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Hudson's Bay Company (including Top Shop / Top Man)




Does the columnist know what Home Outfitters is? He compared it to American Eagle Outfitters!!!
What's in store for Hudson's Bay?
Odds are against a Phoenix-like revival
Jan. 27, 2006. 05:32 AM

"We had to pass where no human being should venture."
— Simon Fraser, early 19th-century Hudson's Bay Co. explorer
For good or ill, yesterday marked a turning point in the fortunes of Canada's oldest company.
Jerry Zucker, the secretive South Carolina investor whose $1.5 billion takeover offer for Hudson's Bay Co. was accepted yesterday by the HBC board after a 17-month standoff, will either make good on his pledge to revive the 335-year-old retailing icon. Or, failing where three previous management teams have done, the career bargain-hunter eventually will make good on his investment by selling off chunks of HBC's commercial heritage.
As he has done consistently since first acquiring a sizeable stake in HBC in 2003, Zucker yesterday promised a retail renaissance at the HBC stable of the Bay, Zellers, Home Outfitters and Designer Depot stores — a compulsory reassurance to suppliers and creditors.
"We are committed to enhancing our customers' shopping experience through a substantially greater focus on service and revitalizing the spirit of the organization," said a statement issued by Zucker.
The Zucker strategy is to pump an annual $325 million over the next three years into modernizing HBC's operations — a decidedly modest sum for Canada's second-largest retailer after Wal-Mart Canada Corp.; upgrade store appearance; emphasize sales of furniture, appliances and other big-ticket items; step up HBC's recent emulation of rival Winners' "off-price" formula; close money-losing stores in the 294-unit Zellers chain; and dispose of HBC's Toronto head office, likely fetching more than $100 million.
Zucker also has plans for jazzing up merchandise display, a chronic weakness at Zellers in particular; introduce state-of-the-art inventory control systems and other behind-the-scenes technology to keep popular items in stock; and boost traffic and sales-per-square-metre by inviting third-party merchants to set up boutiques in the Bay's oversized emporia.
While usually diplomatic over the years in his stated satisfactory regard of CEO George Heller, Zucker would likely install a new management team — a set of fresh eyes at a firm that has a department-store mindset dating from an era when traditional department stores were still relevant — with a more innovative group perhaps headed by Winners founder David Margolis or Sears Canada Inc. turnaround CEO Paul Walters, who was ousted in a power struggle with the incoming CEO of Sears, Roebuck & Co.
Heller and his board forced Zucker's hand. Like Kirk Kerkorian and his so-far unhappy investment in General Motors Corp., Zucker finds himself with a wasting asset. In 2003, he seemed content to wait on the bountiful profits to flow from Heller's recently unveiled five-year plan to arrest market-share losses to nimble competitors.
By October of last year, Zucker had changed his tune, launching a takeover bid for the entire firm, but Heller had not changed his. Announcing calamitous financial results in November, Heller continued to insist that staying the course was preferable to a takeover. "The best way to maximize shareholder value is to execute the strategic plan."
Zucker would agree. But HBC has not followed through on that plan. Blaming everything from soaring gasoline prices that crimped mall traffic to a bulky new inventory system that has depressed big-ticket sales, HBC reported a sextupling of losses in its latest quarter in November, to $50.3 million. More important, same-store sales — revenue at stores open a year or more — continued to slide at the Bay (down 6 per cent) and Zellers (down 2 per cent).
"Two years into their five-year plan and they have failed completely to improve profitability, sales levels or margins," Zucker's Canadian-born spokesman Robert Johnston complained in November.
The odds are against a Phoenix-like revival of HBC, long a commercial anachronism in a field now dominated by highly focused merchants. Which is not to say nothing good will come of a Zucker-led regime.
On their own, freed of the weight of HBC's debt, overhead and sclerotic decision-making, the Bay, Zellers and Home Outfitters could yet thrive as northern versions of Nordstrom Inc., Target Corp. and American Eagle Outfitters Inc., respectively.
As experience shows, all-purpose general merchandising — with the singular exception of Wal-Mart — is an obsolete concept. And that HBC in its current form is a business that no entrepreneur would venture to create in this day and age.


Note to Zucker: Five things you should know
Life at HBC is more crazed than when our grandfathers shopped there, GORDON PITTS writes
Friday, January 27, 2006 Page B5

If Jerry Zucker takes ownership of Hudson Bay Co., he will venture into the tumultuous world of retailing, where today's triumphant business model becomes next year's road kill.

That's reflected in the staggering mortality rate of once-successful store brands-- names like Eaton's, Woodward's, Woolworth, Kresge--and the abject vulnerability of formerly dominant concepts, such as the mid-range department store exemplified by the Bay.

Even Loblaw Cos. Ltd., considered Canada's most savvy retailer, has stumbled as it frantically refits its supply lines for a looming Wal-Mart Stores Inc. threat in food retailing.

"It's a topsy-turvy world," says John Williams, a Toronto retail consultant, who points his finger at the mercurial consumer as primary agent of this change.

Michael Silverstein, a Chicago-based retail consultant and senior vice-president with Boston Consulting Group, says retailing is the most Darwinian of all businesses, propelled by an ever-changing cast of entrepreneurs with energy and drive.

There is one major shift that totally re-orders the retail industry in every decade of modern history, he points out. The main premise to understand is that the leading concepts today will surely stumble tomorrow, Mr. Silverstein said in an e-mail message.

With that in mind, Mr. Zucker must become familiar with several facts of life:

The mid-market is still collapsing

"There is no reason to shop in the middle," says Mr. Williams, who heads J..C Williams Group. Consumers who find a product to their liking at a mid-range store can always go to Zellers Inc., Costco Wholesale Corp. or Wal-Mart to buy the same item at a reduced price.

Of course, some consumers find the relatively tacky environment and pedestrian service of the discounter retailers is an affront to their sense of taste and self-image. In that case, they can always move up to the creature comforts of luxury retailing with its intense customer service --as long as they are willing to meet the price. All of which leaves the mid-market vendor with an eroding group of consumers.

This is not your grandfather's store

The department store is not dead, but it is being reshaped. In some cases, "it is becoming a collection of specialty stores with the same staffing model as a specialty store," says Mr. Silverstein, who views Bloomingdales of New York and Harvey Nichols of London as models for many reshaped players.

"The ones that will die are chasing cost reduction and inventory turn," says Mr. Silverstein, who sees no relaxation by Wal-Mart as a force in the discount end of the sector.

Toronto-area retail consultant Richard Talbot points out that once stumbling department store operators, such as Nordstrom Inc., based in the U.S. Northwest, and Selfridge's of London, have revived through new concepts and the exercise of "real entrepreneurial flair." He says the Bay had that opportunity with the demise of Eaton's but chose a more down-market approach.

The rise of instant product delivery

Mr. Silverstein likes the way a new wave of branded manufacturers have been able to use their own retail networks as detection systems for consumer trends and vehicles for instant product delivery.

"When Apple launched the Nano [iPod], it was able to announce it on Monday and have it on sale in over 300 stores with dramatic merchandising on Tuesday," he says. "It was a blockbuster success."

He notes that the U.S. manufacturer of Coach leather goods also constitutes one of the most profitable retailing successes. Similarly, Zara, the Spanish fashion retailer, supports its stores with a tightly connected manufacturing and supply chain capability.

The Internet as great influencer

On-line sales are rising, Mr. Williams says, but they still only account for a tiny percentage of retail shopping in Canada. But the Internet is making a huge impact in specific areas, such as books and travel, and is influencing 20 per cent of all retail sales.

