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Bonnie Brooks becomes vice-chairman at HBC.

Hudson's Bay Co. is replacing its star president, Bonnie Brooks, with a company veteran in a surprise move that spooked investors, prompting a drop of more than 3 per cent in the stock price.

Ms. Brooks, a seasoned retail executive, is credited with leading a turnaround in HBC's financial performance that allowed the company to go public in November. But the shuffle at the top raises questions about how it will carry out the next stage of its transformation work and combat new U.S. players arriving in the Canadian market.

HBC chief executive officer Richard Baker, a real estate specialist who counted on Ms. Brooks for her retailing prowess, said he is promoting Ms. Brooks, 60, into the vice-chairman role and giving her more time to work with him on corporate strategy. Liz Rodbell, 55, a long-time executive at HBC's Lord & Taylor chain, will replace Ms. Brooks as president by next January and take over the running of day-to-day operations.

"Don't overread this as an exit," he said. "This is not an exit. This is a promotion. ... We're basically strengthening upper management."

It's the second high-profile executive move at a major Canadian retailer in the past two weeks. On June 10, Christine Day, CEO of Lululemon Athletica Inc., unexpectedly said she was stepping down with no apparent successor in the wings amid a recent recall of the yoga wear retailer's signature black pants. The stock price fell about 20 per cent in the days following that announcement, although it has recovered a bit since.

Mr. Baker said the HBC changes have no parallels to the those at Lululemon. "Bonnie Brooks isn't leaving," he said. "There's a tremendous amount of work for her to do going forward." He said the strategy will remain unchanged.

Ms. Brooks has impressed industry watchers with her strategy of focusing on fashion, moving HBC more upscale, replacing under-performing brands with hot labels such as Burberry and adding other must-have names, including Topshop, a British fashion retailer.

Early in 2012, the company added to her workload by merging top executives' roles overseeing both HBC's Hudson's Bay in Canada and Lord & Taylor in the United States.

The work of running both chains is "not quite working," one industry source said. "It was too much for her to run both Lord & Taylor and Hudson's Bay." In the past couple of quarters, Hudson's Bay has outperformed Lord & Taylor.

Ms. Rodbell's merchandising and operational strengths will be needed when preparing HBC for the heavy lifting in the next leg of intensified retail competition, industry observers said. Lord & Taylor has been a weaker link in the HBC network, requiring the focus of Ms. Rodbell, who is familiar with the U.S. business.

"Sometimes you look for different qualities in leadership at different stages of development," said Neil Stern, senior partner at retail consultancy McMillanDoolittle LLP in Chicago.

Wesley Card, CEO of fashion powerhouse Jones Group Inc. of New York, one of HBC's major suppliers, said Ms. Rodbell was instrumental in helping in Lord & Taylor's transformation several years ago. "She's got a great eye for product and she has a good sense of what's really going to work and the whole fashion equation."

As for Ms. Brooks moving to the vice-chairman position, Mr. Card said other U.S. department stores, such as Macy's, have key people in that role overseeing strategy. HBC is "a very big company with cross-border operations. There's room for a real strategist and visionary at the top as well as somebody involved in the day-to-day operations, in combination."

Nevertheless, despite the progress that Ms. Brooks has made at HBC, there's still a big job left to do to revamp Canadian stores outside of major cities, said Jim Danahy, managing principal at consultancy CustomerLAB. "Everybody hoped she would be given the resources she needed to turn it around," said Mr. Danahy, who is also director of the Centre for Retail Leadership at York University's Schulich School of Business.

In its first quarter, HBC reported that same-store sales at its Canadian stores rose 7.6 per cent at outlets open a year or more, while those sales dropped 1.4 per cent at its smaller U.S. Lord & Taylor division. HBC's loss narrowed to $21.2-million or 18 cents a share from $47-million or 45 cents in the year-earlier period. Sales rose 4.2 per cent to $884-million.

Mr. Baker said it was "the perfect moment to strengthen our bench, promote Liz to president and leverage Bonnie across all of our businesses for her strategic capability."

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