How Hudson’s Bay Hopes to Fix $152 Million Loss

Hudson’s Bay Co., parent company of Lord & Taylor and Saks Fifth Avenue, suffered a $152 million (CAD) net loss in its fourth quarter 2016 and now Chairman Richard Baker hinted it may take its real estate assets public.

"We have a tremendously valuable portfolio of real estate, which could be monetized in a variety of ways," said Baker. "What we should have done and what we should be doing as quick as possible is IPO-ing our U.S. real estate portfolio and/or IPO-ing our Canadian real estate portfolio."

CEO Gerald Storch said the company is done waiting for the market to get better.

"We’re going to manage this business, so that we do well in any kind of market," said Storch.

The company plans to reduce net capital investments in fiscal 2017 by $150 million compared to 2016. Storch noted its cost reduction and capital reduction plans are "really designed to provide a backup" if sales don’t materialize.

"As part of this, we will focus on in-progress and high-return projects, including growth in Europe and ongoing renovation programs in stores across all banner," continued Storch.

"The things that we continue to invest in are clearly digital," he said, noting it's a high priority because of the amount of growth that’s taking place in digital and omnichannel, but is really about "the linking of the stores to the Internet."

The company's acquisition of Gilt last year continues to provide it best-in-class digital capabilities and a strong online presence with the millennial audience. Now, across all banners, the company is working on initiatives to improve the customer experience and enhance omnichannel offerings.

"We expect to have combined the inventory at Saks OFF 5TH and Gilt by the end of the year, allowing Saks OFF 5TH merchandise to be sold online through Gilt, which we believe will help drive the business forward," he declared.  

He did note it was taking longer to accomplish the integration then expected, with one of the biggest changes being able to put the two websites saksoff5th.com and Gilt on the same platform to enable complete merchandizing integration.

Initiatives in the off price businesses include the ongoing roll out of technology enhancements related to enhanced website navigation, personalization and delivery options, while Saks Fifth Avenue will introduce buy online pickup in store (BOPIS) in the fall, which Storch noted brings lower fulfilment costs.

"I view digital as key to the future, and so we’re leaning into it," said Storch, noting the main opportunities are through better fulfillment, robotic technology in Canada, the company's new distribution center in Pennsylvania devoted to the digital business, and the launching of common websites.

Saks and Saks OFF 5TH are on the same platform now, while Lord & Taylor is being beta tested and will soon be on the same platform with Hudson Bay to follow.

"We’re trying to get to one website, as automated fulfillment as we can," he said. "And I think we can make a lot of headway on this over the next year, and we’ll be launching buy online pickup in store at each of our banners this year, which is an issue that’s long overdue that should make a big difference too."

He noted there is a negative arbitrage in most businesses as sales shift from stores to the Internet, which is taking place across retailing. The high-cost of fulfillment eats into the profit margins, particularly on low ticket sales.

"The lower the ticket, the worse the negative arbitrage," he said. "And so, we’re paying up. We’re hard focused on what we can do there. This is why the payback on the automated fulfillment, the robotic fulfillment that we talk so much about is so important, because it starts to close that gap."