By, Joshua Barzola
The Hudson Bay Company (HBC) has been around Canada since 1670. From trading animal fur to becoming a multinational department store, the company has developed a deep-rooted connection with customers across the country. However, since the turn of the twentieth century, the brand has struggled to stay relevant and recently decided to remove themselves from the public spotlight by buying back stock to go private. The question remains, what are the next steps for the legacy Canadian company?
Before the boom of e-commerce, brick and mortar stores were incredibly important to the retail industry. Since the growth of multinational companies such as Amazon, several companies have had to fast track into e-commerce to stay afloat. Former retail stores such as Forever 21 and Toys’R’Us have filed for bankruptcy while closing a large amount of their brick and mortar stores across North America. HBC has been no stranger to the impact e-commerce has had, shutting down all operations within Europe closing 15 stores in Netherlands and moving their focus from international expansion to stores in the U.S and Canada.
Statista projects retail e-commerce revenue in Canada to continue to grow dramatically within the next 3-4 years. In 2018, e-commerce sales amounted to US$40.0 billion and by 2022 could increase over 30% to US$53.7 billion. This trend hurts the 90 brick and mortar HBC stores, as consumers decide to shop online instead of going to the mall. Consumers are targeting Amazon or going directly to the brand’s website to purchase their desired product. This forces HBC to sell their product at a discount to incentivize consumers to buy through their online platform or in store. While getting those Nike sweats at a discount benefits consumers, the brand image of HBC has been tarnished as people will no longer buy at full value.
HBC continued to struggle in the first quarter of 2019 as it reported that sales dropped 4.3% in stores that had been open for over a year. Furthermore, the company announced later in the year it would drop 300 unproductive brands while adding another 100 in an effort to cut their variety and focus on specific products.
This month, a group of investors led by executive Richard Baker agreed upon a C$1.9billion bid to remove HBC from the secondary market and have the company continue in the private sector. The bid raised its offering price to C$10.30 per share compared to C$9.45 per share. The benefit of going private will be to try to turn around the Hudson Bay stores without the public spotlight seeing their every move. However many stakeholders believe the offer is undervaluing HBC, estimating the real estate of the company to be valued more than C$1.9 billion. While brick and mortar stores have been closing, their real estate value remains steadily growing. Independent valuation reports from CBRE Group and Cushman & Wakefield value HBC’s real estate at $8.75 per diluted share, giving investors incentive to take the $10.30 per share bid from Chairman, Richard Baker.
While competitors such as Amazon continue to slowly destroy the concept of department stores, HBC will need to continue to find ways to compete in Canada while changing the public’s perception. By cutting the variety of the brands they hold, specializing in the products being kept, and restructuring their brick and mortar stores, HBC is trying to redefine itself. Ultimately, it will be up to Canadians whether the historic business will succeed in the long term or follow Zellers and Sears into bankruptcy.
Featured photo by Andre Gaulin.