The plan that could have saved Hudson’s Bay as we know it

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A proposal led by former Hudson’s Bay Co. executives that would have kept at least two dozen stores open, and saved more than 1,000 jobs, never came to fruition – meaning that, as of this weekend, the country’s oldest retailer will cease to exist as Canadians know it.

Shortly after Hudson’s Bay filed for court protection from its creditors on March 7 – saying it was running out of cash and struggling under $1.1-billion in debt – a team of eight veteran senior Hudson’s Bay executives began discussing a plan to preserve part of the historic retail chain, led by well-known former Bay president and chief executive officer Bonnie Brooks and with backing from a Canadian investor.

The group developed a plan to continue operating 24 to 31 stores across the country, and to rehire at least 1,200 existing employees, with plans to hire more people as time went on. Thousands of people who worked for The Bay are facing unemployment as the retailer permanently winds down its business.

“These stores had all been profitable in recent years and, we believed, could continue to be successful under the right stewardship with the right targeted assortments,” Ms. Brooks wrote in a statement provided to The Globe and Mail. She declined to identify the investor who backed the proposal.

But the group’s plan fell short of submitting a formal bid in the court-supervised sales process for the company’s assets, according to Reflect Advisors LLC, the financial adviser handling that process. In late April, Reflect received a letter from Canadian apparel executive Brian Cytrynbaum that described an offer of $1 for assets including the company’s intellectual property, trademarks, e-commerce operations and customer data. The letter outlined a plan for operating 24 stores.

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But a letter does not qualify as a formal bid in the process, which required other elements such as written evidence of an irrevocable commitment for financing, and additional forms to be submitted.

The bid the group discussed with their financial backer was $13.5-million for the assets, Ms. Brooks said. “We have every confidence that our partner submitted our bid, as per our agreed-on bid,” she said.

Reflect co-founder and managing director Adam Zalev told The Globe that the firm typically would not disclose matters related to the sales process. But he confirmed Reflect never received a $13.5-million offer at any stage of the process.

“Had Reflect had contact with these executives, we would have done whatever we could to try to facilitate a successful going-concern bid, like we did with multiple other parties who contacted Reflect,” Mr. Zalev said in an interview.

Mr. Cytrynbaum did not respond to The Globe’s requests for comment.

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Ms. Brooks told The Globe that multiple other investors reached out to her group shortly after the news of Hudson’s Bay’s insolvency in early March, “and we felt it was important to work with a Canadian and we believe our partner to be the right one for many reasons.”

The court-supervised sales process was intended to generate cash that will go toward paying off the company’s senior lenders. There were 17 final qualified bids submitted, according to court documents.

The successful bid came from Canadian Tire Corp. Ltd., which recently announced a $30-million deal for the company’s intellectual property, including the Hudson’s Bay brand name, various company logos and the iconic stripes design featured on Hudson’s Bay point blankets since the 18th century, when they were used in the fur trade.

While Canadian Tire has not yet confirmed its plans for the trademarks, CEO Greg Hicks recently suggested his company is not interested in operating stand-alone Bay stores, saying during a conference call earlier this month that it was not pursuing “a wholesale acquisition of HBC’s operations,” and that this would not be a “good fit” for Canadian Tire.

But the strategy developed over weeks by the former executives envisioned Hudson’s Bay surviving as a department store chain, if a much smaller one.

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The plan committed to investing $16.5-million in badly-needed renovations and improvements to the stores. The group had planned to seek matching investments in from landlords for the locations, many of which had fallen behind on repairs and upgrades. According to Ms. Brooks, the team also planned to spend roughly $100-million to purchase inventory to restock the stores.

Ms. Brooks, a seasoned retail executive who led a financial turnaround at The Bay after joining the company in 2008, says she and her team believed the stores could have been successful in the future. “We had done it before. We knew it could be done again,” she wrote.

The team included other former executives such as Kerry Mader, who spent more than 40 years with The Bay, including as executive vice-president and chief customer officer. Ms. Brooks would have returned as CEO, while Mr. Mader would have been chief operating officer.

While he was still at Hudson’s Bay, Mr. Mader says he advocated for closing underperforming locations and investing to revive the stores that were still viable.

“We had an opportunity to save this great Canadian institution, and to rebuild it,” Mr. Mader said in an interview.

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Had they been successful, keeping the store locations open would have guaranteed at least $30-million per year in continuing rent payments to Canadian landlords and at least $70-million in annual pay to employees, according to Ms. Brooks.

The group’s plan envisioned a potential collaboration with Shopify Inc. to offer digital-only brands for sale in a store environment for the first time; an expanded partnership with designer Brian Gluckstein to offer a broader range of products under the Gluckstein Home brand; and more food and beverage options in stores through a partnership with Oliver & Bonacini Hospitality.

Separately, inside Hudson’s Bay, there were efforts to find investors to back a going-concern plan for some stores. According to a confidential memorandum prepared in March and obtained by The Globe, the company pitched a restructuring plan to potential buyers or investors that would have involved an $82-million investment in the first year to turn around six locations.

In late April, saying there was a “low probability” any financial backer would emerge for that plan, the company announced it was adding the final six stores to its liquidation sales.

What happens to those empty stores is still under discussion. Last week, Hudson’s Bay announced an agreement with a billionaire mall owner in British Columbia to acquire up to 28 store leases, pending consent from landlords and court approval.

The company is still in talks with bidders about other lease locations, according to the release. Canadian Tire has also bid on some of the store leases.

When the company filed for creditor protection, it operated 80 Hudson’s Bay stores across the country, as well as two Saks Fifth Avenue and 13 Saks Off 5th stores. Some of those locations have already gone dark, and as of this Sunday, June 1, the last Bay stores will close their doors permanently.

Ms. Brooks wrote that she was disappointed in the results of the process. The team of former Bay executives had hoped for a different outcome.

“To us – and to thousands of former employees and millions of Canadians – this isn’t just a brand,” she wrote. “It’s a major part of our history. Part of our identity.”