Canadian department store retailer Hudson’s Bay is shifting its business model by separating its physical retail store business from its online business. It’s part of a move by the retailer to focus on e-commerce and is the latest significant move indicating the retailer’s shift away from relying on its physical stores at a challenging time during the pandemic.
The separated businesses will have different names. The e-commerce business will be called ‘The Bay’, which is a nod to the name the retail chain formerly held prior to the renaming of the department stores as ‘Hudson’s Bay’ in 2013. The 86 physical stores that the retailer operates will continue to be called Hudson’s Bay.
The e-commerce business ‘The Bay’ will be responsible for brand direction, marketing, buying, planning and technology for both businesses according to the company. Iain Nairn, who has led the retailer as President and CEO since early 2020, will lead The Bay e-commerce business as President & CEO. Wayne Drummond, who formerly led the now-shuttered Hudson’s Bay stores in The Netherlands and was most recently Chief Merchant of Hudson’s Bay, has been appointed President of the physical stores business. The run of Hudson’s Bay stores in The Netherlands was ultimately unsuccessful and all 15 stores shut in late 2019.
The move to segregate physical and online stores is said to be part of a growth strategy for Hudson’s Bay in Canada, which operates the now-86 standalone stores as well as a robust e-commerce business. “This new operating model structures the organization to materially accelerate the biggest growth opportunities for each business, with dedicated leadership focus for each,” Hudson’s Bay said in a statement.
“The businesses will work closely together to deliver a seamless customer experience while making strategic investments in their respective growth plans. For customers, this will elevate the overall experience with significant enhancement to services, whether they shop in store or online,” the statement went on to say.
The Hudson’s Bay Company had been making significant changes to its business model including adding a marketplace component to its website.
“Establishing e-commerce and stores as distinct businesses is a pivotal next step in the future of Hudson’s Bay. With the launch of Marketplace on thebay.com earlier this year, Hudson’s Bay set in motion a rapid expansion of its ecommerce business to gain significant market share and become the country’s largest premium hybrid online shopping experience,” said Richard Baker, Governor, Executive Chairman and CEO of the Hudson’s Bay Company. “To date, digital performance and onboarding of new sellers has dramatically exceeded expectations. Furthermore, this move enables each team to make unencumbered strategic investments into their respective businesses to deliver an incomparable customer experience for Canadians.”
The online Marketplace is already said to be seeing success after launching in April of this year. More than 1,500 brands have been added or expanded while more than 25,000 new products have been made available via the new Marketplace Technology platform. Website thebay.com is said to be the sixth largest e-commerce business in Canada.
New online business The Bay’s Iain Nairn said, “The digital-first transformation of The Bay takes us to the next level, with significant focus on technology investment and innovation – including the creation of Technology Hubs in both Toronto and Seattle, increased fulfillment capabilities, expanded marketing and extended vendor partnerships for a highly-curated assortment.”
The physical Hudson’s Bay stores will continue to play an important role in terms of presence for the retailer in Canada. Changes have been made to some suburban stores including locations at Londonderry Mall in Edmonton which recently saw updates including centralized checkouts on each of its two levels along with showrooms for baby goods and housewares. Some stores have also seen departments downsized with walls being put up to reduce retail space. Downtown flagship stores are also being downsized including the Calgary store which was recently reduced to three floors from six.
Hudson’s Bay stores president Wayne Drummond said, “Hudson’s Bay stores will become discovery destinations and serve as an important touchpoint for customers. With stores in major cities across the country, Hudson’s Bay provides Canadians access to the product they need and want, while offering high-touch services that many others cannot.”
The company said in a statement that returns, exchanges, Hudson’s Bay Rewards and Hudson’s Bay credit cards will continue to be accepted both online and in stores.
The move comes after the Hudson’s Bay Company separated the physical and online businesses for luxury division Saks Fifth Avenue and off-price division Saks OFF 5TH. Several months ago the Hudson’s Bay Company sold a minority state of Saks Fifth Avenue’s e-commerce business to private equity form Insight Partners for USD $500 million, valuing the new online business to be known as ‘Saks’ at USD $2 billion while the physical store division with 40 locations was named ‘SFA’. The online business for Saks OFF 5TH was recently spun off and valued at USD $1 billion.
This week as well, the Hudson’s Bay Company announced a partnership with WeWork that will see co-working added to some current and former Saks stores under the banner SaksWorks. It remains to be seen what’s planned for Saks stores in Canada which are said to be struggling.
Bruce Winder, author of RETAIL Before, During & After COVID-19 and President, Bruce Winder Retail, said, “In my opinion, this separation has more to do with valuations than operations. Department stores generally have lower price-earnings (PE) multiples vs. e-commerce companies and this allows HBC to sell off part of the online entity for more money to raise funding to pay off debt, invest back into the business or harvest a dividend.”
