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And ongoings of note:

As stock tumbles, Hudson’s Bay tries to distance itself from the U.S industry that is collapsing around it

Executives of Hudson’s Bay Co. sought to mollify the market Friday, asserting the value of its department store network means it does not need to shrink, but investors are clearly worried that the company is getting swept up in a broader retail rout decimating many of HBC’s U.S. counterparts.

“The nature of the business right now is that you have declining store traffic and brutal competition,” chief executive Jerry Storch told analysts on a conference call a day after the company unveiled a massive restructuring plan in response to bigger than expected first-quarter losses and sliding sales.

But HBC’s shares, which had fallen 27 per cent this year before Thursday’s after-markets announcement, were down another 10 per cent on Friday.

“We are planning for industry conditions to remain very tough,” Storch said. The plan, aimed at saving $350 million a year by the end of fiscal 2018, includes separating the management structure of Hudson’s Bay in Canada from that of its U.S. chain Lord & Taylor, laying off 2,000 employees and harmonizing a number of functions in marketing and IT.

“We want to develop a business model that can succeed even in tough conditions.”

Uneven winter weather and a late spring affected sales at many seasonal and apparel retailers, but HBC’s management is focused on bigger industry problems than the conventional ones.

“We aren’t acting like suddenly the sun is going to come out and people are going to throng to the malls and want to buy at department stores,” Storch said.

The company is keen to present its plan as truly proactive, particularly in a painful U.S. marketplace in which rivals such as Macy’s, J.C. Penney, Sears and Kohl’s are closing hundreds of stores.

Executives maintain that it’s the other players in the market who have too many stores and are engaging in very aggressive discounting as a result. HBC’s 50 Lord & Taylor department stores are in the heart of the siege but are profitable enough to stay open.

But the company is taking a more prudent view on stores that it has yet to open. “Certainly we are looking at all stores that we presently don’t have a commitment for,” executive chairman Richard Baker, the real estate investor who bought the flagging HBC chain in 2008 and began to engineer its strategic turnaround. The company has said it will open up to seven full-line Saks stores in Canada and as many as 25 of Saks Off Fifth stores, which it is also expanding in the U.S. and Europe.

All the same, industry watchers say, it’s almost impossible for the healthiest of retailers to avoid getting hurt amid the industry turmoil.

There is no clear answer as to how well bricks-and-mortar retailers will balance the costs of growing their internet operations while traffic slips at their stores. Amazon, meanwhile, is on track to be the biggest apparel retailer in the U.S. this year, and continues to grow unabated without having to support the costs of a store network.

“Whenever I hear restructuring words like ‘streamlined,’ ‘nimble’ and ‘ready-to-adapt,’ it all sounds good, but it’s buzz word bingo,” said Doug Stephens, founder of Toronto-based advisory firm Retail Prophet.

“What I haven’t really seen HBC doing is trying something really different, like taking even one store and making a radical departure from their traditional model.”

Sears Canada recently devoted a third of its store space to offering off-price deals on designer brands.

And Starbucks, Stephens noted, has opened a handful of upscale Starbucks Reserve stores, selling $10 coffees in a more sophisticated, lounge-like setting.

“At least Starbucks is trying different tactics. With HBC, I’m seeing a pattern of the same dialogue quarter after quarter, and cutting back when results are poor. If I was a shareholder, I’d be worried.”

Give the dire state of the U.S. market, analysts are also anxious about HBC’s anticipated plan to tap into the value of its real estate holdings by selling off or financing its most valued buildings, or by making an initial public offering of shares.

In addition to acting as a market consolidator of department stores through the purchase of the Kaufhof chain in Europe, Baker has struck a number of savvy property deals in recent years, using the proceeds of selling Zellers’ leases to help fund his purchase of luxury chain Saks Fifth Avenue, executing a sale-leaseback of its flagship Toronto Hudson’s Bay store for $650 million, and partnering in 2015 with large real estate investment trusts in the U.S. and Canada to form joint-venture deals worth $4.2 billion.

Six months ago, analysts were pegging HBC’s real estate value at $30 per share on a stand-alone basis; today, that is more than three times the price of the retailer’s own shares.

“The opportunity for us to be able to monetize our real estate is very strong,” Baker, long keen to separate HBC’s real estate portfolio from its underlying retail business, said on Friday.

“Notwithstanding what’s going on in retail, the real estate market in the U.S. and Europe and in Canada is very strong, especially for the types of locations that we own. That opportunity exists if we choose to go down that road. As far as the opportunity to do an IPO, it is still available, but obviously I think that is a tougher situation today than it was six months ago.”

Management consultant Mark Satov, founder of Toronto-based Satov Consultants, said HBC might not be able to avoid the negative elements of the market that are collapsing around it, given the existing over-penetration of department stores in the U.S.

