What Pulled Hudson’s Bay Underwater

Even before Richard Baker’s NRDC firm took control of the Hudson’s Bay Co., the Toronto-based department store chain was a sinking ship.

But now it’s been hamstrung by more than 1 billion Canadian dollars in debt, a weak consumer economy and an inability to pay bills. Recent talks to secure financing fell apart. Over the years, a handful of retail companies and private equity considered buying Hudson’s Bay, but they reconsidered after examining the books.

According to Creditsafe, cash-flow issues at Hudson’s Bay have been prevalent for six months, driving Hudson’s Bay to pay suppliers nearly two months late, or 57 days late on average as of January. “Late payments were more of the norm than the exception at Hudson’s Bay,” said Creditsafe, which provides online company credit reports and credit risk solutions, helping businesses manage risk.

Under Baker’s 17 years of control, there’s been a revolving door of senior leadership, flip-flopping strategies and the abdication of market share as well as some lucrative monetization of retail real estate. Retail experts saw a lack of investment in Hudson’s Bay stores, diminishing service levels and deteriorating physical conditions, like malfunctioning escalators and water damage in certain locations.

On Friday, HBC received court approval to liquidate 74 of its 80 stores on Monday. Landlords, HBC’s 9,000-plus employees, vendors and other creditors will all feel the pain. The remaining six doors will be liquidated further down the line. The six stores postponing liquidations are those in downtown Toronto on Queen Street; the Yorkdale Shopping Center in Toronto; the Hillcrest Mall in Richmond Hill, Ontario; in downtown, Montreal; in Laval, and in Pointe-Claire, both cities in Quebec.

In the past couple of weeks, since reports of Hudson’s Bay going bankrupt first surfaced, there’s been a rush of sales at the six stores exceeding expectations, enabling management to postpone liquidations for a while, thereby giving landlords and other stakeholders more time to figure out what to do with the locations.

“Canadians have shown extraordinary support for Hudson’s Bay over the last two weeks and overwhelmed us with their encouragement and endearment for the brand. We are extremely fortunate to have such an engaged community behind us,” said Liz Rodbell, president and chief executive officer of Hudson’s Bay, in a statement. “Our associates have been met with extraordinary kindness from our customers — each of whom reflects the cherished relationships we have built together over generations.”

There is a sense that Baker decided to dispose of Hudson’s Bay in part to focus on integrating Neiman Marcus Group and Saks Fifth Avenue, aside from dealing with the reality of HBC’s sinking fortunes. Saks purchased NMG in December in a $2.7 billion deal forming Saks Global, at which point Hudson’s Bay was separated from the operation.

Baker’s NRDC Equity Partners bought Hudson’s Bay in 2008 from the widow of South Carolina industrialist Jerry Zucker, who bought Hudson’s Bay two years before for $1.1 billion. NRDC bought HBC for around the same amount and had the inside track as it already owned 20 percent of the business.

Many of HBC’s woes stemmed from losing younger generations to rising specialty retailers in Canada, notably Sephora, Aritzia, Lululemon, Nike, Canada Goose, Apple, Shoppers Drug Mart, Abercrombie & Fitch, Urban Outfitters and American Eagle Outfitters, as well as Amazon and digital shopping. Strong big-box operators including Simon’s, Walmart Canada, Canadian Tire and Costco have also seized market share from Hudson’s Bay, and going forward, upscale Canadian retailers Holt Renfrew, Mark’s and Harry Rosen could capitalize on Hudson’s Bay’s demise.

Steve Dennis, author and adviser at SageBerry Consulting, told WWD that Hudson’s Bay was swooped up in “the ongoing collapse of the unremarkable middle tier” of department stores. The downfall of midtier department stores has been particularly glaring in Canada where Sears Canada, Simpsons, Eaton’s and Zellers went out of business, not to mention Nordstrom’s and Target’s short-lived incursions in the country.

