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Hudson's Bay Company

HBC Hudson's Bay Company (Canada)

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HBC - or The Hudson's Bay Company - is one of Canada's largest retail groups, as well as North America's oldest company, tracing its roots as far back as 1670. Yet despite its unrivalled heritage in Canada and a well-established lead in upscale apparel, HBC has wrestled with exactly the same challenges experienced in the US by Sears and JC Penney - fierce competition from discounters such as Walmart and more recently from online giant Amazon. Since 2008 though the group has made a strong recovery under a new owner, selling off mass-market chain Zellers (to Target ironically) and acquiring high-end store Saks to focus more directly on better-off customers. It took its first steps into Europe in 2015 with the acquisition of Germany's Galeria Kaufhof and has vowed to expand its presence dramatically in that region. The following year, Kaufhof merged with main German rival Karstadt; HBC retained a 50% stake in the combined business, but transferred that interest to its partner at the end of 2019. In 2020, HBC's chairman Richard Baker announced plans to take the group private at a valuation of around US$1.5bn.

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Competitors

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Brands & Activities

HBC has undergone a complete rejuvenation since 2008, with a revamp of its core department store business and the elimination of mass-market operations such as Zellers and Fields. However, like all other established bricks and mortar retailers, HBC's performance has come under intense pressure from Amazon and other online rivals. Attempts to restructure the business during 2017 by cutting costs were regarded by analysts as being badly executed and resulted in the abrupt departure of CEO Jerry Storch towards the end of the year.

The group's most prestigious brand is still Canadian department store chain Hudson's Bay, with 89 locations nationally. Known for many years as simply The Bay, it launched a new logo in 2013 in an attempt to reclaim its more formal title. It specialises in exclusive fashion, accessories and soft home furnishings in the mid-to-upper price range, with exclusive national distribution rights in Canada to several leading designer brands including Anne Klein, Izod, Jones New York and Lauren by Ralph Lauren. It is arguably Canada's favourite fashion store, and scored a significant success during 2010 for its sponsorship of Canada's Winter Olympics team, as well as the relaunch of its Toronto designer label showcase The Room. It supported the Canadian team once again at the 2014 Olympics in Sochi and 2018 in South Korea. The group also operates several exclusive local concessions of Arcadia's UK chains Topshop and Topman under license, as well as bridal wear specialist Kleinfeld.

Since 2008, the group's Canadian operations have been partnered by US fashion department store chain Lord & Taylor, another long-established veteran of the sector, which first opened its doors in the 1820s. It has a network of 45 stores spread across nine states in the North East, Mid West and Florida. It announced plans to close its New York flagship store in 2018. The group also said it would close its Home Outfitters specialist kitchen, bed and bath superstore chain. Around 37 locations were still open at the ebginning of 2019.

In summer 2013, HBC agreed to to acquire another venerated US retailer Saks for $2.9bn including debt. That chain includes the prestigious Saks Fifth Avenue flagship store in New York as well as more than 40 other stores across the US. The deal was completed in Nov 2013. Saks continues to run as a separate division from the existing HBC and Lord & Taylor businesses, and also includes almost 130 Saks Off 5th outlets selling discounted items. More recently in 2016 the group acquired online flash salefashion retailer Gilt for $250m. However, that business has underperformed dramatically since acquisition and most of its value was later written off.

The group has been involved in on and off negotiations over a period of years with upscale US fashion rival Neiman Marcus, and in 2017 even made an approach to larger US rival Macy's. However no deal was concluded.

HBC took its first steps into Europe in 2015 with a deal to acquire Germany's biggest department store chain Galeria Kaufhof for €2.42bn. The European company, which was formerly a unit of the Metro Group, owns 102 Kaufhof department stores and 9 Sportarena sports equipment outlets in Germany, as well as the Inno department store chain in Belgium. HBC has invested around $1.5bn in new stores in Germany, including 40 Saks Off 5th discount outlets. Several of Kaufhof's Sportarena stores have been converted to outlets of Saks Off 5th. In Spring 2016 it announced plans to launch up to Hudson's Bay and Saks Off 5th stores in the Netherlands as well, starting in 2017. By the beginning of 2018, there were 10 Hudson's Bay stores in the Netherlands and 7 Saks Off 5th outlets in the Netherlands and Germany. Later that year, the group agreed to merge its European operations with German department store rival Karstadt. HBC retained a 50% stake in the combined entity, partnered by Signa Retail Holdings of Austria. However, it will transfer full ownership of the German and Austrian business to Sigma by the end of 2019. All HBC's remaining Dutch stores will be shuttered.

HBC Rewards, launched in 2001, is one of Canada's biggest rewards program. The group sold its separate credit card and financial services division to GE Money in 2006, although they continue to operate under the group's own brandnames.

Until recently, the group's biggest retail operation was Zellers, founded in 1931, and formerly Canada's second largest mass merchandiser behind Walmart, with around 280 locations offering competitively priced apparel, furnishings, toys, electronics and household appliances. In 1998, it acquired and absorbed all Kmart's Canadian stores. However, in a complete change of strategy, the group agreed in 2011 to sell 180 Zellers outlets to US discounter Target for around $1.8bn. These stores began closing in 2012 and reopened as Target in 2013 or 2014. The 60 or so remaining Zellers outlets were closed.

Financials

Revenues more than doubled following the acquisition of Saks and Kaufhof, from a little under C$5bn in 2013 to C$14.35bn for the year to January 2018. However, topline slipped back marginally in the latter year and the group reported a second consecutive net loss, which increased almost 13% to C$581m. That figure included C$687m of non-cash depreciation. On an adjusted basis excluding exceptional items, the group reported positive EBITDA, but that figure almost halved over the year before. Around 70% of revenues were generated in North America.

The divestment of Kaufhof caused a further fall in revenues in ye 2019 to C$9.4bn, and another big impairment charge as well as losses in Europe resulted in a third net deficit of C$542m.

Background

The Hudson's Bay Company was founded in 1670 by order of King Charles II of England to trade furs with an exclusive license covering almost half of Canada. However its transformation into a retail group was masterminded by George Simpson, a ruthless and tireless entrepreneur who was appointed as governor of the business in 1821, ruling it with an iron fist for almost 40 years, and beating all competitive ventures into submission. In the early 20th century, several of the company's larger trading posts gradually evolved into department stores. It remained a British company until 1970, when it officially transferred its head office to Canada. A string of acquisitions followed as the group acquired smaller Canadian retailers, including Zellers in 1978, and it sold off what remained of its increasingly controversial fur business.

However the arrival in Canada of Wal-Mart and Target during the 1990s created serious challenges. By the mid-2000s, investors had grown impatient with the lack of improvement, and in 2005 the group was said to have begun talks to sell part or all of the business to US retailer Target. Those talks ended without agreement and in 2006 the board accepted a C$1bn bid from Jerry Zucker, an American financier based in South Carolina, to take the business private. He became CEO and governor of the group, until his sudden and untimely death just two years later. The business was acquired in 2008 by US private equity firm NRDC, whose CEO Richard Baker became governor & CEO. NRDC combined the business with Lord & Taylor department stores in the US, which it had acquired in 2006 from Macy's, as well as jewellery and home furnishings retailer Fortunoff. However, following poor trading over Christmas 2008, the latter business subsequently filed for bankruptcy and was wound up.

Last full revision 4th April 2018

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