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Richard Baker has put plans to take Hudson's Bay Co. public on hold, putting pressure on the retailer's blueprint to refurbish its faded department-store chain.

The offering of 20 per cent of HBC, which some had pegged as likely to raise roughly $200-million, will be delayed until at least next year because the market for initial public offerings is so soft, according people familiar with the matter. That means HBC's the Bay will have to make do with existing funds in its race to perk up its 90 stores and breathe new life into the department-store chain before U.S. rival Target Corp. and other foreign players enter the market.

HBC, the parent company of the Bay, Home Outfitters and, in the United States, the upscale Lord & Taylor department-store chain, started speaking to Canadian bankers last May about a public offering of 20 per cent of the company on the Toronto Stock Exchange. However, over the summer the markets became increasingly rocky and the economy grew more uncertain.

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What started as a slow IPO summer has turned into an eerily quiet fall; many bankers say the deals they were readying for October or November launches have been sidelined. These offerings are expected to stay out of the market until investor confidence returns. Porter Airlines is among companies that have delayed their planned IPOs.

While it had appeared earlier this year that high-quality names could still go public, that no longer seems to be the case. Gibson Energy, an oil services firm with a long history, completed a $560-million IPO in June, and Dundee International REIT sold $410-million in July. Both deals got investors' attention because they offered juicy 7- and 8-per-cent yields, respectively. But even that kind of payout isn't enough to get investors to jump at new offerings these days.

"It is very difficult to underwrite anything these days, even something as stable and well known as the Bay," said Robert Gibson, head of research at Octagon Capital. "Also, I expect the valuation the owners wanted just wasn't there. Look what has happened to the value of Canadian retailers. They've all gone south."

Mr. Baker, a U.S. shopping centre tycoon who began buying up retailers in 2006, paved the way for an IPO in January by negotiating a $1.8-billion deal with U.S. discounter Target Corp. Under the agreement, Target picked up the rights to leases of most of HBC's underperforming Zellers stores, with the goal of converting about 135 of them to the Target banner by March of 2013; that's when the Minnesota-based retail giant plans to opens its first Canadian store.

Mr. Baker said he'd use the proceeds of the Zellers sale to reduce debt and invest $500-million over the next three to four years in his other chains, including the Bay and Lord & Taylor. Mr. Baker would not comment on the current IPO situation.

"He's in no rush," one industry source said. "It could go next year or the year after."

Mr. Baker has said that the Bay's sales have improved dramatically in areas that the chain has focused on, such as the high-end women's fashions of The Room, and women's wear, shoes and handbags in its flagship stores. Under a new leader, Bonnie Brooks, the chain has revamped offerings and presentations to cater to a younger, more style-conscious customer. Now, in a bid to woo twentysomethings with cheap-chic styles, the Bay has teamed with the popular British chain Topshop to introduce its first boutiques within Bay outlets.

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The investments and cost-cutting so far seem to be paying off. With about $7-billion in annual sales, HBC generated a profit of about $450-million in 2010, before taxes, up from $330-million the year before, according to published reports.

The bulk of the work so far has been concentrated on big urban stores, and many suburban outlets still need a facelift. HBC was to use some proceeds from the IPO to help refresh those stores, said George Hartman, an independent investment banker.

But the updating of the stores can only wait so long. "The catalytic event is Target arriving," said retail consultant Jim Danahy of CustomerLab. "There's irony since they will be using a portion of Target's money to compete with Target."

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About the Authors
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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