People use it to research and compare product specifications, prices and quality ratings. Then they go to the retailer of choice to kick the tires and clinch the deal, Mr. Williams says. It does not show up as an Internet retail transaction, but all the preparation is done on-line.

It's also contributing to the collapse of the middle and the pressure on price. "Consumers can really learn about goods and pick exactly what they want," Mr. Silverstein says. "They can then 'force' the retailers to compete on price."

Buzz is big

Increasingly mobile, media-saturated consumers are alert to all the latest global trends, and that is shaping their shopping patterns.

Mr. Talbot, who heads Talbot Consultants International Inc., says Hudson Bay's discount brand, Zellers, has probably run its course. But if it were converted to Target, the popular U.S. discounter with the style cachet, sales would soar overnight because Canadian consumers are already well informed about the Target model. Similarly, Canadians were primed for Wal-Mart's price-slashing formula when it moved into Canada 12 years ago.

All this transborder buzz accelerates the pace of change, as retail formats shift and store banners fall in and out of favour. As brands become more transient, the stores' real estate emerges as the deal maker for retail companies. But, no doubt, Mr. Zucker already knows that.


Okay, technically speaking, the name "Zellers" is a corruption of "Sellers". So, I hope that doesn't portend ill for the name "Zucker"...




upgrade store appearance; emphasize sales of furniture, appliances and other big-ticket items; step up HBC's recent emulation of rival Winners' "off-price" formula; close money-losing stores in the 294-unit Zellers chain; and dispose of HBC's Toronto head office, likely fetching more than $100 million.
Zucker also has plans for jazzing up merchandise display, a chronic weakness at Zellers in particular; introduce state-of-the-art inventory control systems and other behind-the-scenes technology to keep popular items in stock; and boost traffic and sales-per-square-metre by inviting third-party merchants to set up boutiques in the Bay's oversized emporia.
Couldn't the previous ownership do this? You'd think that's some common sense stuff they would've tried.

Regarding the Eddie Bauer on Bloor...Im not surprised it closed. The prices were often just a little more than Eaton Centre, just a few subway stops away. I don't think I'd ever seen anyone in that Bloor location. They had to be losing quite a bit of money.



Yes, the previous ownership definitely should've done this. Maybe with new owners, they have more capital, thus accelerating the process.


Yes, more windows will turn Zellers around!
HBC shakeup imminent
From Monday's Globe and Mail
If all goes as scheduled, Jerry Zucker will pick up the keys to Hudson's Bay Co. on Friday. He's expected to take a little while to look around the old place, and then get right to work.

There's a lot on his “To Do†list as he takes over the oldest company in Canada. Its core retailing division makes little, if any, money, and has been losing business to nimbler rivals. Its discounter Zellers struggles to compete with the powerful Wal-Mart Canada Corp., while the Bay races to keep up with specialty chains.

HBC is desperately in need of a sharpened image and leaner, more efficient operations.

“Zellers has to do more to be different,†says retailing consultant Walter Loeb in New York, a former member of HBC's board of directors. “In order to make it, you have to take a position against Wal-Mart ... Zellers is key to the future success.â€

Mr. Zucker has said he will follow HBC's strategy of closing unprofitable Zellers stores, expanding others and improving customer service and inventory management to ensure in-demand goods are on store shelves. Asset sales are also on the drawing board.

“We think there is tremendous potential to really reinvigorate this company and put it back on its growth trajectory and re-establish itself as the dominant department-store retailer in Canada.†Says Robert Johnston, a vice-president at Mr. Zucker's South Carolina business.

Mr. Loeb says some Bay stores should be converted to Zellers, and that the Target-ization of Zellers — styling them more in the image of the successful U.S. discounter Target — needs to be hammered home even more.

The downtown Bay stores, meanwhile, need to become a fashion destination at mid-to-higher prices, Mr. Loeb adds.

A wealthy industrialist with no retailing experience, Mr. Zucker may take a page from U.S. billionaire hedge fund manager Eddie Lampert. He's another non-retailer who orchestrated the acquisition of Sears Holdings Corp. after scooping up the bankrupt Kmart. Now he's set to fix both.

Like Mr. Lampert, Mr. Zucker will likely cut costs and replace top management with his own picks, says Joe Manget, vice-president at Boston Consulting Group who does work for Sears.

(That won't come cheap: golden parachutes for HBC CEO George Heller and four of his senior executives could reach almost $10-million, according to information in public filings.)

Like Mr. Lampert, Mr. Zucker will likely call the shots on strategy. And like Mr. Lampert, Mr. Zucker will be extremely focused on boosting the bottom line. During discussions with senior HBC executives, Mr. Zucker wanted to talk numbers more than anything else, a source said.

But Mr. Zucker should not be too quick to slash advertising because it draws customers to stores, Mr. Manget says. Mr. Lampert went too far at Sears by ditching ads, prompting sales to dwindle, Mr. Manget says. “It's the easiest way to cut costs but it's very hard to regain the customers once they stop shopping you.â€

Indeed, Mr. Manget warns that Mr. Lampert's financially-driven recipe of slashing costs, inventory and promotions could yield short-term profit gains but long-term disaster for HBC.

Mr. Zucker would do better by making smart investments in HBC in a bid to shorten inventory purchasing cycles to help ensure that stores carry relevant and timely merchandise, Mr. Manget says. Otherwise products can become dated and have to be cleared out at marked-down prices, which pinches profit.

HBC stores also need to make sure they don't run out of basic items such as white shirts and black pants, he adds. If shoppers can feel confident that they'll be able to find the staples in their desired size, they will likely return to a store and, at the same time, snap up other products while there.

What is more, Mr. Zucker needs to invest in other basics that make shopping more convenient such as comfortable change rooms and helpful people to staff them, he says.

But it's not just the inside of the stores that needs to be transformed, Mr. Manget says. In updating Zellers outlets to emulate Target, Mr. Zucker should refashion the outside as well, he says.

He points to the successful makeover of Canadian Tire and Shoppers Drug Mart newest outlets. With more windows and an airier look, the exterior re-designs flag significant changes inside, too. “Zellers has made some progress here but has a long way to go.â€

Shifting more resources to burgeoning product categories, such as pet care, could also pay off for HBC, he says.

For all the potential fixes, there are some retailing experts who say Mr. Zucker would fare better by just selling off the real estate and its leases to rival retailers.

“He could lose all the gains he's made by trying to run this thing,†says retailing consultant Don Watt of DW + Partners, who advises Wal-Mart Canada's U.S. parent. “This turnarond could take years.â€


Hudson's Bay, USA
As foreign ownership looms, PETER C. NEWMAN looks back in this exclusive essay on 336 years in which the so-called Company of Adventurers sparked the birth of a nation -- yet 'missed just about every business opportunity that came its way'

From Saturday's Globe and Mail
Like totems sacrificed to the French Revolution -- the trophies melted down for coinage, the statues of angels torn out of cathedrals and tossed into the Seine -- Canada's corporate selloff accelerates unabated. Once safe-and-sound corporate idols such as Air Canada, Canadian National, Future Shop, Molson's, Tim Hortons, Shoppers Drug Mart, EnCana, Club Monaco and many others are now owned or controlled by U.S. investors. So it should be no surprise that next week this country's founding commercial enterprise, the Hudson's Bay Company, becomes a plaything of South Carolina financier Jerry Zucker.

