Strategy

The fabulous fur trade

For a remnant of the original Hudson's Bay Co., it's business as usual.

Canada's oldest corporation, Hudson's Bay Co., is poised to fall into the hands of South Carolina businessman Jerry Zucker, who has offered $1.7 billion for the retailer. But one descendant of the legendary company, North American Fur Auctions, is here to stay. And if fur prices at this year's February auctions are any indication, NAFA's business–unlike the situation at its struggling former owner–couldn't be better.

“The number of pelts sold and the prices we're getting are some of the best we've seen in almost 20 years,” says Herman Jansen, chairman and CEO of NAFA, which is 22% owned by management and 78% owned by producer organizations such as the Canada Mink Breeders Association and the NAFA Wild Fur Shippers Council. For example, male black mink, the most expensive and most popular mink, sold for an average of US$82.02 per pelt, compared to US$58.80 in 2005. Jansen says there is “definitely a trend to buy better-quality pelts.”

The higher prices are the result of the growing popularity of fur as a fashion item, as well as strong demand from new markets, especially China and Russia. Not only is China a big manufacturing centre for furs but, increasingly, affluent Chinese are buying fur for themselves. Jansen says the attitude toward the fur industry has also changed. There's less anti-fur “extremism” and a greater willingness among the fashion and decor industries to incorporate fur into designs, he says.

Another reason for record revenues is that NAFA's February auction (the other major annual sale is in May) attracted a growing number of buyers from all over the world, with more than 400 registered this year. The result is that NAFA is gaining a larger share of the US$11-billion world market for fur. Total sales of furs handled by the company are expected to come in at more than US$200 million. That's up from US$175 million in 2005.

NAFA sells about four million ranched mink pelts annually, 2.7 million of them from North America and 1.3 million from Europe, with North American mink fetching higher prices. The company's head office is in Toronto, but it also has offices in Winnipeg and fur-grading facilities in Wisconsin and Holland. Jansen points out NAFA is also the only fur auction house in the world offering a full range of both ranched and wild fur from North America. Indeed, it is the world's biggest handler of wild fur, with about 1.5 million pelts sold through its auctions each year, including beaver, raccoon, sable, coyote and muskrat.

The origins of NAFA stretch back to 1670, when England's King Charles II granted a charter to the Company of Adventurers, later HBC, which carried on a vigorous fur trade for centuries. In 1867, the newly minted nation of Canada paid more than £300,000 to HBC in exchange for certain land allocations and governing powers. By 1970, HBC's empire included fur auctions, the northern outposts, mines, and real estate, as well as the retail operations, which today include Zellers and the Bay department stores. In the 1980s, HBC decided to get out of the fur trade, selling its London auction business to Finnish Fur Sales and the Canadian division to HBC management and its fur producer groups. Operating first as Hudson's Bay Fur Sales Canada, the new owners purchased HBC's New York fur business in 1989 and later changed the firm's name to NAFA.

HBC shareholders faced a Feb. 24 deadline to tender to the Zucker offer. While many pundits lament the imminent passing of the Canadian retailer into American hands, it might be a comfort to some that the fur trade that started it all remains as Canuck as the beaver.