Is Hudson’s Bay in trouble? There are certainly signs that it could be. The 350-year-old retailer, whose parent company was taken private on March 3, just a week before COVID-19 hit Canada with its full force, has been hit hard by the pandemic lockdown, as have many retailers. But unlike most other retailers, the Hudson’s Bay Company (HBC) seems to have adopted a policy of stiffing its landlords in malls and plazas across the country.
In fact, in the eight months since the pandemic shutdown, HBC hasn’t paid any rent at all to eight landlords in Ontario, Quebec, British Columbia and Florida, according to legal filings. HBC has leases valued at $20 million a month across 21 locations in North America. In Ontario, a judge ruled that HBC must pay 50% of the outstanding rent and the owners of Centerpoint Mall have filed to evict HBC, a Quebec judge has ordered HBC to pay the full outstanding rent at multiple locations, and in B.C. the company has been locked out of its Coquitlam Centre for non-payment of rent.
HBC says the issue of unpaid rent is not an indication of any financial distress. In a statement to the Star, Ian Putnam, president and CEO of HBC Properties and Investments, said the company has “more than ample liquidity to continue to fund our business,” and that it has “taken prudent steps to manage our expenses and have been working with vendors and landlords on reasonable accommodations for this unusual and challenging time.”
HBC’s tense relationship with its landlords, however, presents a much starker image of its financial status: it shows a large retailer that is not meeting its most basic expense. Rotman’s Soberman believes these legal disputes could damage HBC’s reputation.
Alex Bishop, managing partner of Recast Properties, believes HBC is no longer the company it once was. Today, it’s a company held by American private equity investors and hedge funds, with no Canadian board members and whose parent company is based in Bermuda, he said. In his analysis of the department store’s public financial disclosures, Bishop found HBC has had negative cash flow since the beginning of 2018 and has been underperforming, even in its peak holiday seasons.
When Toronto and Peel were place into another lockdown, the flagship Bay on Queen store had planned to remain open as an “essential service” due to the small section of food available. However, after much criticism the company has announced that they will close and offer curbside pick-up instead.
Department stores, specifically, are struggling globally, seeing customers and investors leave. In pre-pandemic times, customers could leisurely enter a department store, try on clothes and cosmetics and buy non-essential and luxury items. Now retail stores experiencing “the biggest drop in customer traffic we’ve ever seen,” said Diane Brisebois, president and CEO of the Retail Council of Canada. With the holiday season now ramping up, Brisebois worries further restrictions will be “the final nail in the coffin” of many retailers.
HBC is trying to beat this trying time for retail by investing in e-commerce and has seen “very strong growth online,” said a company spokesperson. Its website has seen a 46% bump and a 43% growth in sales year-over-year and HBC is continuing to build on this, the spokesperson said.
However, the general lack of innovation and the slow shift to online suggests that HBC is trailing far behind, said Kyle Lanzinger, vice-president of Concierge Capital Partners. “HBC isn’t at a level to offset their gigantic per square footage costs of retail,” he said. “It’s the sad story of every department store … It’s what we learned only three years ago when Sears filed for bankruptcy.”
Nonetheless, experts believe the uncertainty instilled by COVID-19 and the fact that HBC is now a private company leave significant unknowns about the health of the company. Most experts agree that if the pandemic lasts all of next year, the impact on HBC will be severe.
“I don’t think we’re at the point of writing a eulogy for HBC, but plenty of retail operations that were profitable have not just tripped up but have been decimated by the pandemic,” Soberman said. “Hudson’s Bay could’ve transformed itself into a different animal that was very successful, but with the pandemic, whatever their plan was, it’s like they’ve hit an incendiary device that blew up their path, perhaps injuring them too.”
“If the pandemic lasts all of next year, it’s going to be really hard on HBC,” Soberman said. “This isn’t rocket science. Not paying rent at all means trouble.”