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Richard Baker by Anthony Jenkins (Anthony Jenkins/The Globe and Mail/Anthony Jenkins/The Globe and Mail)
Richard Baker by Anthony Jenkins (Anthony Jenkins/The Globe and Mail/Anthony Jenkins/The Globe and Mail)

the lunch

Richard Baker: A balancing act in choppy retail waters Add to ...

He almost single-handedly changed the course of retailing in Canada.

Yet Richard Baker isn’t exactly a household name. He’s not even a Canadian – he’s American. And until 2006, he didn’t work directly in the retail sector.

Even so, the real estate mogul’s $1.8-billion deal last year to sell his Zellers locations to Target Corp. – giving the U.S. discount giant a platform to enter Canada by 2013 and, inevitably, shake up the entire industry – is a milestone in the country’s retail sector.

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His take on it? “That’s pretty neat,” he says in his gee-whiz way of speaking.

The easygoing nature and boyish-looking demeanour can be deceiving: Mr. Baker thrives on taking risks in a distinctly un-Canadian fashion. He took one of his biggest when he bought the down-and-out Hudson’s Bay Co., this country’s oldest retailer with its Zellers and the Bay chains, for a total of $1.2-billion in 2008.

The deal didn’t take much out of his pocket. Most of the price was the assumption of HBC’s debt, and a sovereign wealth fund kicked in a few hundred million as well. Even so, industry experts thought he was crazy. His own dad, chairman of the family’s U.S. retail real estate empire, had doubts. Just two years earlier, the younger Mr. Baker had picked up high-end U.S. retailer Lord & Taylor for $1.2-billion (U.S.) – another tired name in department stores.

“He always thinks I overpay,” the son says of the father. “But I have a vision.”

He saw both chains as a trove of hidden real-estate value worth billions – which proved right with the windfall Zellers deal. But he soon became enamoured with the potential of the retailing itself and, today, his chains are enjoying signs of a turnaround and showing that it still is possible to make money investing in department stores, if you buy them cheaply enough.

After he and a number of partners sank about $25-million into the deals, their holding today is worth roughly $1-billion on paper, or about 40 times their cash investment, according to a 2011 published report.

Even so, Mr. Baker will soon face stiffer competition in Canada, with savvy upscale U.S. rival Nordstrom Inc. in talks to move into at least some of the top store locations being closed by the struggling Sears Canada Inc. – or other sites – while Target, the U.S. heavyweight he helped bring here, will soon start stealing business from the Bay and others.

He’s had his own setbacks. In 2008, he purchased the failed home and jewellery chain Fortunoff, only to watch it collapse again a year later in the economic downturn. He had a minority stake in retailer Linens ‘n Things, which also went bankrupt. And the tough times forced him to abandon his in-house creative design incubator, which invested in budding fashion designers.

At a table at his recently launched Bannock restaurant at the Bay’s downtown flagship in Toronto, Mr. Baker discusses his appetite for taking more gambles. He recently bet on the popular restaurateur Oliver & Bonacini, which operates Bannock and other Ontario eateries and teamed up with the Bay to run more of its food services across Canada.

On this day at Bannock, which bills itself as offering “Canadian comfort food,” he opts for organic Chinook salmon in a smoked chowder, rather than his past indulgence of roast duck poutine pizza with curds and fries. (In a hurry for his next meeting in an hour, he skips the pre-lunch special of trendy mango mint juice or maple syrup lemonade.) Mr. Baker thinks Sears Canada’s move to shut stores will benefit the Bay. With Sears posting steady sales declines, “they’re dragging down the whole retail category,” he adds.

But he isn’t holding his breath for the imminent arrival of Nordstrom. The U.S. retailer notoriously takes its time in picking its store sites, paying landlords little or no rent for the privilege of housing one of its destination stores. The strategy may not play as well in Canada, where prime retail real estate is in short supply.

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