The head of Hudson’s Bay Co. ULC says his storied network of department stores is now worth more than ever, as evidenced by a pair of deals to spin off digital operations into standalone companies. On June 21, HBC announced the second of those moves, separating Saks Off 5th’s e-commerce and brick-and-mortar businesses into two distinct entities, part of a strategy to tap into an explosion in online shopping that has accelerated through the pandemic. HBC is selling a minority stake in the e-commerce business to New York private equity firm Insight Partners for US$200 million, which values the newly formed digital company at US$1 billion.

The change at discount brand Saks Off 5th mirrors another deal, announced in March, to split Saks Fifth Avenue into separate physical and digital businesses. Insight Partners paid $500 million for a 25% stake in Saks Fifth Avenue’s e-commerce operations, valuing the company at US$2 billion.

Executive chairman and chief executive Richard Baker said the two deals valued the e-commerce operations Saks Fifth Avenue and Saks Off Fifth at US$3 billion — more than the value of his deal to take HBC’s entire business private more than a year ago. “I can tell you today that HBC has a financial value and a liquidity greater than it has in the last 350 years,” he said in an interview on June 21.

Baker and a group of longtime investors took HBC private in a transaction valued at US$1.6 billion in March 2020. On June 21, Baker noted that the two new e-commerce assets were now worth almost “double the value” of the take-private deal.

Baker declined to specify HBC’s current valuation, though he suggested that “if we went private at US$1.6 billion, and we just added US$3 billion, it’s certainly worth more than US$4.6 billion,” he said. “It’s more than it’s ever been in 350 years.”

Baker’s confident remarks come after a series of legal squabbles with landlords over unpaid rent during the pandemic  raised concerns among industry insiders about HBC’s long-term viability. But he said the court battles were about getting landlords to assume part of the burden of the pandemic and don’t “have anything to do with liquidity or our financial capability.”

In his recent deals with Insight Partners, Baker is banking that a separately run e-commerce business will be able to more easily cash in on the growing trend toward online shopping, freed from the concerns of also running a network of large retail retail stores. “We’re able to attract and hire a much different type of team member for the company. We’re hiring people from Netflix and Apple and Amazon,” he said. “We weren’t able to do that in the past when we were running a traditional retail company.”

HBC will continue to wholly own the physical retail businesses, which will operate “similar to a franchise model,” the company said. But customers will still be able to pick up or return online purchases at physical locations.

Saks Off 5th’s 105 locations are almost all leased, so the decision to keep the brick-and-mortar business separate wasn’t about protecting real estate assets, said Saks Off 5th president Paige Thomas, who will now move over to lead the new e-commerce entity. The main reason for the separation is that the business had become too big, with too general a focus, to be able to properly compete in the advanced e-commerce market, she said. “It’s shifting to a specialist mentality.”

Source: Financial Post