During its near decadelong pursuit of buying Galeria Kaufhof in Germany, Hudson’s Bay Co. was patient. Now with a deal finally completed, HBC will be anything but patient in making its mark on the business.
This story first appeared in the October 1, 2015 issue of WWD. Subscribe Today.
“We’ve been looking at Kaufhof for nine years. We’re pretty excited to have reached the finish line,” said Don Watros, president of HBC International, on Wednesday, when the deal closed.
“We are really going to hit the ground running. There’s a huge opportunity to add brands and expand the matrix and assortment here,” Watros said. Like the Hudson’s Bay chain in Canada, Kaufhof has “big boxes in great locations,” he added. “On a sales-per-square-foot basis, there is tremendous headroom.”
In addition, “Kaufhof is underpenetrated in e-commerce,” Watros said. “We are going to use our expertise and leverage to help them move forward quickly.”
Watros was joined in the interview by Jerry Storch, chief executive officer of the Hudson’s Bay Co., and Olivier Van den Bossche, ceo of Galeria Kaufhof Group, who continues in his position.
Last June, HBC revealed its definitive agreement with Metro AG to acquire Kaufhof for 3.8 billion Canadian dollars, or $2.8 billion at current exchange. HBC is funding the acquisition by selling 41 Kaufhof locations to its joint real estate venture with the Simon Property Group for 3.9 billion Canadian dollars, or $2.9 billion. HBC retains a 92 percent stake in the joint venture, called HBS Global Properties. Kaufhof will lease back the sites from the joint venture.
Kaufhof, which last year generated about $3.5 billion in sales, operates 103 Galeria Kaufhof locations and 16 Sportarena stores in Germany as well as Belgium’s only department store, the 16-unit Inno chain.
The deal bolsters the ambitions of Richard Baker, HBC’s governor and executive chairman, to build a global retail empire, and brings HBC to between 14.5 billion Canadian dollars and 15.5 billion Canadian dollars in revenues for fiscal 2016, or $10.8 billion to $11.6 billion.
When the deal was unveiled last June, Baker told WWD that the Kaufhof acquisition represents 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. HBC continues to eye retail companies in Europe and North America. The Neiman Marcus Group has long been on HBC’s radar.
On Wednesday, Storch said, “With the acquisition, we now have a base for growth throughout Europe.”
While HBC eyed Kaufhof over the past decade, Kaufhof and Karstadt, Germany’s other major department store chain, were intermittently engaged in merger talks. Asked if HBC is considering acquiring Karstadt, Storch simply replied, “No. The opportunity we have here is fantastic.” Karstadt is the weaker of the two department store businesses.
The executives also cited a “tremendous opportunity” to roll out Saks Off 5th off-price units in Germany and elsewhere in Europe, particularly in urban centers. Some Kaufhof properties are expected to be converted to Off 5th. No opening date for the first Off 5th in Europe has been disclosed yet. While Saks Fifth Avenue regular-priced stores in New York, Florida and California do attract tourists from around the world, the Off 5th concept, launched 20 years ago, would be less familiar to the shoppers.
Asked why it took so long to strike a deal with Metro, the former parent of Kaufhof, Watros said, “There were a lot of different reasons. Three times we were seriously engaged in any kind of process. Kaufhof was a big key asset for Metro, not a strategic business, but it generated cash to allow them to pay dividends. Metro was never in a position where they wanted to pull a trigger on the sale,” until this year.
HBC sees the biggest opportunities for brand additions and expansions in women’s apparel, cosmetics, accessories and shoes. According to Watros, “Our first focus for the balance of the year is to deliver the holiday season.” Selling floor changes will begin to be noticed next February.
Van den Bossche said the day after HBC said it was buying Kaufhof, he started getting calls from vendors he couldn’t reach before, including the president of Estée Lauder International. “The day after, they said, ‘Please, can we have a chat with you?’ The positioning of the brand has changed quite dramatically. This is a huge opportunity for us.”
“Naturally, we will be focused on certain key areas,” where Kaufhof has the most room for improvement, Storch said. “But there are opportunities throughout the store for the addition of new brands and expansion of others.”
The executives indicated that HBC’s plan for Kaufhof calls for “a significant investment of capital,” much of which will be devoted to expanding e-commerce fulfillment, enhancing the retailer’s Web site, and renovations, though Storch said, “The stores are in great shape. Our focus is on [adding] excitement and expanding high growth departments.” Kaufhof stores are typically downtown, which means omnichannel can work well considering the large populations not near city centers.
Including Kaufhof, HBC has more than 460 locations across eight banners in four countries, including Hudson’s Bay, Saks Fifth Avenue, Lord & Taylor and Saks Off 5th. “This is a truly transformational day for our company,” Storch said. “Through this transaction we are growing our company by 50 percent.” The company also expands its workforce from 44,000 to 65,000 employees, “all focused on the department store and off-price businesses,” Storch said.
Kaufhof marks HBC’s first expansion outside North America, though the company does have licensed Saks units in Asia, the Middle East and Mexico.