Strategy

Retail: Down by the Bay

A Canadian retail icon tries to find its customer base.

Three months into his job as CEO of the Hudson’s Bay Co. and heading into the year’s most important shopping period, Jeffrey Sherman doesn’t know the most basic information about the Bay. He can’t tell you who the department store’s core customers are, why some people have stopped visiting the chain’s 98 locations or even what products should be for sale. But none of that bothers the retail veteran, who previously was president and chief operating officer of both the Polo Retail Group and Bloomingdale’s. “I learned a long time ago that if you get distracted by wanting to give the customer what you think they want, as opposed to what they expect, you wind up disappointing you and them,” he says.

That’s why Toronto-based HBC — which also owns Zellers, Home Outfitters and Fields — is now trying to understand what its customers need. But make no mistake, Sherman has a vision for the Bay, and it starts with ditching the strategy of promoting both it and down-market Zellers under the HBC umbrella. The approach, which began in 2000, caused the company to lose focus on the main customers of both chains, and both have suffered. Sales at HBC declined 6.1% in 2006 from 2000, when American billionaire Jerry Zucker purchased the company for $1.1 billion and took it private. (Zucker died in April, and HBC was later bought by another American, Richard Baker, through NRDC Equity Partners, which owns the upscale Lord & Taylor chain of department stores in the U.S.)

Sherman also plans to revamp the shopping experience at the Bay to recreate the feeling of Bloomingdale’s, which is so enjoyable that people take their time, and customer service reps go out of their way to help.

Stroll through the Bay today, and it’s clear Sherman has much work to do. The chain feels tired, a relic of the past. Category killers such as Best Buy in electronics and specialty clothing retailers like H&M have eaten into the department store’s sales. Worse, the Bay’s expensive real estate at its downtown locations has forced management to lower service levels to cut costs. “One of the reasons for going to a department store like the Bay was receiving advice, but now you have trouble finding people to help you, and they often don’t know much,” says Alan Middleton, a marketing professor and the executive director of the Schulich Executive Education Centre at York University in Toronto.

But the value of HBC’s real estate was likely a reason NRDC purchased the company. Sherman is exploring options such as downsizing stores, but insists repositioning the Bay is his top priority. He hasn’t ruled out rebranding some locations as Lord & Taylor, but industry watchers say that could backfire because the upscale U.S. chain doesn’t have widespread awareness in Canada.

Whatever moves Sherman makes, he’ll have plenty of help. HBC this past summer hired retail veteran Bonnie Brooks as CEO and president of the Bay. She has more than 25 years of experience in the upscale department store industry, including stints as president of Lane Crawford Joyce Group in HongKong and executive vice-president at Holt Renfrew. She will try to move the Bay upward by, among other things, convincing prestigious brands to become suppliers. Brooks did that at Holt’s in the late ’80s by bringing on Gucci, Prada and other luxury labels.

Shoppers at the Bay likely won’t see any changes in the store’s lineup until next spring, and it will take at least two years for the chain to fully reflect its new positioning, Sherman says. He’ll need to carefully manage expectations. Canadians haven’t forgotten Eaton’s splashy Aubergine campaign in 2000 that painted a picture of stores that didn’t live up to the hype. Sherman, though, seems unfazed. “I have a track record of performing better than the industry, and that’s what I expect to happen here,” he says.