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.
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.
Nordstrom also tends to put on few sales, while Mr. Baker’s customer “wants a bargain,” he notes. “What do Canadians love about Nordstrom? They love all that [staff]help, there’s someone to help you everywhere. But the labour costs in Canada are 35-per-cent more than they are in the U.S. That’s a real issue for everybody.”
Mr. Baker recently streamlined buying and other functions at the Bay and Lord & Taylor, letting go 10 senior executives and promoting the high-profile Bonnie Brooks to head both chains. “Part of our job is to figure out how to have a cost structure and a business that can give our customer a great deal. That’s everyone’s challenge, and it’s a balancing act.”
The balancing act could also smooth the way for Mr. Baker to eventually take HBC public again, something that he would have done last year if it were not for rocky markets.
He has another weapon in his pocket to help take on Nordstrom: the Bay’s mall leases often give it the right to essentially shut out a new department-store retailer entering a shopping centre where it operates. The clause could become a headache for a new U.S. player.
For now, as full-time “governor” (chairman) and CEO of parent HBC, he plans to invest $1-billion over the next five years to upgrade his existing retailers, while he looks for buyers for his remaining Zellers and small discount Fields store leases.
And he is attempting to spread a can-do attitude at HBC.
“I want our team to be bold and to take risks and to be adventurers,” he says above the din of the bustling lunchtime crowd. “The type of people that we want to attract to the Hudson’s Bay Co., and the type of people that we want to reward, are people who are willing to think outside the box, to push the envelope – be willing to take some risk.
“All of us need to understand that sometimes you fail,” he adds. “Failure is okay. I want to encourage people to fail because if they don’t fail they’re not trying hard enough. When they fail it should be small and it should be hedged and they should learn a lot from when they fail.”
He feels he has learned from his own missteps. The Fortunoff bankruptcy taught him harsh recessionary realities, but also gave him an inspiration – to take a new retail concept and place it in his bigger department stores (something he’s now doing with British cheap-chic Topshop boutiques). His design incubator brainchild has morphed into private-label production for his own chains and, already, another U.S. department-store retailer.
His approach to business and life is one he and his wife Lisa, contemporary art collectors, try to instill in their three children, aged 17, 15 and 12. He openly discusses the company’s affairs with his offspring and encourages each of them to participate in a charitable foundation. “They see the sales reports and they wear the clothes and they visit the stores,” he says.
The Bakers aren’t lacking in material comforts. They live on a 10-acre property in Greenwich, Conn., with two swimming pools, an outdoor and an indoor one designed by artist James Turrell. They also have houses in Telluride, Colo., and on the North Fork of Long Island.
He travels in the family’s Gulfstream jet and often works from his chauffeured Cadillac Escalade which serves as a mobile office with wireless Internet, flat screen television, fax and printer.
He developed his entrepreneurial bent at an early age. While his teenage peers played football, he ran a catering business. He attended the Cornell School of Hotel Administration and then cooking school in Paris. But his father persuaded him to join the family business rather than start a restaurant.
The son took one of his first big gambles in the business when he paid a visit to Wal-Mart Stores Inc., then a fast-growing chain, to persuade it to set up its first store on the U.S. East Coast at one of his father’s malls. Today the family business houses about 35 Wal-Marts.
His father taught him early the basics of drawing up a lease and getting financing. Still, he learned from his late mother about the importance of art, which he also tries to impress on his children.
“Society doesn’t appreciate the value of the arts,” he says, already late for his next appointment. “Exposing young people and children to the arts enables people to think differently … I tended to look outside the box.”
Born Nov. 27, 1965 in New York City.
His father, Robert Baker, founded and runs National Realty & Development Corp., one of the largest private owners of shopping centres in the U.S. with more than 20 million square feet of space and Wal-Mart and Target as anchor tenants.
As a boy he was intrigued by his father’s business, tagging along on mall tours. At family meals, discussion turned to why he should never guarantee a loan. In high school, he ran a catering business, serving dessert at a bar mitzvah for 100, among other assignments.
Graduated from Cornell University, where he sits on the advisory board of the hotel school and real estate program.
Now governor (chairman) and CEO of Hudson’s Bay Co., which includes the Bay, Zellers, Home Outfitters, Fields and the U.S. Lord & Taylor, with a total of about $4-billion of sales. Last year, he spearheaded $1.8-billion deal to sell most of Zellers leases to U.S. discounter Target Corp.
Owns, along with his father, NRDC empire; previously CEO of NRDC Equity Partners, a private investment firm which bought HBC in 2008. Also executive chairman of Retail Opportunity Investments Corp., a REIT that acquires U.S. retail properties.
Married to Lisa, with three children, 12, 15 and 17.
Commissions works by artists such as Leo Villareal.
Ten-acre estate in Greenwich includes two pools, one of which is rimmed with fiber-optic strands of light that change colour, based on a computer program. Two other homes in Telluride, Colo., and on North Fork of Long Island.
Often works from chauffeured Cadillac Escalade, equipped with wireless Internet, flat screen TV, fax and printer; travels in the family’s Gulfstream; loves skiing and touring stores.