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Hudson's Bay says even employee discounts have been affected by the lower dollar

TORONTO – Cross-border shopping in the United States isn’t so hot anymore, even when you’ve got an employee discount.

Hudson’s Bay Co. chief executive Jerry Storch told analysts on Friday the buying habits of the company’s Canadian staff have noticeably shifted.

“Even our own people with discounts don’t shop in the U.S. anymore,” he said in a conference call for the company’s latest quarterly results.

Hudson’s Bay, which operates Saks and Lord and Taylor stores in the U.S., is facing a significant challenge from the rise of the greenback, which has knocked the wind out of the U.S. tourism industry.

Vacationers often spend big amounts of money on luxury goods at its U.S. stores, but without them a void has been left behind.

Storch said currency exchange rates have become “one of the biggest issues” for the department store chain.

But the tourism slowdown isn’t only from fewer Canadians.

“We’ve also seen essentially the disappearance of the Russians altogether,” Storch said before pointing to the troubled economy in Brazil and problems in Europe with the weakened euro.

“It’s been pretty much across the board.”

Late Thursday, Hudson’s Bay (TSX:HBC) cut its sales outlook for 2015 and 2016 based partly on exchange rates and the aftermath of terrorism in Europe that has left a dent in the performance of its newly-acquired Kaufhof department stores, a deal that finalized in late September.

Just over a month later, Hudson’s Bay was facing the ripple effects of the terrorist attacks in Paris on Nov. 13.

“Our stores in Belgium, which of course were the epicentre of the following investigations, were closed for many days,” Storch said.

“It has taken a long time for traffic to return.”

In Germany, where most of its Kaufhof stores operate, customer traffic was impacted by a bomb threat at a soccer stadium in Hannover, Storch said.

Considering those factors, Hudson’s Bay reduced its 2015 sales forecast to a range of US$10.7 billion to $11.2 billion from its previous expectation of $11 billion to $11.5 billion.

Sales guidance for 2016 has been pulled back to $14.2 billion to $15.2 billion from $14.5 billion to $15.5 billion.

Despite the headwinds in the current period, Hudson’s Bay delivered a 34 per cent increase in sales for the third quarter. Both North America and Europe saw a boost in both in-store and e-commerce sales.

Net earnings for the period ended Sept. 30 were $1 million, compared with a net loss of $13 million in the comparable year-earlier period.

Storch said Hudson’s Bay is looking for ways to lessen the impact of unfavourable currency exchange rates.

Part of the plan includes shifting its strategy for Saks Off Fifth that focuses on building U.S. stores further away from the Canadian border.

“We’ll start to distance us from this border effect as we look to the future,” he said.

Saks is also setting up shop within Canada. The company will open two department stores in the Toronto area next year, and has said there is room for another five to seven locations in other key urban centres across the country.

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