Locked in legal battle over rents, HBC’s big plan to survive COVID-19 may be to get small

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It would be easy to look at The Bay’s dispute with landlords across the country and make some assumptions: that she can’t pay her bills or that she is being crushed by the wave the size of a pandemic that is crashing into retail everywhere. The truth is a little more complicated. Retail experts say COVID is a crisis, but it’s also an opportunity.“Retail was changing dramatically before the arrival of COVID,” said Avis Devine of the Schulich School of Business at York University in Toronto. “All COVID did was speed it up to Warp Speed. “

HBC went private just weeks before the pandemic began to hit the economy, with retail being one of the hardest hit sectors. Sales fell off a cliff as stores closed to stop the spread of COVID-19.

To lessen the blow to its bottom line, HBC says it tried to achieve what it calls a “fair and mutually beneficial compromise with owners.”

In many places agreements have been made. In others, disputes over millions of dollars in unpaid rents have spilled over. The courts have been asked to rule. Eviction notices have been sent.

The Hudson’s Bay store in Coquitlam was closed on November 22 after its owner said the company had not paid its rent. A court has since allowed the retailer to reopen. (Jon Hernandez / CBC)

In a statement to CBC News, Ian Putnam, President and CEO of HBC Properties and Investments, said, “HBC believes the burden posed by the pandemic should be shared fairly between owners and retailers.

And it might be, but retail analyst Mark Satov says there’s more at stake here than that. In his opinion, it’s been clear for years that The Bay needs to reduce its footprint. About a year ago, when the company suffered a quarterly loss of $ 226 million, Satov said this:

“I think if they could snap their fingers and say we have half the number of stores and all of them are half or three quarters the size, they would do just fine. ”

So he’s not at all surprised to see The Bay looking for ways to get out of less than ideal leases in less than perfect locations. And this willingness to forgo some of those leases gives The Bay all the brunt of the litigation, Satov says.

At the height of the pandemic lockdowns in the spring, main streets were nearly empty with stores closed. (Kirk Fraser / CBC)

“The landlords… are going to look at them and say, ‘Look, if you don’t pay your rent, we’re going to kick you out,’” he said. “And The Bay says, well, when are you going to scare me, because that’s what I’m trying to do.” “

Last of its kind in Canada

Department stores like The Bay are still an integral part of shopping malls. As a sort of ‘flagship tenant’, department stores occupy a giant corner of the property. Customers come to shop there and find themselves drawn into the rest of the mall.

But two key forces are working against this trend. Retail is evolving online, a transition that has accelerated dramatically under COVID. The other problem is, department stores like The Bay just aren’t the draw they used to be.

Devine says customers used to go to a department store to buy everything, now they go to malls to buy particular products. She says there is no better example of the new “head tenant” than the Apple Store.

Stores in Toronto’s Roncesvalles neighborhood are hanging posters in their storefronts encouraging people to buy local on November 24. (Evan Mitsui / CBC)

“This is the new destination,” said Devine, associate professor of real estate. “And people go to other stores in this mall because they were drawn to Apple there. ”

As this new reality took hold, other department stores like Target and Sears couldn’t keep their heads above water. Now in Canada, The Bay is the last of its kind. Devine says it’s the best thing to do right now.

“I don’t think department stores will ever disappear – or in the next few decades, will disappear altogether,” she says. “And if they end up being the only real… mainstream department store left in Canada, they will survive because of it.”

Canada’s oldest retailer struggles to reinvent itself in the face of changing retail habits and an economic crisis the size of a COVID (Nathan Denette / Canadian Press)

Satov’s company advises companies trying to navigate difficult situations. He says The Bay appears to be grappling with the fundamental slump, while keeping a close eye on how to become a healthier, stronger, and leaner retailer. Is this a winning strategy? Satov hedges his bets.

“They have a chance for a winning strategy,” he said. “They are struggling to survive and they are doing the right thing. And I think it’s the right thing to do. “

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