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Empty shelves. Lineups at the cashier. Missed sales.

Those are the problems Jeff Sherman struggled with when he took the helm of a fatigued Hudson's Bay Co. 18 months ago. Today, the CEO of the venerable retailer, which owns the Bay and Zellers, faces similar snags. But for a good reason this time.

As official outfitter of the Canadian Olympics team, HBC has struck gold with its Games merchandise. Its stores have been selling out of Olympics-branded red mittens, black hoodies and buffalo-plaid scarves.

Mr. Sherman didn't count on inventory shortages, but scarcity is creating a buzz. Consumers are using Twitter to ask others about HBC product sightings; the $10 wool mittens go for three times that price on eBay. This is not the sort of excitement that HBC is known for.

"Scarcity can create a perception of coolness," said Chris Staples, president of Rethink Communications in Vancouver. "This is the first instance of cool stuff at the Bay that I can remember."

The 49-year-old ad executive said people like himself who haven't headed to the Bay in decades are now making the trek; he's kicking himself for not having bought an Olympic hoodie or sweater before stores ran out of them.

Now, Mr. Sherman needs to build on this momentum in his mission to transform the country's oldest retailer into a destination for Canadian chic.

"To have sold all of your product and have nothing remaining - it is not a bad thing," he said in a telephone interview this week from Vancouver, before heading off to see Canada beat Switzerland in women's curling. "We're not going to let people forget what we accomplished."

Mr. Sherman, a U.S. retailing veteran, has a lot riding on the Olympics. The Bay and Zellers have been losing customers to fast-growing rivals for more than a decade. U.S. real estate magnate Richard Baker, who snapped up HBC in July of 2008, has vowed to breathe new life into the firm and take it public by early next year.

To lure consumers back, Mr. Sherman intends to develop a permanent line of fashions modelled on the popular Games styles. He's mining the retailer's heritage advantage by bolstering its Signature Shop with about 120 new items (canoes, trapper hats, maple sugar cubes) alongside its signature striped "point" blankets and throws.

HBC's other initiatives range from last fall's $5-million relaunch of The Room as a high-end fashion statement at the Bay, to price cuts at discounter Zellers to take on titan Wal-Mart Canada Corp.

But it's too early to say whether these efforts will be enough to make HBC a go-to retailer.

"It's a start and a good start," said Howard Davidowitz, chairman of retail consultancy and investment bank Davidowitz & Associates in New York. "Now the question is, how do they capitalize on the Olympics for the long term and make their store a headquarters for unique merchandise?"

Hoping for a halo effect

Already there are signs that HBC's $100-million Olympics investment, spanning seven years to 2012, will have a long-term impact. Consumer awareness of the retailer's sponsorship has surged at a faster rate - by 43 per cent - than that of other key sponsors, according to a survey by researcher Angus Reid Public Opinion to be released on Monday.

More importantly, people who bought Olympics merchandise said they would now be more likely to consider making a purchase at HBC, a report by Charlton Strategic Research reveals.

It found that 29 per cent of people who snapped up the goods last October would "definitely" think of shopping at the stores again and another 30 per cent would "probably" consider buying something there.

Some 21 per cent of Canadians visited HBC stores, picking up Olympic products in October, although those numbers have swelled since the Olympics began, said Gordon Hendren, president of Charlton.

Roots Canada, the previous Canadian Olympics sponsor, still seems to enjoy a halo effect from its investment, he said. Last Saturday, its outlet on Vancouver's Robson Street broke the chain's record for a store's single-day sales, said co-founder Michael Budman.

At HBC, sales of Olympics apparel are 40 to 50 per cent higher than targets, Mr. Sherman said. Customer traffic at HBC's almost 400 stores have risen "in the double digits" during the Olympics from a year earlier.

Mr. Sherman set out to create Games fashions that could be part of customers' permanent wardrobes, rather than just a temporary souvenir. He wanted the apparel to be distinctively Canadian - hence the mitts with maple leaves on them. And he wanted to make the items affordable. HBC priced them 20 to 25 per cent lower than the items it produced for the 2006 Winter Games in Turin, Italy.

"I wanted to do something that got people back into our stores," he said. "I put a lot on the line."

Mr. Sherman was attempting to avoid mistakes made at HBC before his arrival. The company's exuberant styles for the 2008 Games in Beijing failed to catch on, leaving stores with inventory that had to be marked down.

To maximize HBC's Olympic moment, Mr. Sherman placed products at the back of stores, forcing shoppers to walk through the aisles to get there.

"It's the IKEA trick: Do a long walk through the store to see other stuff before you get to the Olympic store," Mr. Staples of Rethink said. "It's a chance to do cross-selling."

The collateral benefit

Mr. Sherman is banking that shoppers noticed other new features in the stores when they visited for Olympics products or events. The Bay has added 150 new fashion labels, such as Juicy Couture, Theory and Hugo Boss, while dropping 700 underperforming brands from a roster of 1,200.

Mr. Sherman's team is already developing the collection that will leverage the Olympics line. One inspiration is an Italian-style quilted jacket ($100) from the Olympic line that sold out the day after it was introduced.

At the same time, HBC's heritage - the firm was founded in 1670 as a fur trading company - is being emphasized in the Bay's Signature Shop and in advertising. And Mr. Sherman has elevated Bonnie Brooks, CEO of the Bay, to pitchwoman. She has been a visible presence in Vancouver, holding court at soirées and in media interviews. "Bonnie is both a credible voice of fashion and of change at the Bay," said Arthur Fleischmann, president of the retailer's ad agency, John St. "She cuts through and connects with people."