It shouldn't be a shock, but it is, because for those of us who have studied the HBC seriously, it is difficult to separate company and country. This epic acquisition (for just over $1-billion) by an American takeover artist shatters a unique 336-year link between Canada and its founding transcontinental business empire.

An essential formative influence in Canada's evolution from colony to nation, the company exercised a profound impact on our economy, geography and psyches. Its presence made us Canadian. Even now that the once-glorious Company of Adventurers has become just one more department-store sacrifice to the 100-ton gorilla known as Wal-Mart Inc., its absence will be felt.

If the metaphor holds -- if historically Canada was indeed the HBC writ large -- its demise as a core Canadian institution does not bode well for our future in a global economy. Sell too many of our big-box companies and we cease to be players in the only league that counts.

Even in this context, assigning such significance to a department store that has been in the black only once in the past seven quarters may seem melodramatic. But warnings are not always obvious. The Bay's demise as a touchstone Canadian institution sends an uncomfortable message: If we continue to cast adrift all of our historic anchors and become mere squatters on our own land, it will too late.

The question will then become not whether this century belongs to Canada (as the previous one never did), but a more urgent query: Will Canada belong to the 21st century? That's a profound dilemma and the answer should worry us all.

We tend to play down our history, mainly because we have no Walt Disney to paint it with the textures and excitement it deserves. But the birth of Canada was no immaculate conception. It took guts galore to navigate the rivers in cockleshell birch-bark canoes, to tame the rocky land and plant the pioneer communities. As citizens of a loose federation of regions on the periphery of civilization, Canadians felt like marginal people with few core values to call their own.

The "Company of Adventurers of England Tradeing into Hudsons Bay" was there nearly 200 years before Confederation, to set an example. Its survival skills became Canada's dominant virtue.

Country and company helped one another to inhabit and then prosper in North America's frozen attic. Survival meant hanging on against all odds. Implanting in the national conscience that will to endure became the HBC's most pervasive legacy.

At the same time, the deference to authority fostered by the HBC's dominant presence on Canada's frontier became our state religion, and still is. This prevailing ethic of Canadians being eager to kowtow to anyone in command of any patch of wilderness was very different from the militancy of the itchy loners who populated America's extravagantly prosperous Wild West. The Yanks challenged authority and never deferred to anyone. About 69 Indian wars were fought on American soil that cavalry charges turned into killing fields. "Sniping redskins to watch 'em spin" was the slogan among the sharpshooters, who came perilously close to committing genocide.

That was not the Canadian way. We had no massive cavalry, no vigilantes, no Davy Crockett. No one would dare to claim aboriginal people were treated fairly on this side of the 49th parallel, but neither was slaughter government policy.

Humane considerations aside, the fur trade depended on its native labour pool to hunt and trap the animals. The natives exchanged furs, which were to them largely useless (they hunted strictly for food), for the rifles, copper kettles and signature Hudson's Bay blankets that lightened life in the wilderness.

The unofficial HBC motto was, "Never shoot your customers." Had it maintained such an enlightened attitude as a department store, it may not have had to sell out so ignominiously to the only substantial bidder.

"The shape of the indigenous Canadian imagination," concludes Abraham Rotstein, the University of Toronto economist who is the leading expert on the fur trade and Canada's identity, "took root in the experiences of the fur trade, both for the French period and after the Conquest.

"Voyageurs, rapids, the outlying frontier, courageous exploration of rivers, long portages, relations with distant Indian tribes, these and other features of the fur trade are echoed today in the Canadian self-image. The fur trade, more than virtually any other single experience, was the primary matrix out of which modern Canada emerged."

Beaver became the breathing equivalent of gold. What made the animals so valuable was not their fur but its fine, thick under-hair, which was turned into the felt used to make the beaver hats that became a high fashion item in England and on the Continent for several generations. Before the invention of the umbrella, beaver headgear provided an elegant way to keep dry, but more to the point, its wearers could be instantly placed within the social structure according to their choice of hats. (Incidentally, the lead fumes inhaled during the felt-making drove its practitioners into early senility; thus the saying "mad as a hatter.")

Another part of the beaver that sparked dreams of fortune in men's eyes were the pear-shaped glands located in the anal region: They contained an orange-brown alkaloid, Aspirin-like substance that cured headaches.

The Hudson's Bay Company strung a thin line of trading posts across the upper half of North America, which was all that kept out American annexationists pushing north. The inhabitants of these puppy bush settlements displayed individuality at their peril. The prevailing ethic remained deference to authority inside their ramparts and deference to nature beyond them. This attitude still determines what most Canadians do -- and, especially, don't do.

Arriving directly from the hard-bitten tradition of the Orkneys, the Shetlands and the Scottish Highlands, the early traders set out a primitive form of capitalism in the cold-frame latitudes of Hudson Bay. They stressed life's sombre virtues -- the notion that there was nothing more satisfying than a hard day's work well done and that the good man always earned more than his keep.

In dramatic contrast to the six-shooter individualism of the American West, the idea was to be careful, plainly dressed and quiet-spoken, close with one's money and tight with one's emotions. Flashes of pleasure and moments of splendour had to look accidental, never planned. Such a gloomy credo was carved into every Canadian psyche. Whatever our ancestry, as Canadians most of us still act Scottish in our reticence and rectitude. Blame the Bay.

"I adored the HBC," Sir William (Tony) Keswick, one of its last British governors, told me. "I'd have done anything for the company, within reason -- or without reason. It was a wonderfully romantic concern, and its people would have cut off their hands to help.

"We British are fanatically romantic about our history. The magnificent Prince Rupert [who restored Charles II to the British throne, and received the HBC Charter in return] was the company's first governor; our great Duke of Marlborough the third. [Nine generations after the original Marlborough, the family begat Winston Churchill who, when he retired from politics, accepted only one commercial directorship: as seigneur of the HBC.]

"The second -- the Duke of York -- gave it up only to become King of England. I've seen the minute book in which the Duke apologizes for not being at the next board meeting because he has just taken on the throne. I mean, that's absolutely honey to a Briton. You'd pay a dollar more for your $20 share if you could get that thrown in -- even if it has no practical merit."

Tony Keswick's enduring passion for the company was by no means unique. Some of its bachelor officers willed it their savings; one woman executive I met told me that she loved the company more than either of her husbands. Even the grumblers, fed up with their long, slow lives in some dreary posting, would vow that they were damn well going to retire early -- after only 38 years in the service.

The one emotion the HBC never inspired was neutrality. Native customers, feeling short-changed by its traders, insisted its initials should really stand for the Hungry Belly Company; their women accused the firm of masquerading as the Horny Boys' Club.

No one touched by the company's Darwinian will to survive remained unaffected. To be a Bay man was tantamount to belonging to a religious order.

Currently reduced to holding "scratch-and-save" sales, the Bay still behaves as though it once touched the hand of God. Throughout its history, it found comfort in the rumour that the members of the British Royal Family were major shareholders. The whispers became fact during a Canadian tour, when Prince Philip sidled up to then HBC governor Don McGiverin, and demanded: "How are we doing?"

The company eventually extended its mandate across one-12th of the Earth's land surface, with outposts in San Francisco and Hawaii. Its most dynamic personage was Sir George Simpson, a bastard by birth and persuasion, who from 1821 to 1860 ran the HBC as his private domain. Darting across his empire in a fleet of express canoes, he cheered up local factors by announcing his arrival with the loud help of an accompanying bagpiper named Colin Fraser.

