Hudson's Bay Company still fixing the digital fundamentals against backdrop of bigger losses and a takeover battle

Profile picture for user slauchlan By Stuart Lauchlan December 11, 2019
Summary:
There have omni-channel retail transformation successes this year; Hudson's Bay Company isn't among their number.

hudsonsbay

Looking back at retail trends in 2019, there have been some encouraging examples of omni-channel transformation finally kicking in. Hudson’s Bay Company (HBC) is not one of those examples. In fact as the Canadian retail institution limps towards the end of the year, its problems keep piling up, despite CEO Helena Foulkes pointing to what she called “strong digital growth” of 15% year-on-year.

But that wasn’t enough to prevent the firm sinking deeper into the red. For its latest quarter to 2 November, HBC turned in net losses of $CA226 million ($171 million), against a $CA161 million ($122 million) loss this time last year, on essentially flat revenues of $CA1.84 billion ($1.39 billion).

Complicating matters for HBC is the firm’s bid to go private, which has prompted a takeover battle between a group headed by HBC Chairman Richard Baker - which owns 57% of shares - and a minority shareholder, Catalyst Capital Group - which holds 17.5% of the stock. The Baker camp has claimed that Catalyst wouldn’t be able to finance its proposed deal, which was rejected by the HBC Board of Directors Special Committee. Catalyst is now taking an application to the Ontario Securities Commission to block or postpone the Baker takeover.

All of which is an unhelpful distraction to Foulkes and her team in their ongoing effort to turnaround the group, which owns Saks Fifth Avenue and Hudson’s Bay. But the CEO is trying to remain focused:

I am confident in our go-forward plans and believe that each of these businesses has the ability to deliver a best-in-class customer experience that will drive the financial performance over time. The only true certainty is that retail will be radically different in five years than what we know today. 

I joined HBC not only to be here for the first stage of streamlining the portfolio, but the next stage where we deliver on what HBC can become, a company focused on serving our customers, building our brands, making strategic investments in marketing and digital and connecting it all together for a unified shopping experience.

She adds:

We've made strategic investments with the goal of defining Saks as the fashion authority with an elevated service model and digital experience, and now we're leaning into personalization across all channels to drive growth…In Canada, digital is a more emerging channel and we've made significant progress in improving the Bay’s e-commerce capabilities, helping to put us in a position to lead.

Different strokes 

The two brands are chasing different demographics of customer and each requires its own care. At Saks, it’s all about personalized service, explains Foulkes:

The ultimate personalized experience drives meaningful customer relationships. For most of this year, we've been testing and learning how to bring a more personalized experience to all Saks shoppers. While online personalization is table stakes, we've learned that connecting online data to our top selling associates can drive upside. As part of our efforts to lean into personalization, we plan to empower more associates with this capability and further tailor the Saks experience to individual shoppers.

At Hudson’s Bay, there’s a lot more heavy lifting to be done to shake off what Foulkes categorizes as “self-inflicted” problems. Digital is proving to be one of the bright spots here, with 17% year-on-year growth and the launch - long overdue - of the Hudson’s Bay app earlier this year, leading to a tripling of mobile orders.

But that last point in itself just acts as a reminder of how many omni-channel retail basics HBC has struggled without. For a big achievement in retail in 2019 to be launching your app is a telling indictment of lack of attention to digital transformation over the years. Foulkes admits that the focus has been on getting those basics fixed:

Digital is an area where fixing the fundamentals, such as site speed, a streamlined checkout process and a more accurate view of inventory, have made a positive impact on performance. These improvements have also helped to establish the foundation we need to advance our businesses digital experiences through greater personalization.

Foulkes insists that there are signs of progress to seen:

As you look at our businesses, Saks is a business where essentially it’s the profitability of a store sale and a digital sale are essentially the same. So we're really channel-agnostic as you think about sales of Digital versus store sales at Saks, and that is unique I would say in retail. That exists because of sort of the labor model at Saks and just the very high price points that we have in the Saks business.

At Hudson's Bay, I'd say it's more typical of what you see at other retailers, which is the overall profitability is lower from an online order, and so that is not unexpected, but something that we consider as we think about the growth of those businesses.

All-in however, I think what we know is that the customer is looking for an omni-channel experience, and it's the integration of stores in digital that are really becoming the winning value proposition. One data point that I like to use in Canada that I think is compelling is that 97% of all of our e-commerce returns come to our stores, and I think that reflects how omnipresent our stores are, and because the return process is so easy through our stores, it makes the online ordering process more compelling for our customers.

My take

Given the ongoing crisis at HBC, it’s perhaps hardly surprising that Foulkes chooses her words with care when on the one hand she talks up “a very good Thanksgiving and Cyber Monday”, but immediately follows up by describing the situation since then as “relatively good”.

Such is the volatility around the company and potential ‘regime change’, not getting over-hyped about anything is probably a savvy move. Foulkes does insist:

Whether we are a public or private company, our strategy remains the same.

Well, 2020 will determine whether that’s the case or not. Going private - one way or another - does look as though it’s the last, best roll of the dice for this retail institution, which remains a totem for what happens when you neglect transformative changes and fail to make necessary omni-channel investments as the world changes around you.