Don Watros, the secret weapon behind Richard Baker’s burgeoning $7.5 billion Hudson’s Bay Co. retail conglomerate, is about to become more visible.
This story first appeared in the December 17, 2013 issue of WWD. Subscribe Today.
Watros, currently chief operating officer, will step up to president of HBC on Feb. 1, reflecting his deepening involvement in the operations and the instrumental role he’s played in the Toronto-based retailer’s business integrations, its initial public offering and buying spree — Saks Fifth Avenue in November, Hudson’s Bay in 2008 and Lord & Taylor in 2006.
Watros has been a close right-hand man to Baker, the chairman and chief executive officer of HBC. Unlike Baker, Watros has stayed out of the limelight, working behind the scenes on acquisition processes, operations, streamlinings and centralizing back-of-the-house functions.
“Richard and I have long been working on Saks and studying it for years,” Watros told WWD. “I have been intimately involved with all of the transactions, from start to finish.”
“We are very tight, organized and very aligned,” Baker added, in a separate interview.
The promotion of Watros, and the fact that he and Baker are the sole occupants of the newly formed HBC office of the chairman, clearly establishes him as second-in-command, continuing to report to Baker, and suggests greater visibility going forward, internally and externally.
Executives from the store divisions will report to both Watros and Baker.
For Watros, the Saks deal is particularly gratifying, giving him another opportunity to make his mark on the luxury store. He once served as Saks’ chief administrative officer, but left in a cloud when the store was immersed in a Securities and Exchange Commission investigation into markdown allowances and overcharging vendors. Watros was vindicated of any wrongdoing and has re-established his career working with Baker. Asked how it felt to return to Saks, Watros only said, “It’s surprising. Things haven’t changed much.”
In an exclusive interview, Watros gave a glimpse into what’s soon to occur at Saks. He also addressed the unsettling prospect of layoffs and integrations of Saks functions into HBC. “We are at the beginning of integrating Saks,” Watros said. “It’s a lengthy process. It will take three years to fully integrate. Systems are the most complicated pieces. Underneath the hood, we have been working on synergies, with Bain [consulting] to put together an integration plan. We will continue to do that, and we will continue to make our shared services and back-of-house more efficient.”
Addressing the question of layoffs, Watros said, “There will be waves, but there’s really a focus on the next wave to try to get as much done so we can calm down as much of the organization as we can.”
In one piece of the streamlining, the Saks’ distribution center in Maryland will be “repurposed” in January and certain operations will shift to the Lord & Taylor distribution center in Wilkes-Barre, Pa. That will lead to departures, as well as efficiencies in trucking. Roughly 300 people work at the Maryland center. Approximately 900 people work at Saks headquarters in New York.
Watros said it was premature to say how many layoffs in total will occur. “We are still working with Bain trying to figure out how to put everything together,” he said.
Several senior-level Saks executives have already left, including Ron Frasch, the president, who was replaced by Marigay McKee from Harrods, and Stephen I. Sadove, the chairman and ceo, who was not replaced. Among those also moving on were Robert Wallstrom, executive vice president and president of Saks Off 5th; Denise Incandela, executive vice president and chief marketing officer, and Terron Schaefer, executive vice president and chief creative officer.
HBC has a stated goal to save $100 million annually in three years through Saks integrations, though not entirely through personnel cuts. “Increased buying power is a big number that we anticipate,” Watros said.
Last week, HBC reported a $124.2 million loss in its third quarter ended Nov. 2, compared with a loss of $14.4 million a year ago. The company said the bottom line was impacted by costs related to the $2.9 billion purchase of Saks, as well as the promotional environment affecting margins. Asked if those Saks purchase costs will also be reflected in the fourth-quarter results, Watros said, “There will be probably be more in the fourth quarter, as it relates to the acquisition. There are all these onetime costs.” He cited severances and consulting fees, among other things.
According to Baker, HBC is “in the midst of a transformational period.” In large part, that’s due to the Saks deal, as well as other strategies to grow the overall business, such as developing shop formats and brand partnerships to remake selling space inside Hudson’s Bay and Lord & Taylor and advancing underdeveloped online businesses at those two divisions.
Baker previously said he plans to pump $200 million into the Saks Fifth Avenue flagship in Manhattan. There is speculation that the main floor could be renovated, and a lower floor created, to expand handbags, jewelry, cosmetics and fragrance.
Watros also noted the company is working to fill two key spots: finding a coo to succeed him, and a new president for the Saks Off 5th outlet chain.
Watros will help smooth the process of integrating Saks into the portfolio. He said that he’s been very involved in “identifying synergies.” Watros worked on the formation of HBC shared services group, which by early 2009 centralized back-of-the-house functions including finance, information technology, supply chain, logistics and store operations. He was appointed HBC’s coo in April 2009. Prior to that, he worked with Baker at NRDC Equity Partners, the entity that purchased Lord & Taylor and Hudson’s Bay, as well as Fortunoff’s, which was liquidated about a year after it was purchased. Earlier, Watros held management positions at May Department Stores Co., where he started his retail career as a merchandise planning divisional at Hecht’s in Washington D.C. After the May Co., he joined Saks’ corporate finance division.
HBC’s retail division presidents — McKee at Saks Fifth Avenue and Liz Rodbell for Lord & Taylor and Hudson’s Bay — report to both Watros and Baker. All corporate executive vice presidents, including the chief operating, chief administrative and chief financial officers, also report to both Baker and Watros.
“Our larger portfolio of retail properties required us to codify our structure,” Baker said, explaining why the chairman’s office was formed. “We think this is a very effective structure, in order to give Marigay and the Saks team, and Liz and the department store group team, maximum autonomy while having the support they need to run successful businesses. Don is an excellent operator. Being an operator of department stores is a very valuable skill.”
Bonnie Brooks, who seems to have lowered her profile at HBC, is shifting on Feb. 1 from president of the Lord & Taylor and Hudson’s Bay department stores to vice chairman, relinquishing her day-to-day responsibilities to serve as an adviser to the office of the chairman and the board.
At Saks, there could be more executive-level changes after McKee moves in officially on Jan. 6. “She will assess the talent at that point,” Watros said.
Baker also hinted that some high-level placements could be seen, saying, “Saks is going to be run as a stand-alone operating company. We will have all the positions there required to run a luxury department store.”
One possibility is to hire a new chief creative officer, a critical slot for a luxury store like Saks, which relies heavily on image and advertising.
Asked about how he will interact with the division heads, Watros said he would be involved in a lot of the operational issues — logistics, supply chain, systems, human resources, compensation — while leaving the merchandising and marketing to McKee and Rodbell. Baker remains very involved in strategy, including the possibility of further acquisitions and real estate.