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HBC’s prospectus highlights its performance in the past three years, which shows sales and earnings growth at the Bay and Lord & Taylor. But that reflects a climb out of a deep recession.Kevin Van Paassen/The Globe and Mail

Canadians who have been burned by department store stocks before may be skeptical, but the coming initial public offering by Hudson's Bay Co. is finding strong demand south of the border that looks likely to ensure the share sale gets done.

There are many large fund managers that specialize in retail stocks in the U.S., and with their knowledge of the industry they are proving open to the pitch that HBC can increase sales significantly in its Canadian stores to create growth. Some of the U.S. investors are also more bullish on the Canadian economy and the health of the Canadian consumer – with all the talk of high household debt in this country.

The result is significant interest from American investors, said two people familiar with the process, who declined to be identified because the share sale process is underway and confidential. The offering has been "remarkably well received," said one of the people.

The interest from the U.S. is a very good sign for the IPO, which at a planned $400-million is likely to be one of the biggest in Canada in the past few years. Demand for initial public offerings has been spotty, especially with markets rocky and concern about economic growth rife.

Individual investors familiar with the HBC brand and Canadian mutual funds who are interested in retail stocks are not likely to be enough to get the deal over the finish line, so the U.S. fund managers who are retail specialists have been key targets for HBC.

Critics of the IPO point to the fact that sales per square foot at HBC's flagship Bay chain are $133 a square foot, well below the North American average of $240 (U.S.) for department stores. HBC is arguing that the gap, rather than an impediment, is an opportunity because the company has a lot of room to grow by increasing sales toward the average.

HBC can point to its vastly improved stores in major centres in Toronto and Vancouver as examples of how to drive increased sales. The company's U.S. Lord & Taylor chain, where sales per square foot are $210, also provides a blueprint that investors in the U.S. are familiar with.

HBC plans to sell 11.6-million to 13.5-million shares at between $18.50 and $21.50 apiece. RBC Dominion Securities, BMO Nesbitt Burns, CIBC World Markets and Merrill Lynch Canada are leading a group of banks that is handling the offering.