Saks Fifth Avenue hudson's bay

Richard Baker and Jerry Storch each took their case for the future of the department store to investors, warning that a focus on lower costs won’t spur growth and talking up the potential of the Netherlands, the virtues of exclusive goods and musing over why brands don’t love them back.

Speaking at the Scotiabank Back-to-School Conference in Toronto on Tuesday, the Hudson’s Bay Co. leaders — Baker is governor and executive chairman and Storch is chief executive officer — painted a picture of optimism that came from taking an old business model and pushing it in new directions. And competitors were given no quarter.

Asked about Hudson’s Bay’s efforts to cut costs, Storch said: “We have an environment where you’ve seen that retailers struggled to generate positive same-store sales growth. This is the key to the kingdom, because many of our competitors are starting with the other side of the income statement. We care a lot about expenses…but you’re never going to win by just cutting away. You have to win the hearts and minds of consumers in order to win the day. So we are doing something fundamentally different from what you see our competitors doing.”

Storch drew a distinction between HBC and many of its competitors that are closing scores of stores, saying that their focus is on “minimization. And it’s not a good customer experience and in the long term all it does is just guarantee your extinction as a retailer.”

The ceo said Hudson’s Bay, while keen to keep costs down, was instead zeroing in on a better customer experience that’s personalized and informed by the Internet.

“We’re focused on taking the department store experience and bringing it into the modern era,” he said. “A key to it is providing spectacular service, which is technology enabled.”

That increasingly means having exclusive products.

While ticking off a list of challenges ranging from online competition to discounting, Storch also pointed to “the brands that are verticalizing and competing against us.”

“I would say brands are great, but it’s an unrequited love,” the ceo said. “We love them and they don’t love us back, which is one of the saddest things in the world sometimes.”

Hudson’s Bay is looking to double its exclusive product — whether it comes from its own lines, or collaborations with vendors or designers.

“It’s absolutely critical that we take the discussion away from the price topic of who can sell a commodity for the cheapest price, which you know right away in this Internet-enabled world, we’re going to lose,” he said.

The highly kinetic company is looking to win where it can and has wide and varied interests.

Hudson’s Bay — which saw rent expenses from real estate ventures lead it to second-quarter losses, while operating results gained — is home to the Bay in Canada, Saks Fifth Avenue and Lord & Taylor in the U.S., Galeria Kaufhof in Germany, and more, and is looking to use that breadth to inform changes in its business.

Storch, a veteran of Toys ‘R’ Us, said the Bay was building on the experience of Kaufhof and adding a select offering of toys — think Legos and Barbies — this year.

“It brings the family into the stores and I think it helps keep the audience coming into department stores in Germany younger, which is on of the key obstacles of the department stores over the last several decades,” he said.

Kauhof is also figuring into Hudson’s Bay’s European expansion plans, acting as a base to build into the Netherlands. Baker said the company has signed about 20 leases, for new department stores and a few Saks Off 5th stores, in the country, where department stores are scant.

“The landlords in the Netherlands gave us approximately 90 percent of all the funds that were needed to open in the Netherlands, so we think it will be very accretive for us,” Baker said. “There really aren’t any other players in the Netherlands. This department store business is a really good business, but it’s a sensational business when you have no competitors.”