Hudson’s Bay Co. is creeping closer in size to its competition through acquisitions and presenting a stronger case for brick-and-mortar as it capitalizes on retail real estate to fund deals and fuel operations while formulating a strategy for its first European conquest, Galeria Kaufhof in Germany.
Next year, HBC’s Saks Fifth Avenue luxury division will have an unusual spate of openings — five full-line units and a footwear-only specialty format, while for the Saks Fifth Avenue Off 5th division, it’s full steam ahead adding locations across the U.S. The off-price division is also moving across the northern border into Canada, and possibly entering Europe as well by converting Kaufhof sites.
The 50-unit Lord & Taylor and 90-unit Hudson’s Bay department store divisions have no openings planned, but they’re engaged in widespread renovations and developing in-store concepts, including touching every square of the Queen Street, Toronto, Canada, flagship, which has 550,000 square feet of selling space, adding Topshop in-store shops at many doors, and at the Vancouver store, developing an activewear prototype that brings men’s and women’s athletic apparel and footwear together in the same department for the first time.
In an age of mounting Internet and mobile sales, HBC lags Macy’s and Nordstrom and generates a lower percentage of revenues through the Web. But HBC officials say they’re advancing omni-initiatives, indicating that buy-online, pickup-in-store will start rolling out at L&T and HBC in early 2016; mobile checkout will soon be tested, and that L&T and thebay.com assortments are growing, with the addition of such categories as toys, big and tall and home products.
At Kaufhof, HBC executives said the strategy involves adding vendors and designers from Europe and America already sold at HBC stores, to bring an enhanced contemporary appeal and expose the oft-traditionally attired German consumer to fashion-forward styles.
HBC executives have been eyeing Kaufhof real estate that could be converted to Saks Fifth Avenue and Saks Off 5th units, though they don’t yet say where that might happen.
However, they do stress that they’ll be taking pages of the playbook for how HBC revived Hudson’s Bay stores in Canada to pump up Kaufhof, with footwear, among other categories, a logical place for upgrading.
“We have a full strategic plan we are working on — for every aspect of the Galeria Kaufhof business,” Richard Baker, governor and executive chairman told WWD in an exclusive interview.
“The business plan is very elaborate. It goes through the opportunity to grow the existing business, to roll out Saks Off 5th, to roll out Saks Fifth Avenue and to greatly improve the online business.” (For in-depth interviews on the company’s strategy and mindset, see WWD’s weekly print edition, Aug. 12.)
“Department stores were once written off as dinosaurs but that was before the Internet,” Jerry Storch, HBC’s chief executive officer, said. “The Internet has breathed new life into the department store model.”
The Kaufhof deal is expected to close at the end of September. In June, HBC reached an agreement to buy Kaufhof from Metro AG for $2.7 billion, bringing HBC’s total volume to about $10 billion, or $13 billion Canadian. That compares with Macy’s $28 billion, J.C. Penney’s $12.3 billion and Nordstrom’s $13.8 billion.
Storch suggested that a Saks Fifth Avenue in Germany would be an owned store and said he would not pursue the same business model of other retailers, such as Bloomingdale’s and Macy’s, as well as Saks under previous ownership, which have or are opening a few overseas stores via licensed partnerships.
Kaufhof, which many retail experts compare to a Macy’s or Hudson’s Bay, is “a middle-road department store that also has a chain in Belgium, with terrific people at the top, very, very good real estate, and I think a very interesting opportunity” for growth, said Michael Gould, the former chairman and ceo of Bloomingdale’s. “There’s an opportunity there for the four-wall Saks Fifth Avenue and an outlet opportunity.” Gould added that it’s tough to say whether the Kaufhof acquisition signals a true “global” expansion for HBC, though, “It’s certainly a way for them to look at things differently,” including seeing its stake in Germany as a platform for Saks Fifth Avenue and Saks Off 5th entries into Europe.
“This is a global expansion using real estate as a major lever to quickly advance the strategy,” observed Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates. “Expanding to other countries is a first in terms of department stores. It’s not the same as Saks doing a [one-off] in the Middle East.”
