A real buyout will not solve the real problem of the Saks owner: department stores are dying

With its Canadian chain of the same name, the company owns Saks Fifth Avenue and Lord & Taylor. Its shares fell by nearly 50% in the past year, before the public offer of approximately $ 1.3 billion made public Monday.

"The market has failed to appreciate the progress of the company and lacks confidence in its future," said Richard Baker, president of the Hudson's Bay Co., to a special committee of the board of directors convened to review the proposed buy-back.

Investment analysts and bankers say they expect more retailers will try to switch to the private sector as they struggle to switch to online shopping. Public markets reward fast-growing companies. But those who contract or grow slowly, such as the big chains of retail stores, are better off as private entities, provided they do not need a public currency to make acquisitions, say -they.

Mr. Baker and his partners say that they will be better able to invest in the long term without a thorough public review and the need to report their quarterly results. The group, which controls 57% of the outstanding shares of the Hudson's Bay Co., plans to finance the transaction primarily with the proceeds from the sale of its activities in Germany, avoiding the need to mobilize a large amount of debt.

The over-indebtedness sparked the interest of other private retailers, from Neiman Marcus Group Ltd. J.Crew Group via Toys "R" Us. Even without debt, their underlying business has weakened. Neiman Marcus has announced a loss for 11 of the last 12 quarters. At J.Crew, where sales of its namesake brand have declined, private equity owners have changed managers twice in two years. And a series of annual losses preceded the bankruptcy filing and closure of Toys "R" Us from all of its stores in the United States last year.

"I would much rather be a public company than a private company," said Allen Questrom. As CEO of Federated Department Stores Inc. in the 1990s, Mr. Questrom led the turnaround of the chain, which included the acquisition of rival RH Macy's & Co., which went bankrupt after a failed buyout by the company. direction.

Privatization does not remove shareholders, but rather leaves CEOs facing a handful of more powerful, Questrom said. He noted that it is possible to invest for the long term as a public company and to be rewarded for the actions of its shareholders, as is the case for

Walmart
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and

Target
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"Companies with declining inventories are doing a miserable job in managing their business," he said.

On Thursday, the Hudson's Bay Company said its fourth-quarter sales ended May 4, down 3.3% as gains at Saks were offset by declines in Lord & Taylor and Hudson's Bay. The company lost money by excluding a one-time gain from the sale of Lord & Taylor's flagship building.

Some investors have stated that the $ 9.55 Canadian ($ 7.10) buy-out offer per Hudson's Bay Company share was too low as its CEO, Helena Foulkes, recently announced to investors at a conference in September that the property of the company was worth 28 Canadian dollars. The investor group claims that its offer represents a premium of 48% over the closing price of the company on the last trading day preceding the publication of the proposal.

Mrs. Foulkes, an old woman

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executive, joined the Hudson's Bay Company last year. It has given brands more control over marketing and merchandising, reversed unfortunate European expansion and boosted investment in technology, with the result that buyers are now receiving e-mails tracking their online orders. Saks performed particularly well, with store sales increasing in each of the last seven quarters. If the company goes private, no material changes are expected for its structure or strategy, said a person familiar with the situation.

The company said it was also exploring strategic options for Lord & Taylor. If a buyer can not be found, it is possible that the 193-year-old chain disappears. The chain's president will leave next month, said another person.

Lord & Taylor's flagship product, Manhattan, was sold in 2017 and Mr. Baker spoke with owners about filling other Lord & Taylor stores with new tenants, including the WeWork office-sharing company. Cos. And Pinstripes, a restaurant and a bowling alley. with the situation said.

On Thursday, the company announced its intention to close 15 Saks Off stores and 4 Lord & Taylor sites, which are part of the 10 previously identified Lord & Taylor sites for the closure.

"The Hudson's Bay Company's real estate footprint is enviable," said Christina Boni, Credit Manager at Moody's Investors Service, noting that many sites are located in the best shopping centers. "But the retail business has not reached its potential."

Mr. Baker began developing shopping centers for his father's company, National Realty & Development Corp. In 2006, he no longer filled these centers with retailers, but bought retailers directly through a company he had created with his father and two other partners, NRDC Equity. The partners. Their first transaction was the acquisition in 2006 of Lord & Taylor for $ 1.2 billion.

"I told Richard that I thought he was crazy – that Lord & Taylor would be too big and too complicated," said Baker's father, Robert Baker, in 2008.

NRDC bought Hudson's Bay in Canada in 2008, just as the economy was deteriorating. Canadians had doubts about an American company buying a national treasure founded in 1670, according to former leaders. However, NRDC has renovated stores, created a boutique to showcase designer brands and boosted marketing, including expanding an agreement to become the official outfitters for the Canadian Olympic Team from 2013 to 2020.

With both chains being stronger after the recession, some NRDC executives wanted to sell their funds by selling the companies to the market, a former executive said. But Baker had fallen in love with the retail business and had instead pushed for an initial public offering, arguing that the companies were worth more than the buyers wanted, he said. The Hudson's Bay Company went public in 2012 at 17 Canadian dollars per share.

Other transactions followed, including the acquisition of Saks in 2013, the acquisition in 2015 of the German chain Galeria Kaufhof and the acquisition in 2016 of the Gilt Group flash sales site. .

Retail sales were valuable real estate, including Saks's Manhattan's $ 3.7 billion flagship product, more than the $ 2.9 billion that Hudson's Bay paid for the chain. whole. Mr. Baker has entered into agreements to take advantage of these properties, including selling a parcel of Canadian stores to Target and forming joint ventures with shopping center owners.

Managing a conglomerate of retailers in three countries has proven to be complicated. Leaders thought the strategy they had used in Canada would work in Germany, but they soon realized that doing business in Europe was much more tedious, according to former leaders.

Unions have had a say in many employee decisions, from terminations to benefits. An attempt to force workers of the new Saks Off stores in Germany to wear a uniform consisting of black trousers and a t-shirt provided by the company is bogged down when the union insisted to approve the drawing, said one of the people.

At the same time, Gilt was a problem for Saks, whose designer brands were reluctant to see their products on the cuts website, former executives said. And Gilt's entrepreneurial culture ran up against his parent company, he said.

Saks was facing another problem. Continuing the success of off-price chains such as T.J. Maxx, management had increased the number of Saks Off stores to 5 from 129, up from 72 five years earlier. According to former executives, many of the new sites have paid high rents, which has resulted in profits. The company said it is now planning to close up to 20 stores.

In 2017, the profits were gone and the debt inflated by acquisitions leading to the disappearance of assets, including Gilt and Galeria Kaufhof. The company recorded losses for three consecutive years, totaling more than $ 1.2 billion.

"They missed too much," said Patricia Baker, a Scotiabank analyst with no connection to Richard Baker. "The complexity of the business has ended up being too difficult to manage."

Write to Suzanne Kapner to [email protected]