When Sears Canada announced it was closing all of its stores in 2017, Hudson’s Bay Co. saw an opportunity: HBC’s Canadian department store chain would swoop in and snatch Sears’s customers. Managers gradually added mid-price apparel to stores from Nova Scotia to British Columbia and waited for sales to take off. 

The plan worked at first. But then the Bay—as the Canadian division is popularly known—started losing fashionistas in cities like Montreal and Toronto. The numbers tell the story: Comparable sales—an industry benchmark the retailer recently resumed sharing after five years—fell for the past two quarters.

HBC Chief Executive Officer Helena Foulkes says the strategy was ill-considered. “We have 53 stores that are in the same mall location with a Sears and we knew the stores were closing and those customers are looking for lower price points,” she says. “Unfortunately we took that strategy too far” to all 89 stores.

Foulkes, recruited last year from CVS Health Corp. to help turn around Hudson’s Bay, has since rectified the problem. She has also been closing stores and selling assets—most recently New York’s Lord & Taylor—to put the company on more solid financial footing. Now she can focus on the two remaining “crown jewels” in her portfolio: Saks Fifth Avenue and the Bay.

Luxury-focused Saks has been the star of late, selling more at full price and connecting online shoppers to store sales staff for advice. The Bay, which gave the company its name, is having a harder time as a mid-range department store, a corner of retail that’s particularly vulnerable to the likes of Amazon.com Inc. and Walmart Inc.

It doesn’t help that Foulkes is dealing with internal distractions. The Bay’s last president stepped down six months ago and hasn’t yet been replaced. Meanwhile, plans by Chairman Richard Baker to take HBC private and ease investor pressure for a quick turnaround is being resisted by some shareholders who consider his $1.31 billion valuation of the company too low. The shares have gained since Baker’s June 10 offer but are down about 40 percent from five years ago.

And while Foulkes is correcting merchandising mistakes, improving service and making the e-commerce experience smoother, experts say the Bay has deeper issues. With millennial shoppers keener to buy online or directly from brands, the retailer has yet to offer something they can’t find somewhere else and risks drifting into irrelevance.

“Overall the department-store sector is in decline and when you look at the Bay there isn’t a lot in its current form that really differentiates it,” says Bruce Winder, co-founder & partner at the Retail Advisors Network in Toronto. “Why would you shop at the Bay? That’s what they have to answer.”

For much of the 20th century, Canadians had plenty of reasons to shop at the Bay, a storied company whose 349-year history is deeply entwined with that of the nation. The department store’s epic beginnings as a fur trader founded by two French adventurers and their influential British backers have inspired Hollywood movies, including the 1941 historical drama “Hudson’s Bay,” which starred a young Vincent Price among others.

The company’s subsequent transformation into a full-fledged merchant paralleled the birth of Western cities like Winnipeg and Edmonton. And its coast-to-coast presence was built buying other household names in retail. Half of the country’s population lives within 10 miles of the Bay.

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Helena Foulkes (Christinne Muschi/Bloomberg)

The original stores, situated on fashionable downtown avenues, were imposing temples to consumption. The Winnipeg downtown location, which opened in 1926, boasted a fur storage vault kept at a constant 36 degrees Fahrenheit (2.22 degrees Celsius) and capable of housing 12,000 garments. The store catered to shoppers of the day with a beauty parlor, post office and library. Later, management opened an auditorium with an orchestra. Like its American counterparts, Hudson’s Bay operated restaurants with names like the Jolly Canuck and the Paddlewheel. 

CEO Foulkes believes the Bay retains much of its cachet. “There’s definitely not a brand in the United States that has the connection that the Bay does with its customers,” she says. That legacy comes at a cost, including 15.7 million square feet of physical space to maintain—three times that of Saks. With cash short, the company is renovating its urban, flagship stores.

The Winnipeg store echoes the company’s deterioration. From a distance, the Beaux Arts building remains impressive but the wear and tear becomes obvious close up: the brass doors are weathered, the floor tiles peeling, and an escalator to the second floor is out of service. The Bay now occupies just two of the six floors of a former flagship that once sprawled over 655,755 square feet. 

“It used to be more of a destination,” says Ellen Frovich, a 60-year-old customer who remembers making the trip downtown to watch window displays for Christmas as a teenager. Frovich, who was at the store browsing one afternoon in July, says she continues shopping there for the variety and quality of clothing.

But the Bay must appeal to younger shoppers, too. A decade ago, it dusted off its image under then president Bonnie Brooks—now CEO of women retailer Chico’s FAS Inc.—who overhauled women’s apparel and accessories to cater to fashionistas.

While that gave the company focus, simply selling products no longer suffices in an age where brands like Millennial-magnet Frank and Oak, athletic wear Lole or parka maker Canada Goose develop a direct relationship with customers. The Bay could carve out a new role, says David Zietsma, a  senior vice president at Toronto-based consultancy Jackman Reinvents, by helping clients discover and learn about brands.

“There are definitely consumers out there that want more than just a price-focused, convenience-focused purchase but don’t have the confidence to go directly to fashion brands, don’t know how to discover,” says Zietsma, a former Sears executive who once consulted for the Bay. They’re asking: “Help me find what works for me.”

The Bay has another problem, according to Robert Soroka, a business professor at Concordia University in Montreal. While it has positioned itself as a fashion house of sorts, the retailer constantly advertises discounts and promotions, sending a muddled message to customers about what kind of retailer it exactly is. Selling cheaper products to appeal to Sears shoppers confused shoppers even more. 

The company has cut out 300 home and apparel brands and added 100 new ones. It has been experimenting with popups, including with FAO Schwarz last holiday season. And two floors of the Bay’s flagship store in Toronto will be converted into WeWork co-working space, bringing more millennials through the doors.

Retail Advisors Network’s Winder has a more drastic suggestion: Draw on the Bay’s history and go full Canadiana.

While the Bay already carries a selection of signature heritage products, such as a wool point blanket first sold in the late 1700s, he says the chain could build stores around such merchandise. “It has huge history and it has a huge pedigree and a story to tell,” he says. “Shrink it and make it more profitable, redefine it, and then start to grow it.”

--With assistance from Natalie Wong