Hudson's Bay Company makes a bold omni-channel gambit with European merger

Profile picture for user slauchlan By Stuart Lauchlan September 11, 2018
Summary:
HBC has taken a bold decision to team up with European retailers to strengthen against the Amazonian predator.

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Canadian retailer Hudson’s Bay Company (HBC) has been a prime example of a heritage brand embarked on a much-needed, but highly-challenging omni-channel transformation.

Earlier this week, we looked at the merger of London-based Foyles and the UK’s biggest book store chain Waterstones as further evidence of retailers joining forces to survive in a rapidly-changing market and to fend off the inevitiable spectre of Amazon. That, we suggested, was a good move by both parties.

Similarly we have to nod in approval at an unexpected gambit from HBC witrh the announcement that it is to merge its European operations with Germany’s Galeria Kaufhof and Karstadt chains to form Europe’s third-biggest department store chain. The combined group will have annual sales of around €5.4 billion euros, placing it third behing Spain’s El Corte Ingles and the UK’s Marks and Spencer in terms of size.

As well as strengthening HBC’s European presence, it also provides the retailers with some much needed cash to pay off some of its debt back home, currently running at somewhere in the region of Canadian $4.2 billion.

And of course, it’s about strength in numbers in the battle against the online predator, the angle picked up by much of the coverage of the announcement. Germany is Amazon’s second largest market, after the US.

The specifics:

  • HBC, parent company of Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Saks Off Fifth and Home Outfitters—has teamed with Signa Retail Holdings, a Europe-based real estate and retail company. Signa is paying Canadian $616 million to acquire a 50.01% stake in HBC’s European retail operations, and a 50% stake in HBC’s real estate in Germany
  • HBC Europe, HBC’s European operation, will merge with Karstadt Warenhaus, a European department-store chain. The deal also includes Galeria Kaufhof, the largest department store group in Germany; Belgium’s Galeria INNO; Saks Off 5th in Germany; and the Netherlands and Hudson’s Bay in the Netherlands.
  • The new company will be run by Stephan Fanderl who is the current CEO of Karstadt., HBC and Signa will share six Board seats and have joint oversight of all major decisions for the company.

HBC Chief Executive Officer Helena Foulkes says this is a big deal all round:

We’ve already taken a number of actions to strengthen the company’s foundation such as streamlining our retail portfolio with the recent divestment of Gilt, rightsizing Lord & Taylor’s footprint with the potential closure of up to ten Lord & Taylor locations including the sale of its Fifth Avenue flagship in New York City, making several leadership changes to bring new ideas and perspectives and ongoing efforts to improve performance within the high potential areas of our operations.

Since I joined HBC earlier this year I’ve spent a number of days each month with our team on the ground in Europe and I’d like to thank our HBC Europe leaders and associates for their hard work and dedication. While we’ve made progress in making changes to improve this business, the market remains challenging and this transaction provides a better operating platform for our combined businesses to succeed.

It also creates significant value for our shareholders while enhancing our balance sheet and allowing us the opportunity to place even greater attention on HBC’s improving North American retail operations. We believe that there is real opportunity for these banners to improve and are focused on making the right strategic decisions to drive performance and profitability within those businesses.

There will always be demand for retailers with a strong brand offering, innovative retail formats and a seamless omni-channel experience. By bringing together these iconic retail banners, we have an opportunity to leverage a robust store network and multiple digital platforms to create Germany’s leading retail business.

She adds:

I think for both companies, it’s a very different transaction than we had ever had a conversation around and ultimately it’s about making both of us stronger together. The idea that we really have aligned interest now, with essentially 50-50 ownership of both retail and real estate, makes this something that allows us together to look forward at what’s really happening in the German retail landscape and how these two leading retailers come together and both drive synergies from this transaction, but also ultimately differentiate and grow the business together.

My take

As we keep saying about omni-channel retail, love the stores! This is a merger that, as Foulkes notes, offers support for increased digital retail platforming, but which is firmly built on offline real estate as the foundation for an omni-channel focus. This is a bold and exciting gambit by HBC and one which will lift some of the debt weighing down the retailer in its domestic market, freeing up investment in innovation.