The venerable Hudson's Bay Co., Canada's oldest retailer, is taking another shot at going public.
Representatives of U.S. owner Richard Baker began talking to Canadian bankers this week about an initial public offering of 20 per cent of the parent company of retailers the Bay, Home Outfitters and, in the United States, the Lord & Taylor department store chain, according to sources.
Mr. Baker is looking at taking HBC public on the Toronto Stock Exchange with the possibility of a U.S. listing as well, sources said. The IPO, being timed for the fall, will likely attempt to raise about $500 million, industry observers predicted.
The move comes as the retailer's flagship chain, the Bay, begins to enjoy signs of a turnaround under a new leader and a new strategy of stocking hipper fashions and home goods at a range of prices, many of them higher than previous ones, to draw a younger and more style-conscious customer.
Mr. Baker, a shopping centre developer who started to buy up retailers in 2006, paved the way for an IPO earlier this year by sealing a $1.8-billion deal with the U.S. discount chain, Target Corp.
It is picking up most of HBC's underperforming Zellers stores with the goal of converting up to 150 of them into its own Target banner by 2013.
Now Mr. Baker is preparing to cash in further by giving a little piece of Canada back to Canadians.
Still, many investors may be skeptical about betting on HBC. Faced with mounting competition from more nimble players, including discount giant Wal-Mart Canada Corp., it struggled to make headway as a public company until being taken private by another U.S. investor in early 2006.
In coming years, HBC will feel further pressure as Target and a growing array of foreign retailers set up shop here.
"In general I think the Street is going to be very suspicious about, in particular, the Bay's ability to compete in a world that includes Target," said Jim Danahy, managing principal at retail consultancy CustomerLAB.
Bonnie Brooks, the seasoned merchant who took the helm of the Bay in 2008, has made great strides in improving its flagship stores and raising the chain's profile, Mr. Danahy said. But she still has a lot of work to do to revamp most of the 92 Bay stores, he said.
Mr. Baker, who wouldn't comment on Thursday, has said he would use some of the proceeds of the Zellers sale to give the remaining Bay outlets a facelift.
His cost-cutting and investments so far seem to be paying off. With roughly $7-billion in annual sales, HBC rang up profit of about $450-million in 2010, before taxes, up from $330-million the previous year, according to a recent published report.
The Bay, with almost $3-billion in estimated annual revenues, saw its sales rise 4 per cent last year at stores open more than a year, its first increase in a decade. Lord & Taylor, the oldest U.S. department store retailer with 46 outlets, is performing even better than the Bay, industry insiders say.
Both chains made big changes after they were snapped up by Mr. Baker - Lord & Taylor in 2006 and HBC two years later. Shifting more high-end, the Bay dropped 900 slow-selling brands and introduced new ones such as Theory and Coach. It revived the upscale The Room at its downtown Toronto store and, at the other end of the spectrum, signed a deal with a British retailer to bring its cheap-chic TopShop fashion offerings to the Bay, starting this fall.
The Zellers Albatross
Antony Karabus, leader of retail consulting services at PricewaterhouseCoopers Canada, predicted that investors will be more interested in HBC now that it is unloading its Zellers stores, which competed head-on with Wal-Mart. "Zellers was an albatross around the company," he said.
Investors prefer a "pure play," in this case, essentially department stores rather than also discounter Zellers, Mr. Karabus said. "Contrary to popular rumours over the last 10 years that department stores have become irrelevant, the exact opposite is happening."
Many department store chains, such as J.C. Penney and Macy's, are enjoying a renaissance as they focus on popular brands as well as their own private labels, he said. And investors can also have confidence in the strong CEOs that Mr. Baker has hired at the Bay (Ms. Brooks) and Lord & Taylor (Brendan Hoffman, formerly at Neiman Marcus,) he said.
As well, Mr. Baker is beefing up HBC's Fields discount chain, with a pilot in the image of a dollar store. Eventually, HBC will sell off Fields also, Mr. Karabus predicted.