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Feb 21, 2019

HBC to shutter Home Outfitters brand and likely some Saks Off Fifth locations

HBC making the right move by closing Home Outfitters: HRC Retail Advisory

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TORONTO - Hudson's Bay Co. (HBC.TO) is shuttering its Home Outfitters business and eyeing the closures of 20 of its Saks Off Fifth locations, in a bid to increase profitability.

The Toronto-based company behind a handful of big-box and luxury retailers said its decision to shut down its household goods brand, with 37 stores in Canada, and review its roster of 133 Saks Off Fifth stores is part of a plan to “reduce costs, simplify the business and improve overall profitability.”

“Further streamlining our retail portfolio enables even greater focus on our businesses with the strongest growth opportunities,” said Helena Foulkes, HBC's chief executive officer, in a release. “The divestiture of (online retailer) Gilt, rightsizing of Lord & Taylor, the recent merger of our European retail operations in Germany, and today's announcement exemplify the bold strategic actions we are taking to set HBC up for long-term success.”

Foulkes, who was not made available for interviews, and HBC have faced scrutiny over the last year due to the company's performance.

The company has had to repeatedly defend itself against activist investor Land and Buildings Investment Management LLC, which sent a letter to HBC shareholders in late November, calling out the board for failing to take decisive action to unlock value for shareholders.

Land and Buildings said it believes HBC could double or triple its share price and find benefits by selling Saks Fifth Avenue, its remaining 50 per cent interest in its European business to Signa Holding GmbH, and Lord and Taylor to a mass merchant.

In its latest quarter, HBC's net loss reached $164 million or 69 cents per share, including discontinued operations.

HBC said it expects the Home Outfitters closure and Saks Off Fifth review to be “slightly favourable to adjusted EBITDA.”

HBC said the shutdown of all 37 Home Outfitters locations will occur this year and most of the markets the brand is in will still be served by HBC.

The company said the review will allow it to focus on its “best locations” and on its e-commerce offerings.

Home Outfitters employed less than 700 people.

“We know this news is difficult for our associates,” Foulkes said. “We are grateful for their ongoing efforts to serve our customers and we will work to find opportunities within HBC for impacted team members where possible.”

Retail expert Brynn Winegard said the demise of Home Outfitters is the product of a retail industry facing the challenge of maintaining margins and foot traffic in an age where consumers are comfortable searching, comparing, and transacting online.

Winegard said in an email to The Canadian Press that HBC needs to focus on having well-trained floor staff “who provide advice, guidance shoppers need and can't Google themselves,” and on creating an experience for consumers that stretches beyond shopping to include things like eating.

“That usually requires real estate and a price point that warrants this extra experiential space,” she said. “Home Outfitters does not service a target consumer willing to pay these higher prices, however.”