The most puzzled observers of these musical interludes were aboriginal people, who had never seen or heard such a weird instrument. According to what was most likely an apocryphal story, a puzzled Cree reportedly told his chief that "one white man was dressed like a woman, in a skirt of many colours. He had whiskers growing from his belt and fancy leggings. He carried a black swan which had many legs with ribbons tied to them. The swan's body he put under his arm upside down then put its head in his mouth and bit it. At the same time, he pinched its neck with his fingers and squeezed the body under his arm, until it made a terrible noise."

Rings true to me.

Simpson also pioneered the notion of having a mistress in every fort. Native women were often co-opted into casual sexual relationships, though many liaisons resulted in "country marriages" that lasted a lifetime. (One bit of stray evidence of just how solitary the HBC men felt were letters I found sent to the company's mail-order catalogue division. Enthralled by the layouts featuring women's underwear, one lonely soul wrote away to order "the lady on the right hand corner of page 59.")

In 1870, Simpson's vast empire was sold to the newly confederated Dominion of Canada for £300,000 plus title to seven million acres of prime prairie land holdings. The HBC then established its dominant influence over Canada's Arctic, organizing the trade in fox pelts, and eventually manning 200 northern posts.

In western Canada, the retail trade was channelled into a half-dozen downtown department stores that eventually became the nucleus of a national merchandising operation. Even with Wal-Mart cutting deeply into its Canadian sales, the company still owned 568 outlets, selling goods worth $5-billion a year.

There were other ventures along the way, including purchase of a Hollywood film studio and, during the First World War, ownership of a mighty fleet of 300 merchant ships vessels that ran the gauntlet with essential food supplies and ammunition to France and Tsarist Russia. A third of them were sunk by German torpedoes en route.

While researching all of this, I interviewed more than 1,000 Bay men and women, and took on some of their coloration. So anxious was I to do them justice that I began to feel like a Blues Brother on a mission from God. But it wasn't easy.

The tragic fact is that, despite the regal sponsorship that gave it a running start, the HBC missed just about every business opportunity that came its way. Whenever an intuitive leap was required to advance the company into fresh and lucrative jurisdictions, its decision-makers opted for safety and survival. Despite its historical significance, the company turned out to be the most stunningly unsuccessful monopoly in Canadian history.

Although it owned one of history's most valuable land holding -- one-third of the still-to-be-explored northern part of the continent -- it allowed others to profit from that magnificent hunk of real estate.

Here was a company that dominated the world's fur trade for three centuries, yet never made a fur coat. Here was a company that pioneered the nation's transportation arteries (much of the Trans-Canada Highway runs along its canoe routes) and exercised a transportation monopoly over western Canada, yet when it came time to build the CPR across its territory, the HBC demurred.

Here was a company that had the only functioning infrastructure on the Canadian plains and owned seven million acres of prime land along the new railway route, yet did little to capitalize on that invaluable asset. Here was a company that established a worldwide market for its "Best Procurable" scotch, high-quality gin and rye, but instead of continuing to distill its popular house brands turned the business over to Seagrams.

The most obvious dereliction of opportunity was the failure to capitalize on the company's potential oil and gas reserves. In the mid-1920s, it still held mineral rights on 4.5 million acres checkered across the Prairies. Rather than exploit that invaluable asset, described by Fortune magazine as "an oilman's dream," the HBC leased the entire package to Marland Oil of Ponca City, Okla. (and its successor, Continental), retaining only a 21-per-cent interest.

By the late 1960s, the joint venture ranked as Canada's third-largest oil and gas producer, with 1,606 wells in production; its earnings were twice as high as those of the HBC itself, and its equity was worth four times as much, with the company receiving less than a quarter of the royalties.

If this series of spectacular missed opportunities doesn't qualify the Company of Misadventurers as a typical Canadian story, I don't know what does. But there is a lesson here: Survival is a lousy ethic because it kills risk, and thus the future. It was this reticent creed that paralyzed the HBC's corporate planners: They took occasional flyers, but never bet the firm.

One peculiarity of the Bay's management structure is that it was run by the ultimate absentee landlords, located in London. It took an unbelievable 264 years for the first HBC governor -- Sir Patrick Ashley Cooper -- to bother crossing the Atlantic in 1934, for a first-hand look at Hudson Bay, which had enriched his 31 predecessors who never made the journey.

His visit was not a success. Comfortably lodged aboard his tour vessel, he insisted on broadcasting a greeting from the King of England, from the ship's enclosed bridge. Since each settlement had only one radio receiver, inside the manager's house, none of the gathered native trappers heard the broadcast -- which was just as well, since very few of them understood English. When Ottawa objected to a businessman representing himself as carrying an official royal message, the ship's captain pulled the plug on Cooper's amplifier, so his greeting was never heard by anyone.

In significant contrast, the HBC's last Canadian president and chief executive officer is George Heller, the only head of the company who can actually skin a beaver. He was making his living by doing just that when he joined the company in 1952 as a lowly clerk-in-training at $200 a month (minus $50 for room and board).

Of the decade I spent writing my history of the HBC, I recall most vividly my final visit to Moose Factory, near the bottom of James Bay.

First scouted in 1671 by the audacious Pierre Radisson, the place was populated by ghosts. I spent most of my time in the company cemetery, walking among the tombstones and crosses, twisted into crazy angles by the permafrost.

It was beginning to snow a little and, as I stood in front of a tilted markers, I sensed the spiritual presence of the fur traders who had lived and died there. I felt them silently staring at me, their faces like those haunting slashes of pigment with which van Gogh portrayed the Borinage miners: flat eyes, prominent cheekbones, looks that betrayed not a glimmer of duplicity but a profound sense of accusation. They were dead men from a dead culture, their deeds and misdeeds long ago consigned to the dustbins where Canadians store their history.

Yet I could sense their curiosity: Why had their lives prompted so little attention, why had their names been ignored even in that crowded corner of obscurity reserved for Canada's unsung heroes? They had, after all, done everything that was expected of them and more. But the phantoms quickly vanished, and I walked back through a gathering snowstorm to the local Hudson's Bay store.

That night, I joined a burr of Bay men, trading yarns. They were drinking to remember the good old days, then drinking some more to forget them. These were the men who would gladly have sold the Bay blankets off their beds to maintain the Company's reputation. They missed the fur trade because it had been less a business than a way of life, an escape from the restrictive codes of civilization. Now, it was finished, and so were they.

Somebody mentioned George Simpson McTavish, a factor for the company who had spent 40 years at its most isolated posts. To break his seclusion, he had domesticated a mouse and discussed in great earnestness each day's events with the friendly rodent. He always travelled with a loaded pistol, not for defence, but to shoot himself in case he stumbled into a leg-hold trap and couldn't get back to his post. That's lonely.

Nothing happened to McTavish, except that his mouse died, but I couldn't get him out of my mind, trekking across some screaming stretch of wilderness, wondering when he might have to put the gun in his mouth.

Canada's backcountry where the HBC held sway was originally populated by many such "ordinary" men and women. They spent their lives in those obscure corners that poet Al Purdy located as being "north of summer."

Thinking and writing about these "ordinary men" as I did that long-ago day at Moose Factory, my memory twigged to a line in Shakespeare's Henry V, following the battle of Agincourt, when the King requests a list of the English dead.

"Edward the Duke of York, the Earl of Suffolk, Sir Richard Ketly, and Davy Gain, Esquire . . . None else of name," reports the King's herald.

