The fall of Hudson’s Bay Co., a Canadian retail icon

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Five years ago, a pandemic was raging, Hudson’s Bay Co. was losing money and some industry observers questioned whether department stores were dinosaurs eyeing that big asteroid in the sky. But despite all that, the retailer’s governor and executive chairman, Richard Baker, was feeling confident.

“I’m obviously bullish on the department store sector,” he told The Globe and Mail at the time. Earlier that year, Mr. Baker had taken the company private as it faced financial difficulties. By removing the pressures of the public markets, he reasoned, Hudson’s Bay would have more flexibility to transform its operations and make long-term plans.

Now the future is here, and the Bay has transformed – but for the worse. Canada’s oldest retailer is fighting for survival and contemplating shuttering stores across the country, putting the jobs of its more than 9,000 employees at risk. Whether Hudson’s Bay can survive at all is now in question.

Late last week, Hudson’s Bay was granted protection from its creditors and commenced restructuring proceedings under the Companies’ Creditors Arrangement Act. Without a court-mandated stay of proceedings, the company would have been “forced to cease operations,” according to the CCAA application.

Some of the pressures pushing Hudson’s Bay to the brink have been external, and have affected retailers across the industry. But a lack of investment in stores, a failed e-commerce strategy and waning relevance to both the big brands that sell product in department stores and the shoppers who seek them out were all factors that made the Bay particularly vulnerable.

The Globe and Mail spoke with a half dozen current and former senior leaders at Hudson’s Bay for this story.

The retailer faces the prospect of a grim end to 355 years of history. How did it get to this point?

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Department stores – once such a powerful draw that they were considered the anchors of major malls – have been reckoning with growing competition for decades. The rise of both smaller-format specialty retailers and big-box stores offered more choice to shoppers. For example, in the high-margin beauty and fragrance businesses that were once a mainstay of department stores, Shoppers Drug Mart Corp. and Sephora have stolen market share.

More recently, e-commerce not only created digital giants such as Amazon.com Inc. but offered a new way to reach people. Brands that once relied on department-store retailers for wide distribution were able to go direct to consumers, allowing them to hold on to more of their profit margins and gather valuable data about who was buying their products. They also started opening their own stores, allowing them to control the sales experience.

“There used to be an exclusivity around being in a department store,” retail industry consultant David Ian Gray said in an interview. “Suddenly the brands themselves were showing up all over the place.”

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Even amid these challenges, there was value to be found in the company. Wealthy real estate investor Richard Baker led a $1.1-billion takeover of HBC in 2008. Three years later, Mr. Baker sold most of HBC’s Zellers Inc. leases to Target Corp. for $1.8-billion. In 2012, Hudson’s Bay went public, raising $365-million. Shortly after, the company bought U.S. department store chain Saks Inc. for US$2.9-billion, including debt. Mr. Baker continued to draw funds from the Canadian real estate assets, selling the flagship Queen Street store building in Toronto to Cadillac Fairview Corp. for $650-million (the retailer leases back the space) and signing a joint venture with RioCan in 2015 that gave the REIT a stake in 10 properties for $325-million.

But the retail operations were declining. By the time Mr. Baker took the company private in 2020, Hudson’s Bay was losing money and in need of a turnaround. Things got off to an inauspicious start: Just days after the privatization was completed, the pandemic led to widespread store shutdowns that devastated the retail industry and pushed a number of chains into creditor protection. Meanwhile, e-commerce giants thrived.

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Hudson’s Bay soon began slashing costs, launching a program aimed at cutting more than $500-million in annual expenses.

When the company did spend money, it was not on the increasingly out-of-date stores that badly needed a revamp. Instead, it made an aggressive push to grow its online business to make up for falling brick-and-mortar sales.

Between 2021 and 2022, Hudson’s Bay spent roughly $130-million on this digital expansion strategy, and hired more than 500 corporate employees to support the effort, according to court documents filed under the CCAA process on Mar. 7. It failed to win over customers, and the strategy “did not yield the anticipated financial returns,” the documents say.

There was another problem with the strategy: Hudson’s Bay decided to separate e-commerce and store operations in 2021, and had different teams running the two businesses. The move may have been designed to attract financing from investors who would be more inclined to take a stake in a stand-alone digital business than a department store with an e-commerce arm. When HBC’s parent company conducted a similar split that year at the other retailers it owned, Saks Fifth Avenue and Saks Off 5th, New York-based venture-capital firm Insight Partners invested hundreds of millions for a minority stake in the online businesses.