In fairness to Hudson’s Bay, Canada is a tough market for any retailer to succeed in, primarily because of its expansive land mass posing difficult logistics; the small population spread out across the country, which has only a few major urban centers; the weak Canadian dollar, the high costs of rents and landing goods, and the fact that French is spoken in Quebec and English in Canada’s other provinces, making it almost like operating in two separate countries. In addition, many Canadians travel a lot to the U.S., shopping in New York, Los Angeles and Chicago, among other cities. There are also many Canadian snowbirds spending winters in Florida where they shop stores and malls in Orlando, Naples, Miami, Palm Beach and Boca Raton.

Canada was one of the last countries to pull out of the pandemic, and was on lockdown off and on for two years, much longer than the U.S. and other countries.

“The downtowns were completely hallowed out during the pandemic,” said Antony Karabus, the Toronto-based retail expert who sold his HRC Retail Advisory to Accenture three-and-a-half years ago. “Traffic downtown struggled to nothing. Even today, while there is traffic Tuesday to Thursday, on Monday and Friday, there is almost none.

“But it’s been a very long, slow demise for Hudson’s Bay,” Karabus said. “For the most part, The Bay became largely irrelevant to many consumers, but there is still this enormous sadness with what’s happening and an element of nostalgia. Hudson’s Bay has been part of Canadian history for 355 years. Symbolically, The Bay is more than an actual retail operation.” Those colorful Hudson’s Bay signature stripes on blankets, accessories and apparel, will be missed. People even remember in the ’90s when Cher appeared in Hudson’s Bay commercials.

“A lot of employees will lose their jobs, thousands of Canadian and foreign vendors will lose money and this will create a big hole in malls,” Karabus said. Large retail areas could be transformed into smaller retail units, entertainment venues, or even grocery stores to align with evolving consumer preferences. But this can be expensive.

“Hudson’s Bay became less and less relevant,” he said. “Stores weren’t maintained at the right level. They were tired, when you walk into a department store it’s beauty and cosmetics up first but shoppers were going to Shoppers Drug Mart and Sephora. They took away one of the main reasons for going to The Bay. Shoppers Drug Mart became a huge player in beauty. Tons of stores have been remodeled since Loblaw’s acquired it and put a lot of capital into it. It was also the big downtown stores that made the money and the pandemic just killed them.”

Craig Johnson, president of the Customer Growth Partners research and consulting firm, said: “You don’t want to place all the blame on Richard Baker. He has controlled Hudson’s Bay for some 17, 18 years now. The troubles started before.”

Johnson and others noted Baker’s acumen in real estate and deal-making, with little to say on his track record running retail. Acquisitions of Gilt, Lord & Taylor and Kaufhof in Germany did not work out and led to Baker monetizing key real estate holdings. Baker has said that ultimately money was made through the transactions.

“His skill set is not as a merchant, but he is a very good as a real estate guy, as evidenced when he first bought Saks and saw the value of its real estate,” on Fifth Avenue, in Beverly Hills and some other locations, Johnson said.

Experts also noted that after Baker’s firm purchased Hudson’s Bay, he sold off the Zeller’s real estate to Target, and in 2014, sold the downtown Toronto Hudson’s Bay flagship real estate and adjacent Simpson Tower office complex to Cadillac Fairview Corp. for 650 million Canadian dollars. Those were savvy real estate deals helping offset retail losses.

Another smart move by Baker was hiring Bonnie Brooks, who spent more than eight years at HBC, and from 2008 to 2012 was the first female CEO and president of Hudson’s Bay. She later became an HBC vice chairperson for four years. Brooks was successful at reestablishing Hudson’s Bay fashion authority and took on a high profile in Canada through the media.

“Since Bonnie left, Hudson’s Bay has never been the same. She had the magic touch,” Karabus said.

The store’s reputation seem to fade after Brooks left and what ensued was a 13-year revolving door of Hudson’s Bay leaders, each lasting just a few years, including Jerry Storch, former Toys ‘R’ Us CEO; Helena Foulkes, a former president of CVS Pharmacy who unsuccessfully sought the Democratic nomination for Governor of Rhode Island in the 2022; Iain Nairn, a successful retailer in Australia; as well as Wayne Drummond, originally from Saks, who was succeeded by Sophia Hwang-Judiesch, who was succeeded by Liz Rodbell, currently on her second stint at Hudson’s Bay.