"None else of name" -- the most devastating of epitaphs -- yet it fit most of the hard cases who lived and died in the service of the company. As the subsidiary of a Yankee coupon clipper's portfolio, the HBC will now vanish into the mists of forgotten history.

And nobody waved goodbye.


Zucker mum on HBC deal
Feb. 25, 2006. 01:00 AM

American financier Jerry Zucker is waiting until Monday to disclose whether his offer to buy Canada's oldest company was a success.
But all indications yesterday were that Zucker's $1.5 billion bid for Hudson's Bay Co. Ltd. would get sufficient shareholder acceptance to go ahead.
The secretive South Carolina billionaire was playing his cards close to his vest.
"We have a pretty good sense of how things are going. But we won't get the final numbers until the early evening and then we have some legal things to do," his spokesperson Robert Johnston said yesterday.
Several large Hudson's Bay shareholders said yesterday they are selling into the offer. Others got out of the stock earlier in the year. Freestone Capital Management, the second largest shareholder after Zucker, said it sold in mid-January after it became clear HBC wasn't going to attract any better offers.
"I really thought this would be an excellent opportunity for Target to enter the market," Gary Smart, a portfolio manager with the Seattle-based fund, said yesterday. "I think Zucker is getting a good deal."
Towle and Co. confirmed yesterday it's selling into HBC's offer. The St. Louis-based fund held 536,657 HBC shares at last count.
Zucker began buying HBC shares more than 18 months ago and was soon its largest single shareholder with just under 19 per cent of the stock.


HBC sold!

What next for the Bay
Feb. 26, 2006. 01:00 AM

When the doors open at Hudson's Bay Co.'s 500 stores across Canada tomorrow, employees of the iconic 336-year-old retailer will learn — officially — whether they have a new owner.
American financier and industrialist Jerry Zucker is expected to announce early in the morning how many shares were tendered to his $1.5 billion offer for the struggling department store retailer.
The deal was slated to expire Friday at 5 p.m., though it could still be extended or withdrawn, Zucker said in a press release Thursday.
Assuming, as most observers do, that at least two-thirds of HBC's shareholders will accept Zucker's offer of $15.25 a share, the big question now is what's next for Canada's oldest retailer?
Zucker, whose company Maple Leaf Heritage Investments Corp. has been HBC's biggest shareholder for the past 18 months, has already spelled out some of his plans. None of it sounds very drastic.
His plans include installing state-of-the-art inventory controls that keep popular merchandise in stock, boosting traffic and sales per square foot by inviting third parties to set up boutiques within the stores, adding more discount brand-name merchandise and closing money-losing stores.
Normally, a financial buyer like Zucker would do his best to unlock the target company's value by splitting up and selling off some of the assets, according to mergers and acquisitions expert Laurence Booth. At that point, he would go on to cut costs in order to boost profits, said Booth, a professor at the University of Toronto's Rotman School of Management.
But the highly secretive Zucker has so far said only that he might sell off the Simpson Tower, home to HBC's corporate headquarters, in downtown Toronto.
His stated goal is mainly to do a better job of running the stores, a move that suggests he might replace the current senior management team.
His spokesperson, Robert Johnston, has declined to discuss Zucker's plans for chief executive officer George Heller. But some observers say Heller and his two lieutenants, Thomas Haig and Marc Chouinard, could be among the first to go.
"They haven't performed and, when you don't perform in retail, you get fired. Whether it's your fault or not," said one retail consultant who didn't want to be named.
In the six years since Heller took the helm at HBC, both sales and profit have slipped while the company's share price has flat-lined amid growing competition from discounters and specialty retailers.
In its latest quarter, HBC reported a $50 million loss, including $28 million in one-time costs to pay for layoffs.
HBC has already spelled out the cost of getting rid of its top six officers at nearly $10 million in severance packages. Heller would get 2.5 times his current annual salary and bonus, which amounts to just under $4 million based on last year's salary of $1.2 million plus bonus of $350,000. If asked, he would remain on staff for at least a year after change of ownership, according to company documents.
Marc Chouinard, chief operating officer, would get $1.7 million. Thomas Haig, executive vice-president to the office of the CEO, would get $1.55 million. Michael Rousseau, the chief financial officer, would get $1.2 million.
Under Heller, there have been some successes. While Zellers has struggled to compete with discount goliath Wal-Mart Canada Corp. and the Bay's business is being eroded by cheaper chic retailers, HBC's home fashion chain Home Outfitters and its new Designer Depot discount fashion stores are a hit.
Still, some observers say either David Margolis, founder of Winners Merchants LLP, or Paul Walters, ousted CEO of Sears Canada Inc., could do a better job of turning things around.
"I think they need someone who understands the Canadian retail industry," said David Howell, a consultant with Associate Marketing International, of Toronto.
Some of the work that would normally be done by a new owner is already in progress at HBC. In recent months, the retailer announced it was cutting 825 middle management jobs and selling off its profitable credit card division.
But more could be done, observers said.
Some of the Bay's downtown stores across Canada sit on highly valuable real estate, while the Zellers chain could be downsized and sold to a company like Target Corp., the only successful U.S. competitor to Wal-Mart.
One of the first indications of Zucker's plans might be what he does with the $370 million in proceeds from the sale of HBC's credit card division to GE Money, the consumer-lending arm of General Electric Co.
Will he invest it in the retail business to speed up store renovations to make HBC more competitive? Or will he pocket the profits, as his counterpart Ed Lampert has done at Sears Holdings Corp. Lampert is the other financier who has recently invested in the retail industry, staking a claim in Sears Roebuck, then combining it with ailing Kmart.
Either way, Zucker has his work cut out for him. It will take more than a few asset sales and some management changes to make HBC successful, experts said.
The job cuts so far are expected to save the company $40 million to $45 million a year. But the company lost $50 million in its latest quarter, after taking a $28 million charge for severances to pay for the layoffs.
Zucker has said he'll invest $325 million over the next three years improving the stores. But HBC already spends roughly that much each year on capital improvements.
In the meantime, observers will have a tougher time finding out what's going on at HBC since the company will no longer be publicly traded after the sale goes through.
The impact on some publicly traded real estate companies may be more apparent as Zucker decides what to do with the many Bay and Zellers stores that occupy the malls and plazas they operate.
Among HBC's biggest landlords are Cadillac Fairview Corp., home to many of the Bay's mall locations, and RioCan REIT, a prime landlord to Zellers.
Pension plans have been big buyers of retail real estate, Booth noted.
In the longer term, Zucker may have to take more aggressive action to restore profits at the stores. That could include store closings and asset sales to other retailers, analysts say.
For years, analysts have speculated HBC could be broken up and sold, with U.S.-based Target scooping up the Zellers chain, while Macy's and Bloomingdales' parent company, Federation Department Stores, would pluck off the Bay.
Both have begun supplying HBC with certain exclusive and private label brands, including I.N.C. and Tres You. They may yet play a further part in the HBC saga.
Against this backdrop of corporate uncertainty, HBC spokesperson Hillary Stauth said the retailer has been keeping the focus in its stores on the Olympics. The company became an official sponsor this year and won the right to outfit the Canadian team for the next four Olympics.
The Olympic outfits, particularly the "trapper" hat, have been a huge hit among spectators at the winter games in Turin, Italy.
The games are one of Heller's passions, though he hasn't been in Turin for the current Olympics, Stauth said.
Meanwhile, Zucker has remained a mystery throughout his pursuit of Hudson's Bay. The 55-year-old Israeli-born engineer has spent most of his career pursuing industrial companies.
His previous interests in Canada have been eclectic. He once owned Montreal-based Dominion Textile Inc. and still owns a chain of laser tag entertainment centres across Canada.
His spokesperson, Johnston, is a Montrealer. And his daughter Andrea is reportedly marrying a Toronto native now based in Washington, D.C.
Still, Zucker's interest in retailing has puzzled industry analysts and many doubted from the start that his intentions were serious. Zucker has kept his options open up to the very last minute, issuing a press release Thursday that said he could still extend or withdraw his offer.
As the company's largest shareholder, with just under 19 per cent of its stock, it seems unlikely Zucker will walk away at this point. He can't sell his stake without depressing HBC's share price and the prospect he might buy more was one of the few things propping up the stock in recent months.
Tomorrow, HBC's 70,000 employees will find out just how deeply Zucker is committed to the company.


