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There were plenty of exquisite items to marvel at during the recent media launch of the Room, the refurbished luxury department of the Bay’s flagship store on Queen Street in Toronto. A sun-filled corner showcased an array of vintage couture for sale, including a bejewelled Halston gown. Sleek mannequins displayed elaborately embroidered pieces from Canadian-born designer Erdem Moralioglu’s fall line. Bruno Frisoni stilettos crowned with hot-pink ruffles perched on a shelf like a pair of tropical birds. And, of course, there was the room itself — 21,500 airy and elegantly appointed square feet created by Yabu Pushelberg, the elite Toronto-and-New York–based design firm, whose clients include Bergdorf Goodman, Neiman Marcus and Tiffany & Co. But the real showstopper was a sequined Balmain cocktail dress, or rather its audacious $21,000 price tag — a harbinger of a bold new era at the 339-year-old department store.
Surveying the scene from a strategic spot on the sidelines was Bay president and CEO Bonnie Brooks, the seasoned Canadian retailer who took the helm of the company a year ago after spending more than a decade in Hong Kong at the high-end department store chain Lane Crawford. Serene and smiling, despite suffering from a cold, she posed for photographers and air-kissed fashionistas swooning over the space. The Room, which will be replicated in Montreal and Vancouver, is a modern reinvention of the St. Regis Room — the one-time go-to destination for Toronto ladies who lunch. Luxe touches like a concierge service and an exclusive VIP Room for private fittings, parties and trunk shows seem designed to poach from Holt Renfrew’s clientele, while a section devoted to smart, reasonably priced suits by Hugo Boss and Elie Tahari target a broader base of working women. Brooks is confident that the $5.3-million renovation and its mid- to high-fashion offerings will pay off; she’s anticipating the Room will produce $15 million a year in sales.
When American journalist and gadfly George Wayne shouted at her from across the room, “Bonnie, darling, it’s George Wayne from Vanity Fair,” she called back, “I know, I never miss your column.” Then Wayne delivered the kind of endorsement that the team behind the Room was surely praying for. “Darling, I love the space,” he cooed. “You keep this up and people will be flying to Canada to shop.”
Over the phone a few days later, Brooks laughs about the encounter. “Wasn’t that great?” she says. Although her current priority is “to increase the market positioning and validate the Bay as a fashion destination” in Canada, putting the store on the international map fits within those ambitions, too. “There is a segment of consumers who shop all over the world,” she says. “It isn’t far-fetched that people will come to Toronto to shop at the Bay.”
At a time when Canadian retail sales are flat and the country is barely tiptoeing out of the recession, these are big aspirations for an embattled company best known for its wool blankets. Yet under the leadership of U.S. retail real estate titan Richard Baker, president and CEO of New York–based NRDC Equity Partners, who bought the Hudson’s Bay Co. last July, the Bay’s ambitions get even bigger still. Its hip new Vancouver 2010 Olympic collection is already selling well beyond expectations, building momentum for the holiday shopping season. And Baker’s recent announcement that the company is considering going public as early as 2011 has reaffirmed his commitment to HBC’s longevity and heritage. (He told reporters that “it would be exciting to give the Hudson’s Bay Co. back to Canadians.”) But it’s the Room, with its focus on luxury and service, that is the symbolic centrepiece of a sweeping plan to modernize the historic retailer — a strategy that includes cutting back on promotional sales, streamlining merchandise, focusing on women’s apparel and accessories, and upgrading customer care. The question is: Will Canadians reared on Bay Days door crashers — like three-for-one nylons — buy the glamorous new image?
Despite its iconic status as the nation’s oldest retailer, the Hudson’s Bay Co., which owns the Bay, Zellers, Home Outfitters and Fields, has been floundering over the past two decades. Discount and big-box stores like Wal-Mart, Winners and Ikea have lured away value-focused customers; and at the mid-level, the Bay has struggled to distinguish itself, even though its field of competition has narrowed with its own takeover of Simpsons in 1978 and the shuttering of Eaton’s in 1999.
On a larger scale, consumers are increasingly less interested in mid-level department stores. Retail analysts say consumer tastes are too diverse, showing no loyalty to any one store or shopping experience. “Department stores are essentially a classist concept,” says Bruce Philp, managing partner of GWP Brand Engineering. “You fill a store with everything from espresso makers to underpants, all of which are directed at some proto-consumer who’s a member of a demographic tribe. I don’t think we live in that kind of world anymore. Since the 1990s, there’s been a pronounced effort by every demographic to try not to look like they’re part of one. We’re getting hard to pin down, and we like it that way, making the notion of one-stop shopping next to useless.”
