Billionaire Ruby Liu, middle, with a set of keys to a former Hudson's Bay-owned Saks Off 5th department store at Tsawwassen Mills shopping mall in June. Ms. Liu is seeking to buy 25 former Hudson's Bay stores and launch a chain named after herself.DARRYL DYCK/The Canadian Press
The monitor overseeing the sale of former Hudson’s Bay leases has recommended that the court reject a deal to sell 25 store locations to B.C. billionaire Weihong (Ruby) Liu.
In a report filed with the Ontario Superior Court of Justice on Wednesday night, monitor Alvarez & Marsal wrote that Ms. Liu’s business plan for launching a chain of department stores named after herself “is not sufficiently developed or realistic,” and comes with the risk that the new retail business “will be insolvent in the near term.”
Ms. Liu, the owner of real estate investment company Central Walk, based in Nanaimo, B.C., has already taken over three Hudson’s Bay leases.
Because those stores are located in malls that Central Walk owns, the $6-million deal faced no opposition and was approved by the court.
But the plan for the rest of the stores, for which Ms. Liu has offered $69.1-million, has faced fierce opposition from most of the landlords, and from some Hudson’s Bay lenders, who have asked the court not to approve it.
Ms. Liu wants to open “Ruby Liu” department stores in 15 locations in Ontario, five in Alberta and five in British Columbia.
In the latest court filing, the monitor describes the team proposing to run the new store chain as “a start-up organization with no existing operations, no brand recognition, and no track record as a retail business.”
Ms. Liu’s team has pushed back on the accusations of inexperience in the past, saying their plan includes hiring former Hudson’s Bay executives and managers to help run the operations. But the monitor notes in its report that this effort is so far incomplete.
“The overall lack of experience at the leadership level represents a risk to the operational viability of launching and managing 25 large department stores in the contemplated timeline,” the monitor’s report states.
Whether the monitor approves of the deal is one of the factors that the court will be asked to consider during its hearings into the matter next week.
The judge overseeing the case will also take into account whether Ms. Liu and her team are “able to perform the obligations” of the deal – including financial obligations – and whether it is “appropriate” to assign the leases to them.
A number of prominent landlords are objecting to the deal, including Cadillac Fairview Corp. Ltd., Primaris Management Inc., Morguard Investments Ltd., Oxford Properties, Ivanhoé Cambridge, KingSett Capital Inc., and QuadReal Property Group.
Ms. Liu’s business plan for the 25 stores included an equity investment of $375-million, of which $120-million would be set aside for store repairs and renovations.
But landlords had said this budget was not sufficient for the level of improvements the locations required after years of drastically scaled-back spending on the stores at a time when Hudson’s Bay was struggling financially.
The monitor’s report also raised concerns about Ms. Liu’s plan to open stores within six to 12 months of court approval for her deal, timelines that “may not be achievable,” according to expert evidence provided by the landlords.
In addition, the report cites concerns about the company’s ability to stock the stores with product in adequate amounts and in time for opening.
Ms. Liu’s team initially said it had reached a deal with Toronto-based J2 Retail Management, a company that would assist with merchandising strategy, warehousing and logistics for the new stores, and would help with quickly acquiring the inventory they needed.
However, according to the report, during recent cross-examination Ms. Liu testified that the team no longer planned to work with J2 and provided “no alternative” plan for acquiring products to sell to customers.
Ms. Liu has also said that she plans to hire up to 1,800 people to staff the stores and run the operations, many of them former Hudson’s Bay employees.
Part of the landlords’ concerns had to do with the fact that Hudson’s Bay functioned as an anchor tenant in their malls – when the department store failed, it caused a drag on traffic to those malls and negative effects for other store tenants nearby.
The retailer that occupies such a large space “shapes the shopping centre’s identity,” according to the summary of the landlord submissions in the monitor’s report.
“They assert, among other things, that anchor tenants assist overall mall stability and traffic and attract desirable co-tenants, and that a change in the business of an anchor tenant can cause widespread negative effects,” it states.
While the monitor’s report states that the sale process for the leases was “rigorous,” and that the price offered by Ms. Liu for the locations was fair, it concluded that handing over the leases would ultimately not be “appropriate.”
The court hearing into the matter is scheduled to begin on Aug. 28.