Bay play part of global game
Feb. 28, 2006. 06:56 AM

From outward appearances, a proud G-8 economy is being hollowed out. Many of its best-paying jobs are being outsourced to low-wage nations, turning one-industry communities into ghost towns. Iconic local enterprises are being snapped up by foreigners, and entire sectors of the economy are falling under the control of interlopers from abroad.
We're talking about the United States — something to keep in mind with South Carolina billionaire Jerry Zucker's successful deal to take over Hudson's Bay Co. But HBC's agreement to the takeover last month has prompted dismay in some quarters over the loss of an enterprise rightly identified with the creation of Canada itself.
"The Bay's demise as a touchstone Canadian institution sends an uncomfortable message," says HBC historian Peter C. Newman, mindful of the foreign takeovers in recent years of Molson Cos., Dofasco Inc., Future Shop and many Western Canadian energy firms.
"If we continue to cast adrift all of our historic anchors and become mere squatters on our own land, it will be too late."
When the HBC deal was first announced in January, retail consultant Wendy Evans told the Toronto Star that a blend of consumer cultures across the continent was a good thing, but "I don't think we want to have a total Americanization of Canadian retail."
Yet a glance to the south reveals a "de-Americanization" of stateside industry as pronounced as events in the Great White North, if not more so. The Bush administration recently approved the takeover by state-owned Dubai Ports World of several major U.S. ports, including terminals in New York, Philadelphia and Baltimore, dismissing concerns on Capitol Hill about the implications for national security. The company has asked U.S. federal authorities to review the deal again for potential security risks.
The White House is hamstrung in its efforts to censure the rabid Bush-hater Hugo Chavez, president of Venezuela, because Chavez could play havoc with U.S. fuel supplies, given the dominance on the U.S. Eastern Seaboard of Venezuela's state-owned Citgo Petroleum Corp.
British utility giant National Grid is seeking to expand its U.S. assets as one of the two bidders for KeySpan Corp., the fifth-largest U.S. natural gas distributor. British grocery giant Tesco PLC this week unveiled plans for a chain of U.S. mini-marts, joining Japan (7-Eleven), Canada (Circle K convenience stores and Eckerd drugstores), Sweden (Ikea) and Holland (Giant and Stop `n' Shop grocery stores) among foreign firms crowding the U.S. retail scene.
Canadians control the Illinois Central and Wisconsin Central railways; the Number 2 U.S. auto-parts maker, Magna International Inc.; John Hancock Financial, the biggest insurer in New England, which competes for business in the American market with the U.S. operations of Canada's Sun Life Financial and Great-West Lifeco Inc.; the U.S. Number 2 discount broker, Ameritrade; and one of Chicago's three biggest local lenders, Harris Bank (another of the three, LaSalle Bank Corp., is Dutch-owned). Puerto Rico's banking industry is effectively a branch plant of the Bank of Nova Scotia.
There are no American players in the burgeoning U.S. market for regional commuter jets, a sector dominated by Bombardier Inc. and Brazil's Embraer SA, soon to be joined by Russian aerospace giant United Aircraft Corp.; and Bombardier's lineup of corporate jets has displaced Savannah, Ga.-based Gulfstream Aerospace Corp. as the most popular private jet of choice for Fortune 500 CEOs, who long ago traded in their Cadillacs and Lincolns in favour of a Mercedes, Lexus or BMW.
The BlackBerry instant email device, a product of Waterloo-based Research In Motion Ltd., is so indispensable among U.S. decision-makers in Congress, on Wall Street and in Hollywood that the U.S. government has repeatedly intervened in the current patent dispute that threatens to shut down an addictive service with 3.2 million U.S. users.
American consumers enrich foreign companies with every purchase of Wild Turkey bourbon, Vaseline, Harlequin books, Allegra antihistamine, Dixie Chicks CDs, PlayStation game consoles, Kit Kat bars, Perrier sparkling water, Sunlight detergent, Hellmann's mayonnaise, Ben & Jerry's Chunky Monkey, Gerber baby food, Nicoderm tobacco-cessation patches and Ciba contact lenses.
As recently as two decades ago, America's biggest companies had mostly themselves to compete with. Today, non-American firms control more than half the U.S. market for autos, steel, beverage alcohol, nickel, newsprint, rubber, gold production and civilian aircraft.
Three of the Big Four global oil giants are European, as are three of the Big Five pharmaceutical houses. America has only two domestic auto makers; while Germany and France, with a combined population less than half that of the U.S., boast five major ones.
At least three Chinese auto brands — Geely, Chery Automotive and Lifan Group — are preparing U.S. rollouts of fuel-efficient, modestly priced ($10,000 U.S.) passenger cars. IBM personal computers are now made by a Chinese firm, Lenovo Group Ltd. And production of Play-Doh and the Etch-a-Sketch, 46-year-old flagship of the Ohio Art Co., has for the most part shifted to China.
Yet America remains the dominant global economy, whose stature won't come under serious challenge — principally from China and India — until mid-century at the earliest. Indeed, the stupendous buying power of U.S. consumers is the lifeblood of the world's leading non-American firms, which would shrivel or perish if denied access to the U.S. market. As for Canada, its economy has never been stronger, in job creation, wealth generation and fiscal surplus. And despite the new absentee ownership of several famous firms, Canada punches above its weight in the multinational game.
Global business is, to some extent, a game — one of musical chairs. Shoppers Drug Mart, to pick an example, has passed from Canadian to British to American and back to Canadian hands since the late 1970s.
And at this moment, an Indian steel maker headquartered in London, incorporated in Holland and boasting extensive U.S. operations including the former Bethlehem and LTV steel firms, is seeking control through a hostile takeover of a French rival that itself just bought Canada's Dofasco, which the Indian firm proposes to spin off to Germany's ThyssenKrupp AG if its acquisition gambit succeeds.
Unlike the asset shuffling and "asset stripping" that reached its zenith in the late-1980s, today's industrial consolidation — in theory, and usually in practice — enhances productivity and innovation, and, in the long term, job and wealth creation.
Japanese auto makers now employ almost as many workers in Cambridge and Alliston, Ont., and in U.S. communities as they do in Toyota City and Hamamatsu. European drug makers are increasingly concentrating their R&D activities in New Jersey, still the world capital of the pharmaceutical sector; Houston remains the leading centre of global oil and gas exploration and production technology; and Toronto keeps its role as a leader in global mine financing.
In a proper order of events, HBC would have been acquired by Target Corp. of Minneapolis, a well-managed retailer that has withstood the threat from Wal-Mart Stores Inc., and not by a financier, Jerry Zucker, with no background in merchandising. That the 335-year-old HBC has fallen into the hands of an investor whose resumé includes the bankruptcy-protection filing of a textile conglomerate he assembled in the 1980s says less about Canada's vulnerability to a plague of absentee owners than to the chronically risk-averse, unimaginative corporate culture of HBC for most of the 20th century.
"Despite its historical significance," says HBC historian Newman, the firm "turned out to be the most stunningly unsuccessful monopoly in Canadian history," failing to parlay its founding fur-trading empire into a business that could indefinitely outlive the obsolescence of beaver coats.
Here and there, one finds Bay customers who mourn HBC's change of ownership. But realistically, a radical change at HBC is long overdue.


