Property firms behind prominent shopping malls in North America have fought several high-profile court battles in recent months against HBC, looking to claim rent arrears that total in the millions of dollars when added all together. For now, judges have given similar interim orders for HBC to pay some of what it owes, at least until the cases can be heard on their merits.

In the meantime, landlords, industry watchers and consumers are left to wonder whether HBC is actually in “severe financial difficulty,” or, as the company suggests, it’s only been made to look that way. Ian Putnam, one of HBC’s top executives, is clear on this point: Canada’s oldest and most storied department store chain will survive.

“We’re not a distressed retailer,” the chief executive of HBC’s property development arm said in December. “There is no doubt that Hudson’s Bay emerges at the end of this pandemic as a strong retailer and will continue for another 350 years or more.”

This latest legal drama, he said, isn’t about a retailer that can’t pay its rent. It can. Instead, HBC believes it’s a story about a major department store chain fighting for a fair deal on rent during a pandemic, only to be unjustly cast as another downward-spiralling retailer headed for the same demise as some of its one-time competitors.

Many in the industry, including HBC’s owners, were aware the company was in a challenging position before the pandemic, with its new ownership already in the middle of a needed, but potentially painful transformation, including asset sales, of the business after years of stagnation. The pandemic, and the resulting shutdowns and restrictions on non-essential businesses, has only made that challenge harder. But Putnam said HBC has only withheld rents while it tries to negotiate fairer deals with landlords, an effort to get the property firms to shoulder some of the pain of the pandemic.

Many retail analysts when HBC went private felt it needed to get leaner by closing some stores and making other ones smaller. But transitioning to smaller stores would also affect mall landlords, which can find themselves in a bind during negotiations with big tenants. A store such as HBC is typically a mall’s biggest tenant, both in terms of rent and in square footage, making it harder for a landlord to play hard ball.

For malls, losing any of those labyrinthine department stores would pose a huge problem. Few retailers are willing to step in to fill those spaces today, so the mall would need to spend money to split the space into a bunch of smaller stores. In the meantime, the rest of the mall could be destabilized without an anchor tenant such as HBC. Many leases stipulate that if an anchor tenant is missing, smaller tenants don’t have to pay full rent and can eventually vacate their leases entirely.

That scenario, taken to the extreme, would be catastrophic, setting off a punishing wave through the Canadian retail landscape, with malls left to figure out how they’ll replace a giant such as HBC. But, as Putnam at HBC has said, that is not where the company is heading.

Read the complete Financial Post article here.