Kaufhof is a stronger performer than Karstadt, Germany’s other major department store chain, yet Kaufhof has room for improvement, lacking enough international brands and unique offerings to motivate Germans to shop more fashion. There’s also a perception that Kaufhof could do a better job attracting international clientele and pumping up online sales.
At Saks Off 5th, “We are getting aggressive,” said Jonathan Greller, president of Hudson’s Bay Co.’s outlets. “We will open up 15 Saks Off 5th outlets in the U.S….and will have 90 by the end of the year, Greller said. “In 2016, our plan is to open 20 stores in the U.S. And we are opening up to eight stores in Canada in 2016, and up to 25 in Canada within the first five years. We think there are opportunities to go global with the brand.”
In addition, a strategy is in the works for the Lord & Taylor and Hudson’s Bay outlet businesses, Greller mentioned, but he said it was too soon to discuss specifics. There are four Lord &Taylor and two Hudson’s Bay outlets.
Aside from America’s consumers becoming increasingly bargain-conscious, Saks Off 5th is fueled by several factors: the division’s shift from an outlet to an off-price business model in terms of buying merchandise and finding real estate in a wider variety of venues; revised, less complicated pricing and updated store interiors and display for easier shopping.
Saks Fifth Avenue president Marc Metrick will be leading several store openings next year — Brookfield Place in lower Manhattan; Waikiki, Hawaii; a replacement store in the Houston Galleria; Brickell City Centre in Miami, and the first Saks Fifth Avenue opening in Canada, on Toronto’s Queen Street, which will be followed by Saks opening in Sherway Gardens on the west side of Toronto. Metrick said the Queen Street store will have a designer assortment worthy of Saks at its best, and will have a designer ready-to-wear lineup at the “flagship level.” Up to seven Saks stores are seen opening in Canada over time.
And, as reported, Saks is also opening next year a freestanding shoe store in Greenwich, Conn., which is being modeled after the 10022-Shoe concept on the eighth floor of the New York flagship and could be replicated in other locations.
Metrick said SFA is rethinking the box and service. “We know we need to develop our stores, make them different, make them exciting. We are laying them out differently. We have to de-department-alize the department store, and we want to future-proof all of our new stores, while we don’t necessarily know [exactly] what’s on the horizon, or what’s going to stick, we need to be malleable and be able to anticipate.” To some extent, that entails powering them up with technology, including beacon and mobile-enabling technology.
With pricing, Metrick said the objective is to sell more products at full-price, but that doesn’t necessarily mean reducing the level of promotions. He also sees utilizing data to a greater degree to empower and inform sales associates and boost the cross-channel selling.
At the Hudson’s Bay Co. department store group, Liz Rodbell, president, said there’s a “robust” program of store renovations in the works, as well as designer line launches, updated marketing campaigns, and merchandise and technology advances to grow both L&T and thebay.com businesses. Despite being underdeveloped, the L&T and thebay.com have been raking in double-digit gains.
Rodbell said part of the mission at L&T is to further differentiate the merchandise through exclusives and partnerships with designers and brands. Despite L&T’s Northeast regional focus, it has the advantage of being being part of the HBC department store group, giving it greater buying clout and ways to collaborate with its northern brethren and share best practices.
Among the launches ahead, Rodbell said Hudson’s Bay and L&T stores this fall will begin selling Karl Lagerfeld Paris with a soft launch this fall, followed by a spring buildup, with sportswear, dresses, suits, handbags and other merchandise included in the program.
Miss Selfridge, a label from the U.K’s Arcadia Group, will be introduced this fall to L&T’s Fifth Avenue flagship and certain L&T branches, as a regional exclusive. Dresses, a destination category at L&T, will be expanded by bringing Vera Wang, Laundry and Belle by Badgely Mischka styles to all doors from the current limited distribution.
“We’ve been on a mission to really modernize the Lord & Taylor brand in the U.S. and move it forward, and position Hudson’s Bay as the retail leader in Canada,” said Rodbell.