Executives from HBC, the parent company of Hudson’s Bay, acknowledged last August that Hudson’s Bay did not rebound after the pandemic the way U.S. retailers did. They also said that heavy investments in digital capabilities and inventory in Canada did not pay off, and that Hudson’s Bay had to clear merchandise more aggressively than it wanted, particularly when Nordstrom liquidated in Canada and Bed Bath & Beyond went bankrupt. The situation was further complicated when discretionary spending, even in the luxury sector, weakened. Some other well-known Canadian brands have already been pushed into bankruptcy protection proceedings: Aldo Group Inc., Le Château Inc. and Reitmans, underscoring the challenges of the Canadian market.

Moves by HBC that seemed good at the time later flopped, like devoting significant space in several locations to the Top Shop brand from London, which ultimately went out of business. Hudson’s Bay subsequently brought in Ann Taylor and Loft areas, raising questions whether brands appealing to older generations would resonate in Canada. Hudson’s Bay also introduced a marketplace format that featured pet supplies, books, stationery, health and wellness, gourmet food, electronics, vintage designer handbags and sports equipment.

While many will lament the demise of Hudson’s Bay, a segment of the population won’t. Hudson’s Bay played a major role in the white colonization of Canada and the exploitation of Indigenous peoples through the company’s fur-trading activities centuries ago. HBC has acknowledged the dark side of its history, and in a public act of reclamation and reconciliation to benefit Canada’s First Nations, donated its six-level, 655,000-square-foot former flagship in downtown Winnipeg, Manitoba, to the Southern Chiefs’ Organization three years ago. For many years, Canada had a policy of separating Indigenous children from their families and forcing them to attend residential schools and assimilate into Canada’s white culture. Many children were mistreated and died in the schools, and unmarked graves have been discovered. The Winnipeg project serves as a place of reflection, to honor those children who survived and those who didn’t.

The focus now is on the retail fallout.

“The Bay hasn’t been successful for many, many years,” said Mark Cohen, former director of retail studies at Columbia Business School and a former CEO of Sears Canada. “Inconsistencies were rife. One store looked good and had good service. Another store looked bad. The Bay had tremendously aggressive discounting, with scratch-off coupons, on whatever you wanted to use them for. Brands weren’t happy, but they looked the other way.”

Cohen was also critical of the tactics. “Baker engaged in a series of back-of-the-house consolidations between Lord & Taylor and Hudson’s Bay which made no sense, all in the name of saving money. Lord & Taylor got pushed aside, sold to Le Tote, and subsequently disappeared.”

He also recalled that not long ago the Hudson’s Bay stores and TheBay.com were split into separate companies, and only two years later were reengineered back into a single company. He characterized Baker’s strategy of opening The Bay in Europe as “just completely nuts.” He said The Bay in Amsterdam was a beautiful store that had no shoppers. The Bay eventually vacated Europe by selling its operations and real estate, and closing stores that it opened in the Netherlands and Germany.

Asked if Hudson’s Bay could have been turned around, Cohen said: “The enormous benefit from the demise of Sears Canada should have given them the opportunity to get back on their feet. At the time, Hudson’s Bay was in fair to middling shape. When Richard Baker bought the business it was profitable but limping along and inconsistently managed. Against Sears Canada, they principally competed in apparel, accessories and home furnishings,” which eventually collapsed under investor Edward Lampert, who also took down Sears and Kmart in the U.S.

After Sears Canada, Eaton’s and Simpson’s disappeared, “The Bay, having been the last man standing as a traditional department store, should have been able to succeed,” said Cohen.

PULLQUOTE: “Inconsistencies were rife. One store looked good and had good service. Another store looked bad. The Bay had tremendously aggressive discounting, with scratch-off coupons, on whatever you wanted to use them for. Brands weren’t happy, but they looked the other way.” Mark Cohen, former director of retail studies at Columbia Business School and former CEO of Sears Canada