Business

A buyout will not solve scissors The owner's real issue: Warehouse is dead




Agroup by investors this week put plans in motion to take

Hudson's Bay

privately, hoping to fix the business out of the public eye.

But going private will not solve the company's biggest problem: It owns warehouses, a segment of retail that has lost parts for years to discount chains, e-commerce companies and other startups.

Along with his namesake Canadian chain, the company owns Saks Fifth Avenue and Lord & Taylor. The operating portfolio was down to almost 50% over the past year before the approximately $ 1.3 billion takeover bid announced on Monday sent its shares increasing.

Richard Baker, head of Hudson's Bay Co., says he and his partners as individuals will be better able to invest in the long term without public control.


Photo:

Marcel Kusch / Zuma Press

"The market has failed to understand the company's progress and lacks confidence in the prospect of the future," wrote Hudson's Bay Co., Chairman Richard Baker, to a special board meeting convened to assess the proposed buyout.

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Analysts and investment bankers say they expect more retailers to try to go private as they struggle with the switch to online store. The public markets reward fast-growing companies. But those who shrink or grow slowly, like large retail chains, are better than private entities, provided they don't need a public currency to make acquisitions, they say.

Mr. Baker and his partners say they will be better able to invest in the long term without public control and the need to report quarterly revenues. The Group, which controls 57% of the outstanding Hudson's Bay Co. shares, plans to fund the deal, mainly with the proceeds from the sale of its German business, to meet the need to acquire a large portion of the debt.

Several doors

Saks Off 5. opened dozens of stores in recent years, but now is considering closing some. The other chains have remained the same or diminished.

Saks Off 5. opened dozens of stores in recent years, but now is considering closing some. The other chains have remained the same or diminished.

Saks Fifth Avenue stores

Due to too much debt, other retailers who have gone private have withdrawn from Neiman Marcus Group Ltd. to J.Crew Group to Toys "R" Us. Even without debt, the underlying companies failed. Neiman Marcus reported a loss for 11 of the last 12 quarters. At J.Crew, where the sale of its name tag has fallen, private equity owners have changed their bosses twice in two years. And a number of annual losses ahead of time before Toys "R" Us bankruptcy filing and closing of all of its US stores last year.

"I would much be a public company than a private company," said Allen Questrom. As CEO of Federated Department Stores Inc. in the 1990s, Mr. Questrom led a chain detour that included a rival R.H. Macy's & Co., which had filed for bankruptcy after a failed management-based buyout.

Going privately doesn't eliminate shareholders, but lets CEOs face a handful of stronger ones, Questrom said. He noted that it is possible to invest in the long term as a public company and be rewarded for these actions by the shareholders, as is the case with

Walmart
Inc.

and

Target
Corp.

"The companies that the warehouses are down are doing a miserable job of running their business," he said.

Hudson's Bay Co. CEO Helena Foulkes has given the company's brands more control over marketing and merchandising and reversed a poor European expansion since she came aboard last year.


Photo:

Bloomberg

On Thursday, Hudson's Bay Co. said. Turnover in its last quarter ended May 4, 3.3%, as the gains on Saks were offset by the decline in Lord & Taylor and Hudson's Bay chains. The company lost money, except for a one-time profit from the sale of Lord & Taylor's flagship.

Some investors say the Hudson & # 39; s Bay Co. buyout $ 9.45 US $ buyout offer is too low, given that CEO Helena Foulkes recently told investors at a conference in September. that the company's property is worth $ 28 per share. The investor group says that the offer is a premium of 48% to the company's closing price on the last trading day before the proposal was published.

Ms. Foulkes, one earlier

CVS Health
Corp.

executive, came to Hudson's Bay Co. last year. She has given the brands more control over marketing and merchandising, reversed a poor European expansion and increased investment in technology, with the result that customers now receive emails that track their online orders. Scissors have performed particularly well, with the same store sales growing in each of the last seven quarters. If the company goes private, there are no significant changes planned for its structure or strategy, a person familiar with the situation tells.

