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A Zellers outlet in St. Thomas, Ont. HBC said Wednesday it plans to revive the brand with locations inside Bay stores by next year.GEOFF ROBINS/The Globe and Mail

Discount retailer Zellers is making a comeback.

Hudson’s Bay Co. announced on Wednesday that it is planning to open Zellers locations within its Bay department stores, starting early next year. More than a decade ago, HBC unloaded the store leases for the faltering chain to American retailer Target Corp., and wound up the business.

The company did not specify how many Zellers locations it plans to open, but said in a statement that Zellers will have a presence in major cities across Canada. HBC also did not say how much floor space the Zellers shops would take up inside its department stores, since plans for the locations are still in progress.

“We have plans to grow the footprint as we progress,” spokesperson Tiffany Bourré said.

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The Zellers store in the basement of The Bay in downtown Winnipeg on Jan.12, 2011.JOHN WOODS/The Globe and Mail

The company is also launching an e-commerce site for Zellers, the first time the off-price brand has ever sold goods online. The chain will sell product categories including housewares and furniture, toys, pet accessories and clothing, and Zellers will also launch products under a private-label brand.

Ms. Bourré would not say whether the company plans to revive the chain’s teddy bear mascot Zeddy, or whether new locations could include old features such as the Zellers restaurant.

Three years after Richard Baker’s NRDC Equity Partners acquired HBC in 2008 for $1.1-billion, the company inked a deal with Target to sell the majority of the Zellers store leases – 189 in total – for $1.8-billion. Target’s expansion strategy in Canada famously fell apart just a few years later.

The Zellers stores that were not purchased by Target mostly closed down by 2013, though a few locations remained. HBC had been testing the waters for a comeback of the brand, opening two pop-up Zellers locations inside Bay stores in Burlington Ont., and Montreal last year.

Hudson’s Bay has been looking for new ways to draw shoppers into its department stores, and to make better use of the sprawling floor space at many of its locations, including by converting some of that space for other uses such as restaurants and offices, or by bringing in other retail brands. Earlier this week, the company also unveiled a partnership with outdoor store chain MEC to build “shop-in-shops” in Bay stores beginning this fall. Zellers will also have its own shops within the stores.

Explainer: Zellers is coming back. Here’s what you need to know

Adam Powell, whose last role was chief digital officer for The Bay, will now lead the Zellers business.

But while inflationary pressures have been driving Canadians to seek out deals by shopping at discount stores more frequently and trading big-name brands for cheaper private-label substitutes, Zellers is relaunching in a discount retail sphere that has only grown more competitive.

Walmart is in the midst of a 5-year, $3.5-billion investment in its Canadian stores and e-commerce operations. Dollarama Inc. is opening 60 to 70 new stores each year, and currently has more than 1,400 locations in Canada – roughly double the number it operated the last time Zellers was a going concern. And Giant Tiger, while a smaller chain, is also opening more stores. And then there is Amazon, which has grown significantly.

“It will be, at most, a niche business,” said retail consultant Bruce Winder, who worked at Zellers briefly and also competed with the chain during his time at Canadian Tire years ago. “People who shop at discount stores have great options already. … They go to malls with Dollaramas and Walmarts, and those are different malls than those that tend to have Bay stores.”

Hudson’s Bay filed a lawsuit against a Quebec family last year, alleging trademark infringement after the Moniz family opened a Zellers-branded store. The family claimed the right to use the Zellers name after Hudson’s Bay failed to renew the trademark, and applied to use the brand for other businesses such as convenience stores and restaurants. The case is ongoing.

The Zeller’s chain, founded by Walter Zeller, began with 12 stores in 1932 that advertised as “retailers to thrifty Canadians.” The retailer expanded to 155 stores by the mid-1970s, when it began launching locations in suburban shopping malls and expanded its services to include restaurants in some stores.

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Spring shoppers checking store windows in Toronto for new spring fashions, April 5, 1963.John Boyd/The Globe and Mail

But the chain’s slogan, “the Lowest Price is the Law,” was challenged by the arrival in Canada of U.S. mega-retailer Walmart. Zellers struggled to compete, even as HBC continued to expand by buying up Towers Department Stores, Woodward’s and Canadian locations of American chain Kmart, converting many of them to Zellers stores.

By the time of the chain’s liquidation, Zellers had 273 locations in Canada, including the ones being sold to Target. Zellers had been faltering for years, with one retail consultant comparing the stores with “cadavers” in a 2011 interview with The Globe and Mail.

For its liquidation campaign, Zellers launched cheeky online ads featuring a fictional retail executive griping about competition from a U.S. giant, and declaring that “everything must go.”

In one video, the executive drove Zeddy to the middle of the woods and abandoned him there. (The hapless bear failed to cope with life in the wilderness. After an online vote, he was adopted out to an Ontario non-profit organization, Camp Trillium – now called Campfire Circle – which supports children with cancer. The camp has renamed the mascot Barry and still uses him for celebrations when children complete cancer treatment while at camp.)

“When we launched the campaign, Zellers didn’t have any social-media presence. You’d have thought, who would sign up for the Facebook page of a dying brand? But hundreds of thousands of people signed up. The response was overwhelming,” said Arthur Fleischmann, Canada country manager for global advertising firm WPP and co-founder of ad agency John St., which created the campaign.

There continues to be some nostalgia for the Zellers brand, he added, but it will need to set itself apart.

“It will all come down to product selection,” Mr. Fleischmann said. “It is a very crowded market.”

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