Hudson's Bay Co. HBAYF

Letter to the board

[onec007]

_{June 15, 2017
The Board of Directors
Hudson’s Bay Company
Suite 500-401 Bay Street
Toronto, Ontario M5H 2Y4
Attn: Richard Baker, Governor and Executive Chairman & Gerald Storch, CEO
 
Dear Richard and Members of the Board:
I am writing to you as a concerned shareholder of Hudson’s Bay Company (the “Company”).  I am extremely concerned about the strategic plan, aggressive allocation towards acquisition, cash-flow management and the inability to monetize value from the “Company” significant real estate portfolio for shareholders. 
Simply the Facts
I believe that the “Company” needs to adapt aggressively to the ever changing retail environment. Changes need to be made as status quo is no longer an option. The “Company” has made some significant stride by redesigning sites for every HBC group, the advancement of robotic fulfillment distribution systems in Scarborough, ON and Pottsville, PA and most recently the announcement of streamlining procurement activities.  The main challenge that I have with the “Company” is the failure to maximize and monetize the value of its extensive real estate portfolio.}

• _{The Board is on an aggressive expansion even when the “retail industry” is experiencing significant headways. In February 2017, the “Company” enters into an additional long-term lease agreement in the Netherlands for 17 locations.  While the First Quarter of 2017 retail sales decreased 3.0% to $3.2 billion and Net Loss increased to $221 million.}
• _{Acquisition of the Gilt Groupe, Holdings, Inc. for $250 million in cash. In January 2016, Hudson’s Bay Company announced that it has entered into a definitive agreement to acquire Gilt Groupe Holdings, Inc. for $250 million in cash.  The “Company” expects Gilt to contribute approximately $40 million of Adjusted EBITDA by fiscal 2017.  Fifteen months later, the “Company” has taken a large write-down - $116 million - on the purchase because of how slow the benefits of the deal have been to materialize so far. Lower traffic at Saks OFF 5TH and Gilt primarily drove the comparable sales decline at HBC Off Price, though Gilt accounted for an outsized portion of the overall decline. This transaction has significantly reduced shareholder value.}

_{The following pictures from HBC’s flagship location in Downtown Vancouver illustrate the anemic retail traffic compared to their neighboring competitor Nordstrom, Inc. The “Company” massive retail footprint is problematic given the decline in retail traffic (particularly department stores) and the shift towards e-commerce.
 
I urge that the “Company” to make the monetization of its real estate portfolio a priority.  The “Company” has some of the best real estate assets in North America, but the strategy to leverage those assets to purchase failed department stores is unsound financially as demonstrated by the Q1 2017 Earnings release on June 9, 2017. Instead the “Company” should look at the following strategies:}

• _{Monetize some of the assets by selling stores;}
• _{Consolidation of stores by adopting a store-within-store concept across some of the HBC’s Group banner (Saks, Saks OFF 5TH, Home Outfitters, HBC);}
• _{Partner with popular brands and lease out space to lifestyle brands such as Trader Joe’s, Puma, Chef Gordon Ramsay to develop a lifestyle restaurant within a HBC Group store(s), and/or Canyon Ranch Spas, etc. By identifying the right partner the “Company” will not only reduce overhead expenses, but it could help bring in traffic back to the store(s);} 
• _{Partner with a developer and contribute properties; and/or co-invest with a developer. Vancouver’s real estate is one of the highest in North America by partnering with a developer HBC’s Downtown flagship location could be redeveloped to incorporate an elaborate residential and/or commercial estate on top of the existing store thus providing the “Company” with significant cash-flow and traffic back to the department store.}

[las5513]

Your letter is well written and hopefully it wont fall on deaf ears. My concern at this point in time is that the window of opportunity regarding monetization of the RE assets has not just passed it's peak but has in fact closed. I find it difficult to accept the department store concept is gone forever in favour of online retail but I can't deny these are changing times and they aren'

[onec007]

I agree I don't believe that the entire retail landscape is and will be gone forever, but the massive and I mean massive footprint that companies like HBC, Sears, Target, JCPenney is deemed not competitive. After Amazon's purchase of Whole Foods this is a game changer and why I've said that the company needs to monetize their retail assets and lease out to a company like Trader's

[Statick88]

This post has been removed in accordance with Community Policy

[las5513]

The article in the link is dated August 2011 so it's been in effect for several years. Does anyone know the impact of this partnership or if it's even been measured? I would agree the market cap is very low in fact Friday morning the stock price reached an all time low prior to a mild recovery to the upper $8 range at the close. No doubt the majority who are long this stock are underwater