Zucker takes hold of 82% of Hudson's Bay, retail changes expected swiftly
Mon Feb 27, 5:22 PM ET

TORONTO (CP) - U.S. businessman Jerry Zucker has gained control of retailing icon Hudson's Bay Co., and within months consumers will experience a "revitalized" department store giant.

But analysts expect bigger changes in the years to come, from a slimming down of Bay and Zellers stores, to a potential merger of those two recognizable Hudson's Bay (TSX:HBC - news) brands.

"This is a historic day for HBC," stated Zucker, CEO of Maple Leaf Heritage Investments Acquisition Corp. after a majority of the retailer's shareholders tendered to his $15.25-a-share offer and allowed him to gain control with 82 per cent of Hudson's Bay.

"As HBC's largest shareholder for more than two years, Heritage is aware of the tremendous opportunities available to HBC and looks forward to working with management and associates to build upon HBC's strong position and dynamic growth opportunities."

Initial changes will revolve around simple fixes, such as improving merchandise by adding more exclusive brands and higher-end products, and better customer service.

On the corporate side, it means a new board of directors and chief executive officer, and potentially a slew of changes in the management ranks.

"We think there's a lot of room for improvement at the company," said Robert Johnston, vice-president of strategy with Maple Leaf.

"Clearly, we're very excited about this opportunity, we think that this is a great company with great brands and great locations."

Although some Canadians will lament the fact a U.S. owner has bought up the oldest Canuck retailing icon, "we think that the change of ownership may in fact give it a shot in the arm and relaunch and revitalize it," Johnston said.

But Maple Leaf will also continue with a strategy to trim the number of small Zellers stores.

"Some of the smaller Zellers will probably be closed over the next number of years and the bigger boxes will be opened, which is a global trend in retailing," Johnston said.

Maple Leaf will own 56.9 million shares once it takes up the 43.8 million HBC shares tendered to its bid, which closed Friday, as well as $124.6 million worth of subordinated debentures.

Those who haven't tendered their shares now have until March 9 to do so.

At the retailer, there will be technical improvements to the stores, a focus on ensuring advertised merchandise doesn't run out, and the retraining of staff for better service, Johnston said.

For years, consumers have complained that service at the company's Bay and Zellers stores is notoriously poor.

"We know that Canadians in some instances have not been fully satisfied with these chains," Johnston said.

But, "it's a sad day for Canada," said Joseph D'Cruz, a professor at the Rotman School of Business in Toronto, since the buyout of Hudson's Bay by a U.S. firm illustrates that Canadians have failed in retailing. It also highlights that Zucker, a businessman from South Carolina, has a huge challenge before him.

"It's a very tough environment to pull off what Zucker is trying to pull off," he said. "What he needs is aggressive U.S.-style retail management."

The success in Canada of U.S. retail giant Wal-Mart has come at the expense of Zellers, and the Bay and Sears have both struggled as customers turned to specialty retailers and avoided the traditional department store, which partly led to the demise of Eaton's.

D'Cruz expects amid the competition Zucker might decide to merge the two store brands, Zellers and the Bay, to reduce overlap and give it the strongest chance to battle Wal-Mart head-to-head.

Or, Zucker could make the Bay more upscale so it competes more with retailers such as Holt Renfrew.

Any such change would mean the Bay would slim down store numbers so it's only in the top shopping mall markets, said Ken Jones, dean of the faculty of business at Ryerson University.

There needs to be significant longer-term changes at the retailer because it has struggled for years, Jones said.

"Maybe they'll have to downsize their stores," he said.

Looking years ahead, with Hudson's Bay soon to be a private company and Sears Canada moving in that direction, it gives those two department store chains the opportunity to look at how they could work together to be more profitable, said John Chamberlain, a retail analyst with Dominion Bond Rating Service.

"That's something that I think has a better than even likelihood of happening at some point," he said.

But a merger of the Bay and Zellers banners isn't likely, Chamberlain said.

In the meantime, however, Zucker will have revamp the stores with a bit of "paint and polish," better merchandise, displays and service, and advertise to lure shoppers back to the stores to give them another chance, Chamberlain said.

"It doesn't take a big increase in sales to drive a substantially greater increase in profit," he said.

"People are still going in the stores, you just have to have the right merchandise."

Shares of HBC closed Monday at $15.22, up one cent on the Toronto stock market.


^^^^Maybe Coles and Indigo in the Eaton Centre is not needed.

HBC may be unloading 80 Bay and Zeller stores...
Zucker may unload stores

From Monday's Globe and Mail

Jerry Zucker has approached some of Canada's largest retailers in an attempt to unload about 80 underperforming Hudson's Bay Co. stores, but he isn't talking to key rival Wal-Mart Canada Corp., industry sources say.

They say Mr. Zucker is circulating a “secret†list of sites to major retailers including grocers Sobeys Inc. and Metro Inc., which owns A&P and Dominion; Canadian Tire Corp. Ltd.; Winners Corp.; and Staples Inc.

“It's the worst-kept secret I've ever heard,†said one source who is familiar with the situation.

Nevertheless, Mr. Zucker is staying clear of Wal-Mart, which has played its part in HBC's decline over the past decade, sources said. It was unclear whether Loblaw Cos. Ltd. has been courted, although one source suggested it's possible.

Loblaw is becoming a bigger competitor to HBC. The grocer is building massive discount superstores with a wide assortment of food and general merchandise.

Mr. Zucker's real estate list pinpoints about 80 Bay and Zellers stores that the new U.S. owner of parent HBC wants to put on the market, sources said. HBC leases the sites.

The process may be fraught with difficulties because some of the sites are in malls whose leases have restrictions on what uses the space can be put to.

For example, Sobeys or Metro may be interested in a Zellers store, but there may be a competing grocery retailer in the mall whose lease doesn't permit another food merchant to move in. Landlords may then demand big payments to make significant changes in the makeup of the mall, sources said.

“If it's a real change in use, they're going to want the retailer to buy their way into it,†one source said.

Nevertheless, industry officials were not surprised that Mr. Zucker is shopping around the sites. He needs to unload them to help turn around HBC's flagging results.

“They're doing exactly what they should be doing,†another source said of Mr. Zucker and his officials. They could not be reached for comment, nor could an HBC official.

In the late nineties, when HBC acquired Kmart Canada and tried to divest many of its stores, HBC also went directly to retailers — rather than landlords — to discuss options, sources said. Many landlords were more than happy to find a new tenant for weakly performing Kmart locations, sources said.

But Mr. Zucker, who named himself HBC's chief executive officer and governor earlier this month, may have a tough time getting rid of many sites, they said.

“Many of them are in poor locations and small markets,†a source said. On the other hand, “any retailer would be interested†in looking at the sites.

Canadian Tire appears to be a strong candidate for the stores because its uses don't tend to conflict as much with those of rival retailers. For instance, it doesn't carry grocery or pharmacy products, which are sold in supermarkets, drugstores and dollar stores.