When it came to Hudson’s Bay, running the businesses separately led to higher overhead costs, greater operational complexity and the overbuying of inventory – racking up bills with suppliers, two former company insiders said. The split also took the focus off the core business: the stores that make up the vast majority of sales, the former senior employees said. The Globe is not naming the former employees because they were not authorized to speak publicly about the company.

TheBay.com did not attract the same outside financing as the American e-commerce operations. In 2022, the two Canadian businesses were reunified. But the misstep accelerated a downward spiral: As Hudson’s Bay underinvested in its stores, foot traffic and sales declined further.

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External pressures continued to mount. Coming out of lockdowns, soaring inflation drove up supply chain costs for retailers, and multiple interest-rate hikes made borrowing more expensive for businesses. These factors also dealt a significant blow to Canadians’ household budgets, leading consumers to cut way back on non-essential purchases.

Traffic declines after pandemic restrictions were lifted were, and continue to be, most pronounced at downtown locations, as many people kept working from home part time. Those are also the most expensive stores to operate, with higher rents and expenses.

And the company made another misstep at the time, once again buying too much inventory – a problem that occurred across the industry as many retailers stocked up for a consumer rebound that did not materialize. Stores then found themselves having to sell those products at deep discounts.

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As Hudson’s Bay continued to struggle, it kept cutting back on marketing and other expenses, shedding hundreds of jobs in 2023 and 2024. The measures led to a $100-million reduction in costs, according to court documents. It has also closed underperforming stores, shuttering nine locations since going private.

But without investments in marketing, Hudson’s Bay was not bringing in new shoppers, particularly younger customers who would be crucial to restoring sales growth.

And as stores became increasingly shabby and staffing levels fell, it was even harder to draw people in, industry consultant George Minakakis said. “From a service point of view, it’s just not there,” he said.

Facing a crunch in 2023, Hudson’s Bay fell behind on payments to its suppliers. The company completed a series of real estate transactions in the United States and Canada worth US$340-million – money it intended to use to pay overdue invoices and fund its retail operations. Less than two years later, court documents show the company is still behind on payments to vendors, as well as on rent.

In the 12 months ended Jan. 31, 2025, Hudson’s Bay reported a net loss of $329.7-million, according to a report filed by the monitor overseeing the CCAA process.

If Hudson’s Bay survives, it will need to operate in smaller spaces that look much different from the stores that exist now, said retail industry consultant David Ian Gray.

“When people say, ‘We can’t let this go,’ I don’t think they’re picturing suburban malls that are massive square feet with no staff in them,” he said. “You wouldn’t build one of those today.”

Amid all this upheaval, the retailer’s corporate structure has changed dramatically in recent months. In 2024, parent company HBC L.P. struck a US$2.65-billion deal to buy struggling luxury department store chain Neiman Marcus, with investments from Amazon and Salesforce Inc. The deal created a new company, Saks Global, which holds the U.S. retail businesses as well as US$7-billion worth of real estate assets. The Canadian operations became a stand-alone company.

The value of the U.S. real estate assets were one reason Mr. Baker told The Globe in 2020 that it was “totally gobbledygook illogical” to question Hudson’s Bay’s financial strength, or to suggest it might be in danger.

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Now operating on its own, the danger for Hudson’s Bay is very real. Once again, the company requires additional financing to provide the liquidity it needs to operate, including paying bills that are months overdue. In the court documents filed last week, Hudson’s Bay blamed trade tensions between Canada and the U.S., and the uncertainty that has resulted, for the recent breakdown in talks with potential lenders.

And as consumer confidence plummets, there is industry-wide concern that more hard times may be ahead.

“While tariffs directly affect trade, they also have far-reaching secondary effects, such as higher borrowing costs, increased cost of goods, depressed real estate valuations, currency fluctuation and lower consumer and lender confidence,” Hudson’s Bay chief financial officer Jennifer Bewley stated in an affidavit filed in court on Mar. 7.

While interim financing has provided some “breathing room,” it will be short lived. The company is in dire need of additional financing.

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Many of the stores will not be saved. The Globe first reported Hudson’s Bay was working on a plan to liquidate roughly half its locations. But keeping even 40 stores open will be a challenge.

Without concessions from landlords, such as breaks on rent or investments in locations, many more could close. Hudson’s Bay has been in discussions with landlords in recent days, according to sources with knowledge of the matter. Mall owners who do not want the blight of a huge, suddenly empty space – a major problem when other large-format retailers such as Target and Sears shut down in Canada – may want to keep the Bay. But landlords already owed back rent may balk at the idea of investing in the retailer’s slumping operations.

Hudson’s Bay is heading back to court next week. At a hearing scheduled for Monday, the company will seek approval to begin liquidating stores. And it will ask for an extension of the CCAA process in a bid for the historic company to avoid extinction.