A person walks past the downtown Toronto flagship Hudson Bay Company store in Toronto on Monday, January 27, 2014.Nathan Denette/The Canadian Press
Hudson's Bay Co. is betting on expanding its namesake banner in the Netherlands at a time of heightened uncertainty about both department stores and security threats in Europe.
Toronto-based HBC, which also owns department stores in the United States (Saks Fifth Avenue) and Germany and Belgium (Galeria Kaufhof), said Tuesday it is finalizing a deal for up to 20 store leases in the Netherlands with landlords of a bankrupt Dutch retailer. The agreement entails the property owners paying for most of the $438-million investment to set up the HBC outlets over the next two years. It will be the first time that HBC will run stores under the Hudson's Bay name outside of Canada while the company also plans to operate three of its discount Saks OFF 5th stores in the Netherlands.
But the move comes amid weak results among a wide swath of U.S. department-store retailers whose shares have plummeted, while HBC's stock has slipped to its lowest point since its $17-a-share initial public offering in late 2012. HBC shares rose 0.07 per cent to $14.61 on the Toronto Stock Exchange.
"We are not going to deviate from our long-term strategy because of a result of a quarter or two," Gerald (Jerry) Storch, chief executive officer of HBC, said in an interview. "We have confidence in our strategy and direction of the company. We have confidence in department stores."
Added HBC chairman Richard Baker, the U.S. real estate tycoon who led an investor group's acquisition of HBC in 2008: "There's a lot more competition in the United States ... Our portfolio now, between Canada, Germany, Belgium and the Netherlands going forward – these are markets with a lot less competition and I think that bodes very well for us."
Department store chains are grappling with rising online competition, weak mall traffic, unseasonable weather and difficult currency shifts, which have hurt tourists' spending in the United States.
The retailers' margins have been pinched as a result of heavy discounting to clear out excess inventory, said Jharonne Martis, director of consumer research at Thomson Reuters in New York.
And to take on e-commerce powerhouse Amazon.com Inc., they have had to pour a significant amount of money into technology and their online businesses "which are all eating profits," she said.
All these factors together suggest "department stores are falling out of favour," Ms. Martis said in a report on Monday.
On Friday, HBC said its first-quarter sales at stores open a year or more – a key retail measure – fell 1 per cent on a constant currency basis. While they rose 2.3 per cent at Hudson's Bay and the company's U.S. Lord & Taylor, they fell 5.7 per cent at Saks Fifth Avenue and dropped 4.1 per cent at OFF 5th, while gaining 0.7 per cent at its European division. HBC's digital same-store sales advanced just 7.4 per cent, a relatively soft increase for an online business, reflecting for the first time the company's recent acquisition of Gilt.com.
Still, some industry watchers say HBC's latest move to expand in the Netherlands – which is located between Germany and Belgium, two markets where it already operates – is a calculated risk that could pay off.
Retail consultant Michael Gould, former CEO of Bloomingdale's, said despite troubles at department stores overall, HBC has rejuvenated its Hudson's Bay stores and can spread that know-how to its newer operations.
"I think they can do that in the Netherlands," said Mr. Gould, who has advised German department-store chain Galeria Kaufhof. "They're betting on zigging and other people are zagging."
Mr. Storch said the Netherlands' retail market has discounters and high-end retailers but lacks a mid-to-upper-end player such as Hudson's Bay. The market also doesn't have an "off-price" retailer such as OFF 5th, he said. "There is unmet demand in both the premium department store and off-price segments."
And Mr. Baker said the bankruptcy of the Dutch chain V&D late last year – and liquidation of its stores – provided HBC with the opportunity to pick up the leases at top locations. HBC is not paying for the leases.
HBC's planned expansion into the Netherlands will have an interesting Canadian twist: it will raise the heat between HBC and the Weston family, which owns luxury rival Holt Renfrew & Co. in this country and, in the Netherlands, de Bijenkorf, the key upscale fashion chain in that market.
"We have tremendous respect for Mr. Weston and all his people and all his different brands," Mr. Baker said. "We walk through their stores all the time and are always impressed."
HBC envisions a major overseas expansion, starting with plans to open 40 Saks OFF 5th stores in Germany, beginning next year. Last year, HBC acquired Galeria Kaufhof for $3.8-billion, the largest department-store chain in Germany and Belgium.
The Dutch store openings are part of a nearly $1.5-billion investment HBC plans on pumping into its European properties over the next seven years, including renovations to its Kaufhof stores.
"Expansion into the Netherlands is a natural extension of our existing presence in Belgium as well as our planned entry into Luxembourg and will complete our presence in all of the Benelux countries," Mr. Baker said.