“This is similar to how the firm separated Saks’ online business from the bricks and mortar side. I personally think that the department store side of The Bay needs to shrink significantly and indeed become more experiential if they are to survive. Time will tell how HBC manages the bricks side of this equation and if investments will be made.”
Others share the sentiment that more physical Hudson’s Bay stores could shutter in Canada as the retailer shifts to an online footprint. Whispers and rumours that the Hudson’s Bay store at the northeast corner of Yonge and Bloor Streets in Toronto would shutter were denied by the retailer recently. Regardless, the condition of some of Hudson’s Bay stores in Canada indicate that significant investments are needed to bring them in line with an elevated retail experience that the retailer is aiming for.
George Minakakis CEO of Inception Retail Group Inc., said, “It seems opportunistic. I am unclear how they can retain sales revenue at either business to make them look viable. It looks like they are taking from Peter to create Paul. It will create confusions and frustrating friction for consumers. If I were the owner of Hudson’s Bay I would be inventing my resources quite different to ensure the longevity of the brand. I believe this just weakens the brand and hastens a negative outcome for stores. Clearly this is seen as an IPO opportunity much like the strategy with Saks.”
Liza Amlani, Principal and Founder of Retail Strategy Group, said, “A bold move and a huge mistake. As successful retailers are blurring the lines of ‘channel’ and dramatically shifting towards omni, the Hudson’s Bay Company is doing the exact opposite. Shouldn’t the focus be customer-centricity and an aligned merchandising strategy to increase footfall? Wouldn’t separating online and offline alienate customers and distance you even more from understanding your customer? This move will show customers that perhaps you are not listening to feedback including changing store formats and increasing customer service and brand ambassadors on the shop floor.”
David Ian Gray, founder and strategist at DIG360, said, “The irony is that retail and brands are doubling down on removing so-called silos that exist between channels and functions in order to better serve the Customer seamlessly. This does the opposite. However, this split is not about ‘the Customer’, rather it is all about ‘the Investor’. The Investor is King. In my opinion, betting on Marketplaces seems to be the latest ‘Hail Mary’. But how many ‘marketplaces’ will shoppers shop and sellers list on? The objective cannot be to become a marketplace, but to become one of the top three. The rest will be ignored by too many and fall short.”
Toronto-based retail supply chain and last mile expert Gary Newbury said, “After 350+ years of trading, HBC has arrived at a pandemic-induced decision point. It has already been busy reversing it’s former bricks and mortar expansion plans pre-pandemic, then distracting itself by complaining malls not being ‘top rate’ to avoid lease payments and now, with a new retailer who has been able to persuade the Board to further retrench from its fleet to migrate the brand more to an online platform, but this is Canada, not Europe where the consumer densities are higher by several magnitudes.”
“This, unfortunately, is very product centric way of thinking, when the rest of the industry is looking to bring online and stores together under an omni (combined) model to create more of a blur in the consumer’s mind, bring more digital tools into stores and move towards customer centricity,” Newbury went on to say.
“It’s a bold move, and if fully support with scalable local fulfillment investment strategy, an aggressive growth plan and a clear go to market proposition, this should enable success… oh, but thinking a brand experience on a transactional platform can mirror a high touch, high service in store experience only serves to underline the potential flaws in this commercial thinking.”
“Underneath it all, it seems, is still a strong ethos of maximizing shareholder value on real estate realization, rather than a bold new retailing move to set the market alight. And being primarily in a category which demonstrates an extremely high return rate, I suspect we will see another ‘great idea’ in a couple of years as the ‘learning’ that, typically, e-commerce is at best marginally profitable in higher margin categories. When it comes to apparel, all I can see is red ink quickly accumulating.”
Newbury concluded by saying, “Be ready for more press releases of ‘teething challenges’, ‘integration and supply chain issues’ and ‘leadership changes’ in 2022. The smarter move would have been to either close retailing altogether and shift the real estate or invest heavily in the current stores (with some further rationalization in overstored territories) and servicing e-commerce sales from backroom sortation capabilities, rather than remote warehouses.”
Hudson’s Bay has been in the news quite a bit over the course of the pandemic. One big story was the retailer’s not paying rent for some of its stores which led to litigation across the country. The Hudson’s Bay Company was ordered to pay rent for some stores by the courts and the retailer is said to have settled privately with some landlords in other cases.
We’ll continue to follow this story as it’s becoming clear that the Hudson’s Bay Company will continue to make significant changes to its business model amid a digital revolution in retail that has been accelerated by the pandemic.