The empire is rising.
In what was nothing short of a whirlwind year, the Hudson’s Bay Co. in 2015 bought German department store chain Galeria Kaufhof, launched a $250 million three-year renovation of the Saks Fifth Avenue flagship, underwent a string of high-level executive shifts, and in a lighter moment, Lord & Taylor received industry honors for its Christmas windows.
According to HBC’s governor and executive chairman Richard Baker, the Kaufhof deal marked the creation of a “global platform” for expansion, including potentially bringing Saks Fifth Avenue and Saks Off 5th to the European market, and further retail purchases. It also demonstrated Baker’s flair for creative financing by funding the $2.72 billion Kaufhof acquisition through real estate selloffs and joint ventures. Kaufhof increases the buying power of HBC, and enables HBC’s European and American retail operations to share brands they didn’t sell before and work together to boost private label penetration. Kaufhof, with about $3.5 billion in sales, lifted HBC to $10.5 billion in revenues, surpassing Neiman’s and approaching Nordstrom in volume.
On the executive front, Jerry Storch, formerly of Toys ‘R’ Us and Target, became HBC’s chief executive officer, freeing up Baker to concentrate more on international expansion, acquisitions and real estate, and less on day-to-day operational activities now in the hands of Storch.
Marc Metrick became president of Saks Fifth Avenue, succeeding Marigay McKee and Don Watros, the latter who was president of the company, became president of the group’s new international unit to identify and launch international businesses and operate them. Baker has made no secret of the fact that he wants additional retail acquisitions and has been scouting Europe. He’s also had his eye on the Neiman Marcus Group for years.
Considering the flamboyant character of Baker, the never-sit-still culture he’s instilled in the organization and retailing’s intensifying war for market share, look for further pivotal developments at HBC in the years ahead. Here’s some of what will happen in 2016:
• The Saks Fifth Avenue and Lord & Taylor divisions will relocate their headquarters to Brookfield Place in lower Manhattan, the complex where Saks is opening separate women’s and men’s stores.
• Saks Fifth Avenue and Saks Off 5th will march into Canada with their first stores.
• The three-year $250 million overhaul of the Saks Fifth Avenue flagship will progress.
• Investments continue in the Kaufhof business and for pumping up the department store’s merchandise matrix.
The Saks Fifth Avenue project defies industry convention by moving beauty to the second floor, remaking the main floor for handbags and accessories and punching a big hole in the center of the main floor to create a glass-enclosed elevator with a grand spiral staircase wrapping around it to transport shoppers from the basement, which will house “The Vault” for fine jewelry, to the second floor. Saks will also re-create the famous L’Avenue restaurant in Paris, on its ninth floor. Metrick says the idea is to “de-departmentalize” the department store to reflect the way consumers shop today.
“We continue to transform as a company,” Storch said. “It is in our culture to change rapidly. We have three parts to our strategy: growing great retail banners, mergers and acquisitions of new banners and unlocking the value of our real estate. We have made progress in all three of those dimensions over the last year.” The M&A activity continued to the very end of the year. On Monday, there were reports that HBC was close to buying Gilt Groupe for about $250 million.
In the third quarter, the company swung from a loss to a profit. Net earnings reached $1 million in the quarter ended Oct. 31, compared to a net loss of $13 million in the year-ago period. On a constant currency basis, there was a consolidated same-store sales increase of 2 percent, with the department store group generating a 5.1 percent gain, while Saks Fifth Avenue saw a same-store sales decrease of 3.6 percent. Saks Off 5th posted a same-store sales increase of 2.8 percent, and Galeria Kaufhof in Germany showed a 6.6 percent same-store sales increase for the one month of ownership. On the digital side of the business, where HBC has been investing heavily, sales rose 23.9 percent on a constant currency basis.
Storch said the company delivered “solid results and continued to work on integrations” to save money and grow profits. “Meanwhile, we continue to drive our Internet business and grow it at double-digit rates. We also continue to expand our off-price business. Retailers need to change rapidly and evolve fast to thrive. It is imperative in this era.”
In a footnote to the year, for its holiday windows on Fifth Avenue, Lord & Taylor was named “Platinum recipient” of Design:Retail Magazine’s Winning Windows award. L&T created an awning of greenery and twinkling lights above the sidewalk in front of the store, and four animated scenes for the windows: an oversize Victorian gingerbread house held aloft by dozens of dancing gingerbread men; an ornate mansion with 24 windows counting down the days to Christmas; a large cuckoo clock, and the “Sweets Shoppe” inspired by a Parisian bakery.