker said the company was doing too many things just because that’s the way they’d always been done.

Next Thursday, it will unveil the Olympic uniforms it has designed for Canadian athletes participating in the 2010 Vancouver Winter Games. As part of his commitment to Canada and the Games, he said if either the men’s or women’s hockey team brings home a gold medal, he will put the Canadian flag, team photos and uniforms in the windows of the flagship Lord & Taylor store on New York City’s swanky Fifth Avenue.

In mid-October, The Bay on Queen St. will open its newly expanded designer floor, called The Room, which aims to recapture sales lost to specialty retailers and boutiques.

The Bay has dropped 700 brands – more than half – and added 150 new ones, including more contemporary designers that offer affordable luxury.

Zellers has widened its aisles to make room for baskets of impulse purchases that boost average sales by as much as 30 per cent, he said.

But there is a lot more work to be done, he added.

Secondly, as old as Hudson’s Bay Company is, their The Bay department stores ARE practically Canadian Macy’s stores. They sell many of the same private label brands as Macy’s does, such as Charter Club, Tools of the Trade, Alfani, etc., and they compete in the same middle-of-the-road price segment.

On this note, I’m also going to echo previous posters’ sentiments that there are very few non-discount department store chains in Canada. You have Sears, The Bay, and Holt Renfrew. What else? I can’t think of any. I think that Nordstrom would do well in the largest and wealthiest Canadian cities, namely Vancouver, Calgary, and Toronto (multiple locations could do well in the GTA, both in the city and in suburbs such as Brampton and Mississauga). Those would be good places to start before venturing into smaller or less affluent markets like Winnipeg, Edmonton, and Ottawa. I think that Quebec and Montreal, in particular, already have enough high-end retail and regional department stores–it’s the other places that are lacking.

Regarding Zellers, it IS basically a Canadian Target. Like the Macys-The Bay relationship, Zellers sells a couple of Target’s pseudo-private-label brands, such as Cherokee and Mossimo. Even where the brands do differ, the strategies are similar.

The A&P, Dominion and Loeb names are disappearing. They’re being rebranded Metro over the next 18 months after they were sold to the Quebec chain a few years back.

http://www.cbc.ca/consumer/story/2008/08/07/metro.html

Also affected are the smaller chains The Barn in Hamilton and Ultra Food and Drug in Burlington and Guelph.

For those that don’t know, A&P bought Dominion in the mid-80s, sold off Dominion’s operations outside of Ontario to various owners, and then limited the Dominion banner to the Greater Toronto area and A&P to the rest of the province. Loeb, an Ottawa-area chain, has been owned by Metro for several years.

The Lord & Taylor name has a regal ring to it, along with a reputation as a quality high service retailer, and is a difficult segment agains Nordstrom, Nieman-Marcus, Bloomingdales, and Saks 5th Avenue, all of which have a more widespread footprint. The high-end segment is underserved in Canada and Lord & Taylor would fit well in Toronto, Vancouver, Montreal, Calgary or Edmonton and possibly even Ottawa, Winnipeg, and Quebec City. The Bay would still exist filling the mid-tier, with Sears as the only competitor for The Bay. Hudson Bay Company rolled out They in the late 60’s, replacing the recently acquired Morgan’s Department Store, and over time has supplanted the Simpson’s that didn’t become Sear’s, Eaton’s and Woodward’s, a consoldidation similar to what has happened more recently in the US.

But I do admit, I find it odd that Lord & Taylor actually wants to install itself in Canada when they don’t even have stores in all US states. In fact Lord & Taylor operates in only 9 US states. The only reason I know about Lord & Taylor is because I’ve been to NY and NJ in the past, otherwise I would have never known about this chain. I would have find it more credible if national chains like Macy’s or JC Penney wanted to establish in Canada. But Lord & Taylor is a just a Northeast US regional chain. What in the right minds of NDRC Equity Partners would make them think that Lord & Taylor has a chance of succeding in Canada when they’re not even present in California, Texas or Florida.

What I think we will see is a more upscale Hudson’s Bay Company. They have the original Simpson’s flagship store in Downtown Toronto, which is already more upscale than any other HBC store. Without an Eaton’s to compete with, The Bay competes primarily with Sears Canada (another off-shoot of the original Simpson’s). Sears in Canada is much more upscale than the US stores, but The Bay has the history, especially in Western Canada, behind it. This is a chance to not only revitalize a revered Canadian trade name, but to also help both L&T and HBC expand. L&T is needed in Canada as an upscale competitor to Holt Renfrew. And HBC could be a formidable and serious competitor to Macy’s in US cities close to the Canadian border, where The Bay name is already somewhat familiar with people due to cross-border TV advertising. I could easily see Bay stores in places like Burlington,VT; Buffalo; Detroit; etc… With the failure and consolidation of so many department stores, there are prime mall locations available for HBC to decorate and move right into.

I doubt Lord and Taylor will eliminate The Bay, as it sits in the mid-range tier, while L&T occupies the lower rung of the highend department store set. The Bay banner has already supplanted Morgan’s and Woodward’s and some Eaton’s and Simpson’s as well. Many of the private labels and exclusives are Macy’s FMG brands such as Tools of the Trade and Alfani.
Given the sell of L&T to NRDC by Federated/Macy’s after the May merger, I wouldn’t be surprised that L&T has non-compete clauses and brand agreements in place with Macy’s, leaving this as the only way for L&T to expand both is company and presence. I could see some L&T stores in Toronto, Montreal, Vancouver and perhaps Calgary or Edmonton, but definately L&T would not succeed by supplanting The Bay as a banner. It would be interesting to see if Macy’s has an interest in NRDC as a result its sell of L&T.