Jerry Storch, the chief executive officer of the Hudson’s Bay Co., is feeling good these days.
Here’s why: He’s expecting fall-holiday business to be better than last year, HBC is investing capital to improve brick-and-mortar and Internet operations and the firm’s growing international footprint has become a buffer against downturns in one country or another.
“One of the things about our company that I just love is that we just bought a position in Europe, which is now 30 percent of our business,” Storch said, referring to last year’s acquisition of Galeria Kaufhof and its Belgian subsidiary, Galeria Inno.
“We are in Germany, Belgium and will be expanding into The Netherlands. We have some diversification. If it’s weak in the U.S., [business] might be strong in Canada, or it might be stronger in Europe.” He singled out HBC’s business in Canada as “doing fantastic.” Retailing in the U.S., generally, has been slower.
Regarding business for the second half: “No one can forecast the future with certainty, but there are many reasons for optimism this fall,” said Storch. “So much that went wrong last year can go right this year. Starting with the weather. I noticed it’s [getting] a little colder out there,” which should stimulate fall fashion sales.
“I remain very, very optimistic about the holiday season,” he added. “I can tell you with certainty that there is almost no correlation with what happens at the beginning of the year and with the holiday season. It all resets when you start with the holidays.”
Storch also said there’s a longer Christmas season this year compared with last year, that retailers have been conservative with inventories and that they are starting to annualize last year’s tough apparel trends. “One thing that is obvious from the data is that apparel is kind of off-cycle compared to home goods, electronics, sporting goods, etc. It always changes. It always comes back. We’re not going to stop wearing clothes.”
He suggested the presidential campaign has distracted consumers from shopping. “This election is on everyone’s mind. Thankfully, that will be over soon….I think most people think there is a cause-and-effect relationship.”
His boss, HBC’s executive chairman and governor Richard Baker, is widely known to be keen on HBC acquiring the Neiman Marcus Group, though a deal doesn’t seem close. When asked about the possibility, Storch replied, “We are really focused on what we have in front of us. There is plenty to do with what we have.”
That includes taking the Hudson Bay “playbook” in Canada and applying it to Kaufhof in Germany, which he characterized as a “good” company in need of modernization. “Improve the handbags. Improve the cosmetics. Improve the fashion offering.” He said HBC will invest one billion euros in Kaufhof over the next five years.
Still, Storch suggested the possibility of future acquisitions, albeit without getting nameplate-specific.
“We are a global roll-up of department stores. Inevitably, the department store industry must consolidate,” he said. “There really isn’t any choice in the matter. It is very expensive to compete today. You have to be fantastic in the stores. In an Internet era, they have to be better. That takes money. That takes capital. The Internet is the most transformational force of our generation. You have to be fantastic on the Internet. That takes money, too. You have to have scale in order to do it. That’s why ultimately, we want to be an industry consolidator. That is a long term objective. That is going to happen and we will be leaders in that.”
What’s one of the things he likes most about department stores? “It’s a very flexible box that can change with the times,” Storch said. “But it has to be great. What department stores have always done well is adapt and change and be the place to see the newest things, the most exciting things. Maybe some department stores have lost that a little bit. It requires investment. It requires bringing in newness and excitement, more theater, more drama. We kind of use the metaphor of the ‘Great Exhibition’ in London in 1851. All the world came to see the finest articles, whether in textiles, fashion or technology.” HBC just hired Ed Burstell, formerly of Liberty of London, as head of partnerships to bring new and exclusive products and concepts to HBC stores.
“You must invest in department stores to keep them current and keep them fantastic,” Storch said. “You can not have a customer come in and say, ‘gosh, this place looks old and dated.’ We do see a lot of retailers right now who are faced with the challenge of the Internet, and actually disinvesting,” in stores or closing some. “We love that. It gives us more market share.”
While underscoring HBC’s brick-and-mortar initiatives, including spending $250 million to overhaul the Saks Fifth Avenue flagship in Manhattan, as well as opening Saks stores in Canada and the U.S. and spending big on Kaufhof, he said HBC’s digital operations are not being neglected. “We have something in-house called the Manhattan project which is designed to build personalization,” Storch said.
While expecting some continued transfer of business from stores to the Internet, “the functionality and utility of the store is not declining,” Storch said, noting that stores support Internet transactions, either to ship products ordered online, or as a point of merchandise pickup or return for customers.
HBC is also investing in its sales associates, Storch said. “It’s a major area of focus. We are looking to train people and arm them with the best technology….For this all-channel model, we need that personal element and selling culture. It’s a critical and major focus of our business.”
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