People walk into a Hudson's Bay store in Hamilton, Ont., on March 21.Carlos Osorio/Reuters
Ask a staff member in the Hudson’s Bay beauty department whether a luxury perfume or upscale lipstick is going on sale, and you’re likely to hear some variation of one answer: “Never.”
That’s what a staffer at the Chanel counter at the CF Fairview Mall store in Toronto told a curious shopper last Monday, the first official day of the Hudson’s Bay liquidation sale. The perfume was still marked at full price. The red clearance signs dotting other parts of the store were nowhere to be seen among the high-end fragrances and cosmetics. Other counters nearby, dedicated to brands such as Dior and Guerlain, were not staffed at all.
Many of those big luxury brands are being left out of the Hudson’s Bay liquidation.
“While all merchandise is being sold, closing discounts do not apply to beauty, stripes and select luxury brands,” said a press release issued by Hudson’s Bay on Friday. That includes some luxury beauty products and fragrances, as well as handbags and apparel.
This scenario is not uncommon when department stores go under, industry experts say. High-end brands are fiercely protective of their image, and of their ability to sell their wares at full price, both of which are harmed by being associated with bargain-basement clearance sales.
“Luxury brands, they are pulling out. That’s what they did elsewhere,” said Jane Hali, chief executive officer of investment-research provider Jane Hali & Associates. During the liquidations of other chains such as Barney’s New York in 2019, luxury brands made similar moves to take back their products, she said.
“They can sell it online, they can sell it in their own stores. There’s no reason for them to tarnish their reputation and lose money,” said Ms. Hali, who has more than 30 years’ experience in the retail industry, including working for companies such as Macy’s, Anne Klein and Rodier Paris.
Before luxury brands agree to sell their wares through department stores, they are careful to include stipulations in their contracts against being included in storewide promotions, discounts or liquidations. But when a retailer is forced to seek court protection from its creditors, that process can supersede some agreements. For example, retailers also have contractual agreements to pay vendors for their products and services, but the Bay is months behind on payments to many suppliers, who are now in limbo.
Among the many landlords, utilities, shipping companies, telecom providers and others on the Bay’s list of creditors, the retailer is also in hock to some glitzy names. Those include, as of March 7, $5.6-million owed to Chanel Canada ULC; $3.1-million to Hugo Boss Canada Inc.; $1.3-million to Bugatti Group Inc. and $817,951 to LVMH Fragrance Brands Canada Ltd. Other brands owned by luxury giant LVMH, such as Givenchy, Guerlain and Christian Dior, also have amounts outstanding with the retailer, as do designer labels Tom Ford Beauty, Gianni Versace, Prada, Giorgio Armani and Oscar de la Renta – in some cases listed under Canadian divisions or affiliates.
“My guess is almost all of them will be doing what they can to get their stuff off the floor, and not be associated with the sale at any price,” said Alex Hennick, chief executive officer of Toronto-based liquidation company A.D. Hennick & Associates Inc.
Hudson’s Bay is trying to determine a plan for its future while simultaneously liquidating the vast majority of its locations. The company was granted protection from those and other creditors earlier this month, under the Companies’ Creditors Arrangement Act (CCAA). Canada’s oldest retailer subsequently received court approval to begin liquidating all but six of its department stores across Canada, starting last week. Closing sales are continuing at 74 Bay stores as well as two Saks Fifth Avenue and 13 Saks OFF 5TH stores in Canada that the retailer operates.
When liquidations happen, brands that have consignment deals with a retailer have not actually sold their inventory to the stores, so they are able to pull their products back in many cases. But in the case of wholesale vendors, the retailer owns the merchandise. Luxury brands in that position may seek to buy their products back to keep them out of liquidation, said Brian Ehrig a partner in the consumer practice with Kearney, a strategy and management consultancy in New York.
“If you’re one of the top, strong heritage, luxury brands, you’re already selling 90 to 95 per cent of everything that you put in any store at full price,” Mr. Ehrig said. “They’re not interested at all in having it end up in a deep discount kind of a place.”
It is unclear whether brands have opted to buy back products from the Bay, or made other arrangements to be excluded from the sales. Spokesperson Tiffany Bourré declined to comment on the retailer’s agreements with its vendors.
Whether or not the Bay is able to survive in some form, the relationship between department stores and designer labels has changed.
“Most of the luxury brands are limiting what they’re selling to the wholesale stores, because now they’ve built a network of stores, and they have a huge online presence,” she said. “So they’re really not in need of department stores. The times have changed.”