Making matters worse, the Bay’s 92 stores have become notorious for their unfocused collection of merchandise and unhelpful sales staff. “The Bay lost its way,” says retail consultant Richard Talbot, of Talbot Consultants International. “There were so many brands and no cohesion.” With ugly fluorescent lights fizzling above the deserted aisles and dirty floors, Bay outlets looked apocalyptic, the kind of place where the last woman on earth might go to loot for a pair of Spanx and a grill pan.
A similar indifference to its customers contributed to Eaton’s demise a decade ago, despite a multimillion-dollar makeover, Talbot says. “The Eaton family lost the plot. They didn’t even know what the plot was. Fred Eaton came to speak to the Retail Council of Canada 10 years ago or so, and somebody was criticizing him about customer service and he said, ‘We have a very clear policy. We don’t talk to customers, and we don’t expect them to talk to us.’” Like Eaton’s, the Bay has abandoned customers to navigate its muddled stores on their own. And if sales are any indication, many customers abandoned the store in turn.
Last April, the death of Hudson’s Bay Co. owner Jerry Zucker, just three years after he bought the company from L. Yves Fortier, taking it out of Canadian hands for the first time, created more uncertainty about the Bay’s future. And when Baker, then owner of 20% of the company, acquired HBC in July, a new round of speculation about the company’s prospects ensued. In addition to Lord & Taylor, Baker also owns swank jeweller Fortunoff and the decor chain Linens ‘n Things, and there were fears that he would close Bay stores, or zero in on prime Bay locations and replace them with Lord & Taylor outlets. Instead, he surprised the Yankee-go-home naysayers by reinvesting heavily in the company and playing up its history.
To turn the company around, Baker hired retail whiz Jeff Sherman, who spent 30 years at Bloomingdale’s before a stint at Polo Ralph Lauren, as CEO of the Hudson’s Bay Co. Sitting in his modest downtown office, overlooking Toronto’s Old City Hall, Sherman says it was clear from the start that the company needed a radical overhaul: “The Hudson’s Bay Co. had been a part of the fabric of Canadian lives for a long time, but [the individual chains] were not in a place to succeed.” The problem, he says, was that there was very little differentiation between the Bay and Zellers. Even the acronym “HBC,” which the company had adopted to replace the less wieldy “Hudson’s Bay Co.,” irked Sherman. It was too homogenous and disconnected from the corporation’s heritage, a major selling point in his mind. He has since restored the full name in all marketing materials and signage.
According to Sherman, the key to a well-executed department store is “a maniacal focus on your target customer.” To that end, he separated the operations of the Bay and Zellers. Brooks came on board to head the former, and Mark Foote, who had been the president and chief merchandising officer at Loblaw Cos., was hired as the CEO of Zellers. Sherman gave Brooks and Foote direct leadership over their own teams. Brooks spent her first few months poring over data Bain & Co. gathered from interviews with 7,000 shoppers, and narrowed her focus to three customer types from a larger pool of 12 consumer groups. It’s these three groups that Brooks says the Bay will now focus on: the fashion customer who wants high-end labels, the pragmatist who wants want good quality apparel that will last a long time, and the value shopper who wants the best price. The desires of these designated groups, says Brooks, are now informing “how much business is being devoted to which type of customer, how much money is allotted to buyers, how much space is devoted to each department, and which products are going to particular store locations.”
But making changes at an enterprise as large as the Bay isn’t easy. “It’s difficult for a store the size of the Bay to be nimble,” says Toronto retail analyst John Winter, of John Winter Associates. “It’s difficult to merchandize a million square feet.” In a small market like Canada, even pinpointing a target customer is a challenge. (Can you really appeal to the fashion customer and the pragmatist?) For that matter, it’s not a given that elite shoppers will be seduced away from Holt Renfrew and smaller designer boutiques to the Bay, where they have to make their way through two floors of hoi polloi before reaching the Room. And dreams of charter flights bringing well-heeled shoppers to the Bay aside, there are only so many customers who can afford Hervé Leger and Proenza Schouler. “The downtown Toronto market is not Canada,” Winter says.
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