“They are being proactive and I think they want to show the market that they are on top of things, and want to cut deeper and less often rather than having to react,” Satov said.

But the most experienced and successful retailers have no idea how the steady uptick of e-commerce will affect their bricks and mortar business over time.

“Every retailer who can should be monetizing their real estate because it is valued differently,” Satov said. “Depending on the structure of the real estate ownership, the challenge is that you have to believe that there is somebody else to take the space. And my view is, there is just too much space in the U.S. We are all wondering what the reset is going to be. Will (HBC’s restructuring) be enough, and if it is not enough, what is the next move?”

Also looks like they're looking to expand their digital sector:
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Activist shareholder- trouble or something necessary? Are we seeing an attempt at extracting value from the HBC?

I would actually prefer if Hudson's Bay went around redeveloping its stores on its own and entering the real estate management business rather than simply selling off property for a one-time gain.

Quote of note:

Does the HBC currently rent out non-store space in its older department stores?

It just seals it off. The saddest Bay store I've been to is the one in Downtown Winnipeg. A beautiful store on a prominent corner, Portage and Memorial, it once had a restaurant on the top floor, along with a Zellers in the basement. It's now down to two floors from five (when I was there, the 4th floor was open, but not the 3rd.)

I'm loyal to the Queen Street Store, but that building was sold to Cadillac Fairview recently. It remains nearly fully used, with Saks, HBC, and Arcadian Court.
I'm loyal to the Queen Street Store, but that building was sold to Cadillac Fairview recently. It remains nearly fully used, with Saks, HBC, and Arcadian Court.

I think it's more than nearly fully used. They've actually increased the GFA of the retail space in past years, clawing back store room space here and there, but most notably opening up new space on the fifth floor (particularly on the west end) and even more significantly on the seventh floor.
High paying fed jobs and a more discerning clientele?


That, and Rideau Centre is the high-end mall in that city (though Bayshore tries); in Winnipeg, suburban Polo Park is the top mall.

Yeah, each city has a late 1970s/early 1980s downtown mall, yet the similarities end there: the Rideau Centre has always been successful (also next to the successful Byward Market), while Cityplace isn't much more than a food court and an office building concourse these days. So, downtown Ottawa has Nordstrom, Simons and Hudson's Bay (the first two in the Rideau Centre, the third on Rideau Street), while downtown Winnipeg can barely support a Hudson's Bay.

Activist investor willing to let HBC devise own plan for real estate

Activist investor Jonathan Litt, who is pushing for retailer Hudson’s Bay Co. to boost its stock by generating more cash from its real-estate holdings, said he is open to letting the retailer come up with its own strategy to unlock value.

Litt, who runs the hedge fund Land and Buildings Investment Management LLC that disclosed a 4.3 per cent stake in Hudson’s Bay in June, told Reuters that he wants the company to provide concrete steps it will take to monetize its real estate, including a timeline for executing the plan.

“They haven’t really given a clear roadmap,” he said in an interview on Wednesday. “We would like to have them articulate a detailed plan on how they’re going to unlock the value inherent in the real estate in the portfolio.”

Litt on Monday threatened to launch a proxy war to remove Hudson’s Bay directors if they do not act to generate value from their real estate.

“We don’t believe that status quo is acceptable,” Litt said in the interview with Reuters.

HBC said an investor presentation posted on its website in April that its real estate was valued at $35.24 per share. Its stock was trading at $11.40 on Thursday.

Company representatives declined to discuss the substance of Litt’s letters or respond to his threat to launch a proxy battle.

“We are constantly evaluating additional opportunities” to create value, company spokeswoman Jennifer Vargas said in a statement.

It said the firm has generated more than $3-billion in cash from its real estate assets since 2011.

Litt, a former Citigroup real estate analyst who invests in real-estate companies he believes are in need of change, wants HBC to focus more on its real estate than its retail brands. His ideas include reinventing the iconic Saks Fifth Avenue flagship store in New York and exiting Europe.

“Our view is the department store business is changing rapidly,” Litt said. “There is likely a higher and better use of many of the locations which they own.”

HBC is the first retailer targeted by Litt, 53. In the past year, he has pushed for the sale of Brookdale Senior Living Inc., Forest City Realty Trust Inc. and FelCor Lodging Trust Inc.

Pressure mounts on Hudson’s Bay as shareholders back activist push
Four shareholders, who jointly own more than 7 per cent of HBC and include two top-ten investors in terms of percentage of holdings, told Reuters they support Litt’s efforts. But a fifth investor with about a 1.4 per cent holding supported the board, saying it does not need an activist investor to push it. About 50 per cent of HBC shares are held by insiders and investors close to the company.

Litt’s efforts could force HBC to shift its focus away from retail and more into real estate, the area where Richard Baker, the architect behind taking the company public in 2012, made his name.

