Richard Baker, executive chairman of the Hudson’s Bay Co., speaks during the company’s annual general meeting in Toronto on June 12, 2018.Tijana Martin/The Canadian Press
Landlords who rent to Hudson’s Bay Co. governor Richard Baker share a view of their anchor tenant: He’s a clever real estate investor, but a terrible department store operator.
Mr. Baker’s success at extracting cash from Hudson’s Bay properties, combined with his failure to do the one job he needed to do well – give shoppers a reason to keep spending at the venerable chain – explain why the company’s 355-year history is poised to end in liquidation.
Financial engineering, Mr. Baker’s specialty, can only get a chief executive officer so far. To build on a four-century legacy, an executive actually has to execute. That’s where Mr. Baker fell short, and why 9,000 Hudson’s Bay employees face losing their jobs.
Mr. Baker, the New York-based son of a successful real estate developer, brought a private-equity mindset to Hudson’s Bay from the moment he took control in 2008. He paid $1.1-billion for the company and promptly began to strip-mine its property portfolio.
Three years after taking the helm, Mr. Baker pocketed $1.8-billion by selling the leases on the chain’s Zellers stores to Target Corp., which proceeded to fall flat on its face in Canada. He continued to extract money by selling properties to landlords. Cadillac Fairview Corp. paid $650-million for the flagship Toronto store, then leased it back to Mr. Baker, while RioCan REIT paid $325-million to launch a joint venture on 12 properties.
Landlords such as Cadillac Fairview, RioCan and Oxford Properties Group all tell stories about being squeezed by Mr. Baker.
What to know about Hudson’s Bay liquidation sales
One of the country’s largest mall owners wanted to build condo towers in the parking lot of a Toronto property that included a Hudson Bay outlet. Mr. Baker used a clause in the lease that guaranteed a set number of parking spots near the store to extract a multimillion-dollar payment from the developer.
In 2020, during the COVID-19 pandemic, Hudson’s Bay stopped paying rent on stores in flagship Oxford locations such as Toronto’s Yorkdale mall and the Square One complex in Mississauga, then sued its landlord for failing to maintain “first class shopping centres.” A judge ruled against the chain and forced it to meet its lease obligations.
Tough negotiating tactics with landlords would be forgiven if Mr. Baker delivered on his end of the bargain by ensuring Hudson’s Bay’s outlets continued to draw customers. As anchor tenants, these stores need to generate the foot traffic and buzz essential to the survival of malls.
As anyone who has shopped at Hudson’s Bay recently knows, there’s no buzz. The Globe and Mail reported last weekend on stores with broken escalators and a company with unpaid suppliers, a depleted work force and a failed e-commerce strategy.
Cash from Canadian operations helped pay for Mr. Baker’s takeovers of additional U.S. and European chains, including Saks Inc., Lord & Taylor, Germany’s Galeria Kaufhof and Neiman Marcus. Last year, Mr. Baker effectively divided his empire between his U.S. business, branded as Saks Global and containing US$7-billion of real estate, and the Canadian division, under the Hudson’s Bay banner.
One division represents Mr. Baker’s future. The other is his past.
Successful journeys through bankruptcy proceedings require goodwill and sacrifices from all involved. Mr. Baker is finding that goodwill is in short supply.
To survive, Hudson’s Bay needs support of lenders owed $1.1-billion, including landlords such as RioCan, which co-owns a dozen properties and is an unsecured creditor. Rather than helping its partner, RioCan’s lawyers from Goodmans LLP are in court opposing a restructuring plan they said in a filing will “divert funds away from the joint venture entities to Hudson’s Bay for the benefit of Hudson’s Bay’s secured creditors.”
Mr. Baker mined billions of dollars out of Hudson’s Bay’s real estate during his 17 years as governor. He used cash from the domestic operations to build a U.S. retail empire.
In the process, he alienated Hudson’s Bay landlords and failed to find a formula that lured customers to the platform. Liquidation now looms as the final chapter in Hudson’s Bay’s storied history.
Share your memories and thoughts about The Bay
The Hudson’s Bay Co. is literally older than Canada itself, and people from coast to coast have grown up with various versions of the store and its iconic striped merchandise. Do you have a strong memory involving The Bay to share? Perhaps you registered for your wedding or made a meaningful purchase there, worked at a location or simply recall a different time for department stores. We want to hear about it. If you’d like to send us a photo related to your submission, send it to us in an email at [email protected] with “Bay memories” in the subject line.