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The Globe and Mail

Five years in, the turnaround ‘is real’ at Hudson’s Bay

The Hudson's Bay Company store on Bloor St, Toronto April 11 2013.

Fernando Morales/The Globe and Mail

It was the business turnaround that couldn't be done.

Retail experts said Hudson's Bay Co. was too broken to fix. Even U.S. real estate magnate Richard Baker had cold feet just before he snapped up HBC in 2008, saying at the time: "I'm nervous because all the smart folks in Canada think we're crazy."

So far, Mr. Baker is proving the smart folks wrong.

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His strategy was to hire a fashion retail maven as the operational leader, focus on apparel, shoes and handbags, move more upscale and introduce high-profile international partners such as Britain's Topshop, to still maintain an affordable edge.

On Wednesday, HBC, which went public last November, released first-quarter results that showed its strategy is paying off.

The company's loss narrowed (in a quarter that is usually a retailer's weakest) and, more important, it posted a 7.6-per-cent gain in sales at outlets open a year or more – a key retail measure.

However, the company saw a 1.4-per-cent drop in those same-store sales at its smaller U.S. division.

On track to meet its internal business goals, HBC now faces what could be its biggest threat yet: the entry into Canada of Target Corp., which specializes in stylish clothing and home goods. Mr. Baker helped the discount retailer to enter Canada by selling HBC's Zellers store leases to the company in 2011. And HBC will feel more heat next year, when high-end U.S. department-store chain Nordstrom Inc. opens its first store here.

But so far, Mr. Baker's 2008 retail bet is proving to be well-played. "It was very clear that Hudson's Bay was a dying company in incredibly rough shape," Joe Thacker, chief strategist at consultancy Fusion Retail Analytics said of HBC five years ago. "But the turnaround, I think, is real. Those numbers aren't coming from industry growth. That's all coming from market share gains."

HBC still has challenges. Apparel sales were weak in the first quarter, chilled by cold weather in parts of Canada and the U.S. The company is still renovating stores to devote more space to its better-performing apparel lines. And Lord & Taylor, which Mr. Baker acquired two years before HBC, is struggling amid unseasonably cool temperatures earlier this spring in the U.S. northeast., where it's based,

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Brightly hued jeans – the must-have product last year – have lost the allure of a year ago, Mr. Baker said. The trend "just went away much faster than we or anyone else believed." But in Canada, HBC is stealing away business from a wide array of players, from archrival department-store Sears Canada Inc., to shoe and jewellery stores, his research finds. "We're building share from all over the mall."

Mr. Baker pointed to growing opportunities at HBC's Canadian stores as it rushes to make more room for potentially lucrative apparel offerings, more Topshops, the Kleinfeld Bridal boutique and other brand partnerships.

"The natural growth we have in Hudson's Bay's business is so strong that I think it bodes well," he said.

In the first quarter ended May 4, HBC's continuing operations (excluding Zellers) posted a loss of $21.2-million or 18 cents a share, an improvement from $47-million or 45 cents the previous year. Sales rose 4.2 per cent to $884-million.

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