Many of Litt’s supporters say they bought into HBC for its premium real estate holdings, which include two iconic Fifth Avenue buildings in New York City with a combined 1.33 million square feet of space and a total appraised value close to $4.4-billion. HBC also holds majority stakes in two joint ventures for its other global properties.
Litt and some shareholders say HBC should lease its marquee real estate to other retailers or companies seeking prime office space, or add a hospitality or residential component.
HBC’s average sales per square foot, a retail metric that measures productivity, is within range of its department store peers, at $365 for Saks and Off 5th and $170 at HBC’s Lord & Taylor stores, the latest data from eMarketer Inc show. Neiman Marcus stood at $466, Nordstrom Inc, including Nordstrom Rack, was at $373, and Macy’s Inc at $150.

Apple Inc, which Litt suggested could be an ideal candidate for HBC’s landmark Manhattan properties, brought in an industry-leading $5,060 in sales per square foot.

Even as HBC plans to open new stores under its growth plan, Lee Matheson, a partner at Ewing Morris, said the company should close some 20 Lord & Taylor stores and 40 to 50 Hudson’s Bay stores in smaller markets, arguing the cost benefit would outweigh losses in sales revenue and economy of scale.

“None of these assets today are killing them. But it’s death by a thousand cuts,” Matheson, whose firm owns about 250,000 shares, said.

But some say the board is already 100 per cent focused on creating shareholder value and does not need activist pressure. “The board is very strong and capable,” said Geoff Barratt, a managing director at Sprott Asset Management, who has previously dealt with HBC’s board. “They are completely aligned with shareholders.”
I was at Hudson's Bay in Square One yesterday and noticed they FINALLY rolled out new POS terminals, presumably with tap
Perhaps they reached an agreement with Sears, where Sears would purchase all of their outdated POS systems and in turn HBC would use those funds to fund newer systems.

In all seriousness, it's about time they did this. I dont know how they've gone so long without doing this.
More problems- I wonder if there's going to be even more pressure by the activist investors to seek new directions:

Hudson's Bay posts a deeper loss, misses industry estimates
Canada’s oldest retailer recorded a net loss of $201 million in the second quarter, compared with a net loss of $142 million in the year-ago period

Department store retailer Hudson’s Bay Co. posted a deeper second-quarter loss on sluggish sales as the company battles an activist investor and general malaise in the traditional store-based retail sector.

Canada’s oldest retailer recorded a net loss of $201 million in the period ended July 29, or $1.10 per share, compared with a net loss in the same period last year of $142 million (78 cents per share). After adjustments, the company said its normalized net loss was 90 cents, compared with a loss of 67 cents a year ago. Sales rose 1.2 per cent to $3.29 billion, up from $3.25 billion a year earlier.

The hit was steeper than expected, with analysts predicting a loss of 60 cents per share and sales of $3.26 billion, according to Thomson Reuters.

Quarterly sales were hurt by lower traffic across multiple banners and a “highly promotional” retail environment, the company said in a statement after markets closed.

“While it was a tough second quarter as expected, we continue to make the smart decisions necessary to succeed in this rapidly evolving landscape,” said HBC governor Richard Baker. “As part of this, we are constantly evaluating the best use of both our retail and real estate assets to create value for shareholders.”

Comparable store sales, a key measure of retail strength that strips out the effects of year-over-year square footage changes edged up 0.4 per cent overall.

While comparable sales rose 1.7 per cent at Saks Fifth Avenue, they declined 1.6 per cent at its department store group, which includes Hudson’s Bay stores in Canada, and dropped by 2.3 per cent at its off-prices stores division, including Saks Off Fifth. Comparable sales at HBC Europe fell 1.3 per cent. Digital sales rose 12.7 per cent.

Hudson’s Bay, which opened the first of 10 stores under its eponymous banner in the Netherlands on Tuesday, has been a public target of activist investor Jonathan Litt, who owns 4.3 per cent of the company’s shares. Litt has threatened to mount a proxy war if HBC’s management does not hasten its efforts to monetize its real estate, which has an estimated value that far outstrips the company’s market cap, according to Litt.

The Toronto-based retailer has begun streamlining operations and increasing efficiencies in order to realize about $170 million in savings during this fiscal year, a plan aimed at generating more than $350 million in annual savings if the plan is fully implemented by the end of fiscal 2018.

On Tuesday, prior to the post-market earnings announcement, Hudson’s Bay shares tumbled almost seven per cent to close at $11.27 amid investor jitters about weakness in the sector. Shares of Sears Holdings Corp fell 5 per cent, and Macy’s shares slipped 2.5 per cent.

The company’s gross profit as a percentage of retail sales was 40.2 per cent, a drop of 130 basis points compared with last year as HBC ramped up clearance sales at most of its store banners.