New Hudson's Bay CEO - turnaround strategy was good, execution wasn't

Profile picture for user slauchlan By Stuart Lauchlan March 28, 2018
Summary:
The Hudson's Bay Company has had a turbulent year, but a new CEO's now in place and talking up the need to be creative around retail customers, online and offline.

Helena Foulkes CEO HBC
Helena Foulkes

In September of last year, Gerry Storch, CEO of retailer Hudson’s Bay Company (HBC) - owner of Saks, Hudson’s Bay, and Kaufhof in Europe - came out with one of the more quotable lines from a senior executive in the sector when he said:

People don’t dislike department stores – they dislike bad department stores and they like good ones.

That was a sentiment that chimed with what is a growing trend across the retail sector that having an offline real estate asset is nothing to be ashamed of and that getting those stores in good shape is a more productive use of resource than just trying to ape Amazon.

Two months later, he was gone.

Storch’s departure was only one big shift in HBC’s attempts to reinvent itself for an omni-channel age. In June, the firm laid off 2,000 employees as part of a push to knock $350 million per year by the end of fiscal 2018. It restructured operations in marketing and IT as well as integrating digital functions throughout the company.

Throughout this, activist investors have been pushing the retailer to sell of real-estate to raise cash, including a bold scheme to turn the Saks Fifth Avenue flagship store in Manhattan into a luxury hotel!

With the success of Storch’s turnaround strategy far from clear at this point, the burden of taking things to the next stage now rests with new CEO Helena Foulkes, lured over from CVS Health where was credited with growing the drug store’s retail business into an $80 billion a year business.

Foulkes has only been the top seat for 6 weeks, but she’s got some views on what’s been going wrong and what needs fixing up:

I think the strategy was the right one; I think that the execution of it was not good. I think that it started with issues of alignment at the top and then essentially poor change management. So we had a lot of moving parts in the second-half of last year with a good percentage of our folks in new positions and not enough clarity around their roles.

The two functions in particular that we’re focused on fixing up are marketing and the digital centers of excellence, which I think in both cases caused us to take a step backward. And so we are laser-focused on that, as a team. I do see real opportunity, because I think there’s some low-hanging fruit for us to go after as it relates to just tightening up the transformation and I think that will help us this year.

Plans

When she joined HBC, Chairman Richard Baker said of Foulkes:

She has a proven track record of making bold, strategic choices that, at their core, put the customer first and have proven enormously impactful to business success.

While she’s naturally reluctant to comment too closely on her plans for HBC, Foulkes initial comments suggest that more of the same is highly likely. She says:

I’m honored to have joined such a storied company during a very dynamic time in the retail industry..The future of retail will be defined by companies that think creatively about where the consumer and the world are headed.

That’s going to mean building out strategies that “capitalize on HBC’s physical and digital assets”, she explains in a text-book omni-channel pitch:

I’m a big believer in providing our customers with a seamless end-to-end shopping experience across all channels.

Done OK, but needs to do better - that's another clear reading of Foulkes impressions of HBC’s current position. She says:

While the company has made progress during the last few years, HBC still has a long way to go. And I believe that all of our banners have meaningful opportunity to continue to grow their online capabilities and to serve our customers.

I still see tremendous opportunity to operate at a higher level, both for stores and digital. The focus that I have is really getting in the shoes of the customer and creating a more customer-oriented mindset for all of our banners and digital property…and creating a seamless experience for our customers. So while I applaud the work that the teams have done over the last few years, we are definitely, as a leadership team, seeing real opportunity to take our digital and store performance to the next level.

That’s going to take some investment of course, and CFO Edward Record confirms that current expectations for CapEx spend in the coming year will be between $450 million to $500 million. That’s going to be split in an omni-channel way, offline and online activities both getting attention:

We’re going to open 10 new stores this year. So that’s obviously a piece of the CapEx. Our Saks Fifth Avenue flagship stores are under remodel and we expect to make significant progress on that this year. So that’s obviously a big spend. And then we continue to invest in digital and IT, both from a logistics standpoint, where we have world-class automation, but also from obviously, the customer-facing pieces online.

Record is quick to add that HBC does in fact have a decent digital track record to talk about to date, even if there’s room for improvement:

We do about 70% of our business online…we think there’s continued opportunity there to do better on digital. It did slow down in the third and fourth quarters. We think we’ve made some operational errors in our digital business that we’re looking at in improving and fixing as we move forward. Again, we think there’s significant opportunity in digital as we move forward.

My take

Foulkes clearly likes her line about:

The future of retail will be defined by companies that think creatively about where the consumer and the world are headed.

It was used in the press release to announce her arrival at HBC as well as opening up her live comments on that state of the corporate nation she’s inherited. It’s far too early to tell how that creativity is going to translate into practical, deliverable actions.

The Hudson’s Bay Company can trace its origins back as far as 1670 in London. Nearly 3.5 centuries later, it faces some of its greatest challenges - re-inventing an iconic brand for a rapidly changing market in a turbulent retail sector. One to watch in 2018 as Foulkes beds down and starts to put her mark on the company.