What’s next for Canada’s iconic store, the Hudson’s Bay?

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One of Canada’s most prominent department stores, Hudson’s Bay Co., was granted protection from its creditors last week through a court order as it struggles to pay its dues to landlords, vendors and service providers.

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The move will provide the once-iconic retailer “breathing room” while it seeks additional funding and restructures, it said in a court filing last week.

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“While very difficult, this is a necessary step to strengthen our foundation and ensure that we remain a significant part of Canada’s retail landscape,” Liz Rodbell, Hudson’s Bay’s chief executive said in a statement on Friday.

Here’s how Hudson’s Bay found itself in this predicament and how it plans to engineer a comeback.

What did Hudson’s Bay do?

On March 7, Hudson’s Bay decided to seek protection from its creditors through the Companies’ Creditors Arrangement Act. The application was granted by the court on the same day.

Judge Peter Osborne, who heard the application at the Ontario Superior Court of Justice in Toronto, said it was “hard not to have a sense melancholy when considering” the application, according to a court filing on March 10 that explained why Hudson’s Bay’s application was accepted.

“Hudson’s Bay is the oldest company in North America and a very prominent Canadian department store,” he said. “It was founded in 1670. Now, approximately 355 years later, it is insolvent and seeks protection from its creditors.”

Hudson’s Bay’s application includes a number of requests, such as preventing creditors from acting with respect to the company’s assets and properties for an initial period of 10 days, suspending certain rent payments and ensuring the organization’s bank accounts aren’t restricted.

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The initial order was immediately granted by the court on March 7, but the next hearing on March 17 could provide further details about the company’s future.

Why did Hudson’s Bay take this step?

The company’s court filing seems to suggest that it has been financially suffering for a while now.

Like many other brick-and-mortar stores, the retailer, which has 80 full-line stores across the country, struggled to compete with e-commerce players, it said in the court filing.

To tackle those challenges, the company went private in 2020 to “reposition its operations without” public-market pressures and costs and to focus on long-term growth strategies, it said. However, it was soon impacted by pandemic-related closures, which worsened its financial challenges.

With Hudson’s Bay stores under pressure, the company decided to pursue an aggressive e-commerce strategy between 2021 and 2022, investing about $130 million. In 2023 and 2024, it also cut its workforce and marketing budgets, secured $200 million in financing and appointed a new CEO to engineer a turnaround.

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The situation has worsened due to a trade war between the United States and Canada, which has created a sense of uncertainty and compelled many investors to wait and watch instead of going through with their plans, economists say.

This trend impacted discussions with potential lenders, Hudson’s Bay said.

“Until recently, the company was confident it could refinance all or a portion of its credit facilities and improve its liquidity position … however, the trade war … made it extremely challenging … to raise incremental financing and monetize its real estate assets,” the company said.

As a result, the company said it faces “significant challenges” in paying its dues and has had to defer certain payments for “many months.” Most recently, it was unable to pay “certain critical trade creditors.”

Hudson’s Bay is also concerned that without creditor protection, certain landlords could “exercise self-help remedies,” such as locking the company out from its retail stores.

As an example, it said a landlord locked Hudson’s Bay out of a store in Sydney, N.S., on March 7, while a team of bailiffs attempted to seize merchandise from a store in Toronto’s Sherway Gardens mall.

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What’s next?

For now, Hudson’s Bay plans to liquidate some of its stores, monetize certain retail leases that hold value due to the below-market rent and focus on high-performing retail locations.

Despite the negativity surrounding the company, Rodbell hopes to “re-establish” its foothold.

“Hudson’s Bay remains deeply connected to Canada,” she said in a statement on March 7. “Our goal is to re-establish our foothold and ensure the company’s long-term place in the evolving Canadian retail market.”

Retail analyst Liza Amlani, who co-founded Retail Strategy Group, isn’t as positive. She expects store closures and layoffs to take place “no matter what.”

For the Bay to maintain its legacy, it needs investment, she said, and that has been hard to come by considering the visible problems linked to the customer experience in store.

“There’s only two things I see here,” she said. “Either the stores will close completely … or there will be a new owner who will invest in the Bay and realize how important the Bay is for the Canadian customer. They have to implement retail fundamentals like visual merchandising standards, customer-obsessed sales associates, delightful experiences and so on.”

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Retail analyst David Ian Gray said the company needs a new owner that has “a vision and long-term commitment” and the passion to create a “market winner,” not simply a “keep cheap spaces in play.”

Even if Hudson’s Bay survives the creditor-protection process, it will have to undergo a lot of changes, he said.

“It would have to be smaller and very selective about its markets. I’ve heard 20 stores or more are still profitable, so that’s a likely base, but they may not be the right spaces for the long run,” he said. “HBC would need to connect with a new customer profile and grow it patiently. Take steps back to move forward. It needs to overcome the recent sad-state image dominant in the minds of younger consumers.”

• Email: nkarim@postmedia.com

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