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News: Bay's Last Chapter? 335 years old company going down?

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This truely sad for the people of Canada. First, Eaton's now this?


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In its 335-year history, the Hudson's Bay Co. has never come so close to facing its demise as it does today.

The only thing that has spared it from being merged out of existence or dismantled by now, ironically enough, is the same chronically poor financial performance that has kept it unattractive to potential buyers among its peer retailers, and now makes it vulnerable to a scrapyard dog.

Respected merchant bankers, including Gerry Schwartz's Onex Corp. in Toronto and renowned U.S. buyout specialist Kohlberg Kravis Roberts, have kicked the tires at HBC, but neither they nor mooted buyers among America's retail giants, including Target Corp. and Federated Department Stores (owner of Macy's and Bloomingdales), have shown more than a passing interest in HBC.

Which leaves HBC open to the predations of Jerry Zucker, a secretive South Carolina merchant banker with no retail experience, who last Friday announced his intention to buy the 80 per cent or so of HBC shares he does not already own.

Zucker began accumulating HBC shares two years ago in hopes of putting the company in play, but while his mere arrival and the prospect of a bidding war for HBC did generate a nice bounce in the stock, no bidding contest materialized, and HBC's financial performance has continued to disappoint.

So Zucker has taken the next step of attempting to buy the whole company — only the beginning of what is probably the last chapter in the history of the world's oldest continuously capitalist enterprise still in operation.

HBC once held sway over a region 10 times the size of the Holy Roman Empire at its height, and exerted more influence in shaping North America than peers like the East India Co. did in India and China.

The bravado of HBC explorers like Samuel Hearne, the first white man to reach the Arctic Ocean, is legendary; they eventually laid claim to three million square miles, or one-quarter of North America's land mass, spanning the Far North to San Francisco. Their presence discouraged American settlement of present-day Western Canada; and three HBC trading posts — Fort Garry (Winnipeg), Fort Edmonton, and Fort Victoria — became provincial capitals.

But HBC, like the CPR and Canada's early banks, recruited heavily from Scotland, which in the view of the definitive HBC biographer Peter C. Newman explains the primacy of prudence over commercial zeal that ultimately led to HBC's current vulnerability.

"The original implanting of that special [scottish] mentality within the Canadian psyche, a combination of creative deference and cautious progressive pragmatism, is the Hudson's Bay Co.'s most pervasive legacy," Newman wrote in Company of Adventurers (1985), the first installment of his three-volume history of HBC.

"This orderly attitude, rooted in collective survival rather than individual excellence, still colours what most Canadians do and, especially, don't do."

By the time HBC sold its massive northern and western Canadian territories to the three-year-old Canada in 1870, the company was fast losing its relevance. A more entrepreneurially minded group of absentee owners at HBC headquarters in London might have better exploited the firm's considerable remaining oil and gas, real estate and liquor distribution assets. But they chose instead to sell majority interests in most of their operations — trading posts and urban stores excepted — to savvy outsiders, and retain only a passive minority stake.

Yet even as the great firm was rapidly shrinking, a complacent, debilitating arrogance dating from HBC's glorious past lingered.

"The Hudson's Bay people used to tell me how proud they were to be the oldest company in the Western hemisphere," Newman quotes L.F. McCollum, the American oilman whose Continental Oil bought a majority stake in and took control of Hudson's Bay Oil and Gas Ltd. "And I'd tell them, `So what? What have you done? Continental Oil [now ConocoPhillips] is only 25 years old and our assets are worth 10 times as much as yours, so please don't brag to me." (HBC has assets today of $4 billion Canadian; ConocoPhillips has assets of $93 billion U.S.)

HBC still clings to the status of Canada's largest chain of department stores. And, particularly in Western Canada, where its retail roots are deepest, commands a degree of patriotic loyalty.

But in recent decades, HBC has been reduced to a motley collection of some 500 stores under about half a dozen banners, none a leader in its retail segment, and all fighting a losing battle for market share against interlopers like Wal-Mart, Gap, Williams-Sonoma, Winners and Talbots, and homegrown rivals Reitmans, Roots, Sleep Country and Mountain Equipment Co-op.

It is HBC's misfortune that traditional department stores have been losing favour for years. The demise of Gimbels, Marshall Field, Filene's, B. Altman and Bonwit Teller is some indication of what HBC's mid-market Bay stores are up against.

Remarkably, HBC's fortunes have continued to slide despite the demise of rival Eaton's and the intensive-care status of Sears Canada, in addition to HBC's own contribution to the thinning of the ranks with its acquisitions of Morgans, Simpsons, Zellers, Towers and Woodwards, among others.

That Wal-Mart Canada Corp., starting from scratch in Canada only a decade ago, now has revenues 76 per cent higher than HBC's $7.1 billion in sales, speaks to the failure of HBC to adapt to retail trends.

As recently as last June's HBC annual meeting, CEO George Heller seemed to dismiss Wal-Mart as, if not a passing fad, then a phenomenon that HBC would handily survive just as HBCers endured the rigours of the Franklin expedition (by resorting to cannibalism, among other things).

Heller's six-year tenure has been marked by incrementalism — gentle stabs at cost-cutting, better inventory control, the launch of niche banners like Home Outfitters and Designer Depot, and the occasional coup as when it wrested the Olympic-apparel franchise from Roots.

Meanwhile, though, HBC's true revenue engines, Zellers and the Bay, have languished. The respected Dayton-Hudson Co. of Minneapolis saw the light long ago, dumping all its banners save its youngest, discounter Target, around which it rebuilt the entire company to the point of taking that division's name for its own.

Like Target, Zellers could possibly hold its own against Wal-Mart in Canada were it to adopt Target's cheap-chic formula. Instead, even the modest remodeling campaign underway at Zellers, bearing no resemblance to the total reformulation that's actually needed, is only half-completed years after it began. Such is the effect of Heller's divided attention among his many banners.

Jerry Zucker, 55, is not a merchant but a conglomerateur with interests ranging from factories that make diapers for Procter & Gamble Co. to a 25 per cent interest in the minor-league South Carolina Stingrays hockey club. A math major and scientist by training, Zucker holds 280 patents, but not in the retail field.

The most likely outcome for HBC, assuming Zucker follows through with his offer to acquire HBC and is not trying once again to merely trigger a bidding war, is the installation of a Heller replacement who, to succeed, would have to reduce the firm to its essential parts — namely, Zellers — and remake it into a thriving retail concept like Target, Winners or H&M.

Failing that, Zucker will have to bust up the company and sell its lucrative credit-card operations, its land and leases.

That would be no tragedy. It would free up millions of square feet of selling space for merchant entrepreneurs more innovative and less risk-averse than successive generations of HBC managers.

John Wanamaker of Philadelphia, greatest U.S. drygoods merchant of his era in the early decades of the 20th century, foresaw endless possibilities within easy reach of any persistent striver. "The universe is sensitive to the merest touch and therefore it is possible to set wheels in motion that shall outrun the world," he said.

That was the bug that infected Sam Walton when he first pitted himself against the giant Sears, Roebuck, J.C. Penney and Kmart Corp. in 1962, leaving those rivals in his dust by the time of his death in 1990.

From the rubble of HBC when Zucker, or some other future buyer is done with it, will rise men and women with ambitious schemes who will face doubters, as Timothy Eaton once did.

Whether they succeed or fail, though, in occupying retail space once claimed by HBC, they will fare better than an HBC behemoth that has spent so much of its history watching the world pass it by.


* This article has been reformatted so it's not bloated.



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