The company has said it is also investigating strategic options for Lord & Taylor. If a buyer cannot be found, there is a chance that the 193-year-old chain will disappear. The chain's president leaves next month, another person said.

Lord & Taylor's flagship Manhattan flagship was sold in 2017, and Mr. Baker has talked to landlords about filling other Lord & Taylor stores with new tenants, including office sharing WeWork Cos and Pinstripes, a restaurant and bowling alley. , people who are familiar with the situation said.

A Lord & Taylor store in New York. Hudson Bay Co. has said it is exploring strategic options for the 193-year-old dealer, but that there is a chance it may disappear.


Photo:

ZUMAPRESS.com

On Thursday, the company said it was scheduled to close 15 Saks Off 5th stores and four Lord & Taylor locations, part of 10 Lord & Taylor locations previously identified for closure.

Hudson's Bay Co. Property footprint is enviable, says Christina Boni, a senior credit officer with Moody's Investors Service, notes that many places are in top malls. "But the retail has not reached its potential."

Herr. Baker began developing malls for his father's company, National Realty & Development Corp. In 2006, he moved from filling these centers with dealers to buy dealers directly through a company he created with his father and two other partners, NRDC Equity Partners. Their first deal was the 2006 acquisition of Lord & Taylor for $ 1.2 billion.

"I told Richard I thought he was crazy, that Lord & Taylor would be too big and too complicated," said Mr. Baker's father Robert Baker in an interview in 2008.

NRDC bought Hudson's Bay in Canada in 2008, just like the economy fueled. The Canadians had abuses about a US company that bought a national tax founded in 1670, according to former leaders. But NRDC-refurbished stores, created a boutique to present designer brands, and re-examine marketing, such as extending an agreement that may be the Canadian Olympic team's official outfitter from 2013 to 2020.

With both chains on firmer feet Coming out of the recession, some NRDC executives wanted to pay out by selling the companies directly, according to a former CEO. But Mr. Baker had been enamored with retail and pushed for a first public offer instead, claiming that there was more value in the companies than buyers were willing to offer, the person said. Hudson's Bay Co. was published in 2012 at a share of $ 17.

Several offers followed, including the purchase of Saks in 2013, the purchase of the German department store Galeria Kaufhof in 2016 and the purchase of the flash sales site Gilt Groupe in 2016.

Backstopping of retail trade was valuable real estate, including Saks & Manhattan's Manhattan The flagship, which was valued at $ 3.7 billion, was more than $ 2.9 billion Hudson's Bay paid for the entire chain. Mr. Baker has made deals to reap the value of that property, including selling a package of Canadian stores to target and form joint ventures with mall owners.

It turned out to be complicated to run a retail conglomerate in three countries. Managers believed that the strategy they had employed in Canada would work in Germany, but soon realized that doing business in Europe was far more difficult, according to former leaders.

The community expressed many decisions as concerned employees, from redundancies to compensation. An attempt to get workers to new Saks Off 5th stores in Germany to have a uniform consisting of black pants and a company-issued T-shirt was knocked down when the Union insisted on approving the design, one of the people said.

Meanwhile, Gilt caused problems for scissors, whose designer brands balked at seeing their wares on the discount website, the former leaders said. And Gilt's entrepreneurial culture collided with their more corporate parent, they said.

A Saks OFF 5th store in Tsawwassen, British Columbia. Many of the reseller's new locations paid large leases that were in profit.


Photo:

Bloomberg

Scissors faced another problem. Chasing the success of off-price chains like T.J. Maxx, the management had expanded the number of Saks Off 5th stores to 129 from 72 five years earlier. Many of the new places paid violent rents that were in profit, according to former leaders. The company says that it is now considered to close as many as 20 of the stores.

By 2017, profits had disappeared, and with debt ballooning from acquisitions, Hudson's Bay Co. began. to set up assets, including Gilt and Galeria Kaufhof. The company racked up losses in three straight years, totaling more than $ 1.2 billion.

"They turned off too much," said Patricia Baker, an analyst at Scotiabank, who was not related to Richard Baker. "The complexity of the business ended up being too much to handle."

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com



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