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For the second time this year, Hudson’s Bay Co. ULC is selling a stake in the e-commerce arm of one of its department stores, turning Saks Off 5th’s digital operations into a separate business.

The company announced on Monday that New York-based venture-capital company Insight Partners has agreed to pay approximately US$200-million for a minority stake in the new company. Insight is the same firm that invested US$500-million in Saks.com in March, when HBC did a similar deal to hive off the e-commerce operations into a separate business from the luxury department store chain.

Saks Off 5th, the discount luxury chain of 105 stores – including 17 in Canada – will likewise continue to be wholly owned by HBC, under a new division named O5. The deal values Saks Off 5th’s e-commerce business at roughly US$1-billion, according to HBC.

Last year, just before the pandemic hit the retail industry, an investor group led by HBC chairman Richard Baker paid $1.12-billion to take HBC private. That deal valued HBC’s equity at $2.74-billion, not counting the company’s debt.

By breaking off the e-commerce businesses, the Canadian retailer has been seeking to attract more investment – and to recruit talent – that is not otherwise drawn to bricks-and-mortar store chains. It has also allowed HBC to shore up its finances following months of store shutdowns because of COVID-19. Of the US$500-million investment announced in March, HBC intended to use roughly US$200-million to strengthen its balance sheet. The majority of the new investment will be spent on expanding the SaksOff5th.com business, Mr. Baker said in an interview on Monday.

“These businesses have gotten so big – as a digital e-commerce site and as a brick-and-mortar company – that maybe they weren’t so smart and efficient to run them together,” said Mr. Baker, who is now HBC governor, executive chairman and chief executive officer. “With the success that we’re having running each of these businesses separately, I think you’re going to see other people in the world follow our direction.”

Saks Off 5th president and CEO Paige Thomas, who joined the company last year, will lead the new digital business, while Saks Off 5th chief customer officer Rob Brooks has been appointed president of the store chain. The bricks-and-mortar company will continue to handle marketing and merchandising for both businesses, and stores will still accept returns or exchanges for online purchases, as has been the case for Saks.com.

In addition to the Saks.com and SaksOff5th.com deals, Insight has invested in a number of e-commerce businesses, including HelloFresh, Fanatics, and Chinese giants Alibaba Group Holding Ltd. and JD.com.

HBC did not disclose revenue figures for Saks Off 5th. Like other retailers, it has seen significant e-commerce growth during the pandemic, and online order volumes have roughly doubled since 2019, Ms. Thomas said. Online sales have not diminished significantly in regions where stores have reopened, she added.

“There’s pent-up demand. ... Customers are absolutely replenishing their wardrobe and ready to shop again, because they’re having weddings and birthday parties again, and going on vacation,” Ms. Thomas said. “These are all the things that haven’t happened for the customer during COVID. So it’s absolutely driving traffic in store, but it’s not hindering the e-commerce growth.”

The pandemic had a devastating effect on retail sales, particularly for apparel and footwear retailers. That forced many in the industry to lay off staff and seek relief from landlords and lenders. Last summer, HBC planned to raise US$900-million in debt to strengthen its balance sheet, but changed tack after bankers asked for a higher interest rate than HBC wanted to pay. The company instead borrowed roughly US$150-million at the time.

“We just in the last 90 days made two transactions [valuing Saks.com and SaksOff5th.com together at] US$3-billion. So we’re very excited and comfortable with both the liquidity and the market value of HBC and all of its entities,” Mr. Baker said on Monday. “... I’m really very bullish about our future here.”

HBC has also faced legal battles with some of its landlords, after the stores did not pay rent for at least 20 locations in Ontario, Quebec, B.C. and Florida. During the pandemic, many retailers and their landlords had to negotiate how to share the burden of forced business shutdowns. Last week, in a ruling at the Supreme Court of British Columbia, HBC was ordered to pay all the rent in arrears for the store at the Cherry Lane Shopping Centre in Penticton.

“We have a small group of landlords who just basically said, ‘Tough luck, sorry. There is a pandemic, pay all your rent.’ We think it’s a little more complex than that, and we’re going to continue to speak our minds,” Mr. Baker said. “And frankly, we’ve had a lot of success with the legal system as it pertains to the proper sharing of the pandemic situation.”

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