It may be more difficult for Home Depot Canada to move into Bay or Zellers sites because the home improvement chain needs large locations with tall ceilings, sturdy floors and big areas for contractors to move in and out of with lumber and other bulky materials. Home improvement rival Rona Inc. may be more flexible because it has a wider range of different-sized stores.

Mr. Zucker, who acquired HBC last month for $1.1-billion, has moved swiftly to try to put his stamp on the ailing retailer.

He has cut eight top executives from the payrolls, and taken George Heller's place as CEO, although Mr. Heller remains on the board.

He has told employees that he wants to differentiate the Bay and discounter Zellers while improving private labels and customer service.

And he has told some suppliers that he encourages them to take on more risk. He would like the vendors to guarantee to take back unsold goods, and make up the difference in lost profits if products do not sell at full price and need to be marked down to clear out.


Tuesday » March 28 » 2006

HBC may unload 80 stores
American owner seeks retailers to take over leases

Theresa Tedesco and Garry Marr; with files from Sean Silcoff in Montreal&nbsp &nbsp &nbsp &nbsp
National Post

Saturday, March 25, 2006

CREDIT: Peter Redman, National Post
Industry sources say HBC owner Jerry Zucker will likely have to pay a heavy price to close stores in communities where landlords will have difficulty finding new tenants.
The new U.S. owner of Hudson's Bay Co. is trying to unload as many as 80 stores across Canada, in a move industry sources speculate could result in one of the giant retailer's major brand outlets leaving one region of the country altogether.

Sources say that HBC, which was acquired by South Carolina billionaire Jerry Zucker for $1.7-billion this month, has prepared a list of store leases it would like to exit and is now asking other retailers whether they would consider taking over the space.

HBC, the oldest retailer in Canada, has more than 550 stores operating under the banners of the Bay, Zellers, Home Outfitters and Fields. However, sales in its stores have been flat or declining for the past five years as a result of stiff competition from Wal-Mart stores, Costco Wholesale Canada Ltd. and specialty clothing chains. It is believed a majority of the 80 money-losing stores being shopped around by HBC's management as part of a restructuring plan are Zellers stores.

And sources speculate that if the plan is successful, one of HBC's four major brand-name stores could disappear from one part of Canada.

"It's not shocking that he's doing this," said a source familiar with HBC's leases. "To make that company viable, they've got to get rid of some of those stores."

An industry source familiar with the list circulated by HBC described it as preliminary.

"It's really them saying 'are you interested in these stores,' " the official said.

That process could result in retailers showing interest in stores that have not been singled out by the company. "The list is a beginning point of discussion of stores they are prepared to close. But what's on the list today could be very different from what's on the list when they finalize what leases they are getting rid of," the source said.

Retailers that have been contacted by HBC, including a major grocery chain, were given access to the locations of the targeted leases although copies of the confidential list were not made available.

Officials at HBC declined to comment yesterday.

Industry sources say Mr. Zucker will likely have to pay a heavy price to close down stores in smaller cities and communities where landlords will have difficulty finding new tenants.

"The question is how much is it going to cost Zucker to get out of the uneconomic leases? That was always the swing factor in trying to price the company," said a source familiar with HBC's store leases.

Making matters worse for HBC, industry observers say, is the company doesn't have much leverage at the negotiating table with its landlords.

For example, if a company embarks on a major restructuring program to stop losing money one of the options available is to file for bankruptcy protection under the Companies' Creditors Arrangement Act (CCAA). Filing under CCAA allows companies to restructure and negotiate with its creditors under court protection, and in doing so, provides them some leverage to negotiate for discounts with their landlords.

However, industry sources say it is highly unlikely Mr. Zucker would file for bankruptcy protection after having fought almost two years to gain control of the company and take it private. As a result, HBC's landlords are expected to take a tough stance.

"He's got to go on bended knee to landlords to let him off the hook," said the source familiar with HBC's troubled leases. "They'll say no, and the next thing he can do is bring in someone to step into HBC's shoes. The landlords will then put the new potential tenants through tough credit tests to decide whether they'd make a better tenant than keeping Mr. Zucker on the hook."

Although most industry analysts and commercial landlords expected Mr. Zucker to try to bail out of some leases to stem the hemorraghing on the company's balance sheet -- it lost $175-million last year -- many were surprised that HBC opted to appeal directly to retailers, especially since landlords can veto attempts to sublease a property.

"[Zucker] might be just trying to prepare himself for future discussions with those landlords," said a real estate source. Others mused about whether the American businessman doesn't understand how retail real estate operates in Canada. "He's not going about this the way someone in Canada would; real estate in Canada is done by a handful of insiders," said a source.


Apparently, the list of 80 stores is a fake, perhaps the product of overzealous real estate agents:

Zucker answers speculation, says no mass HBC closings
New owner, 'truly excited,' promises to expand and improve on store formats

Globe and Mail, March 29, 2006 (link)


In a bid to stanch speculation about shutting many stores, Jerry Zucker spoke out yesterday about his plans to revitalize existing Hudson's Bay Co. outlets rather than pursue "mass closures."

The new U.S. owner says he is looking to replace smaller Zellers stores with expanded ones and add new Home Outfitters and Designer Depot outlets. And he said he plans to "aggressively" roll out HBC's small general merchandise Fields chain.

"I purchased this company based on its fundamental value, part of which resides in the strong national franchise of stores we operate from coast to coast," the South Carolina businessman -- and now HBC chief executive officer and governor -- said in a statement.

"I am truly excited about this company's opportunities and we intend to grow HBC's five formats by improving our portfolio, not through mass closures. That's just not in the cards and anyone speculating that it is, is not informed on my vision for HBC."

Mr. Zucker's move to confirm HBC's real estate strategy follows media reports over the past several days that suggested that he was looking at cutting as many as 80 stores.

A list of more than 80 HBC outlets was being circulated to major retailers in Canada in an apparent attempt to drum up interest in taking over the leases.

But Robert Johnston, a new director of HBC and a vice-president at Mr. Zucker's U.S. company, said on Monday that the CEO never issued the list, nor approached the other retailers.

Moreover, Mr. Zucker is legally committed to Investment Canada to not close so many stores, Mr. Johnston said. Mr. Zucker had to make certain undertakings to the federal government in order to get approval for his recent $1.1-billion acquisition of the Canadian retailing icon.

Yesterday, Mr. Zucker said HBC continues to pursue a strategy of closing or renovating stores that are less than a set size, or in underperforming locations.

Over the past five years, the strategy has resulted in an average of 10 store closings a year and a total of 45 renovations. "HBC anticipates closures and renovations in 2006 to be consistent with these figures," the statement said.

To underline his commitment to holding on to stores, Mr. Zucker said he will not go ahead with "a number" of previously targeted closings. Instead those locations "are being revitalized and rebranded."

Mr. Johnston suggested that some of the weaker Zellers stores may be converted to other banners under the HBC umbrella. It runs more than 550 stores in all, including the Bay.

HBC said it will open replacement locations for five existing Zellers stores that will represent the Zellers prototype "and be significantly larger than the existing locations." As well, in Ontario, the Oakville store is being expanded and new stores will open in Waterdown and Orleans.

Home Outfitters will open three stores this year and more in 2007; the fledgling Designer Depot, a discount fashion chain, will open four stores to add to the existing five.

Neither Mr. Johnston nor an HBC spokeswoman replied to numerous messages yesterday.

[see similar article]