What’s the latest with HBC, Loblaws and Sears U.S.
Sears Saved by Lampert’s $5.2 Billion Bid
Sears Holdings Corp. Chairman Eddie Lampert won a bankruptcy auction to buy the once iconic U.S. retailer after presenting an improved offer of US$5.2 billion, Sears said on Jan. 17, allowing it to keep its more than 400 stores running.
Sears picked Lampert’s hedge fund ESL Investments Inc as the winner at a bankruptcy court-supervised auction after his latest bid topped an earlier US$5 billion proposal following weeks of talks.
The deal would preserve up to 45,000 jobs and ESL would acquire substantially all of the company, including its “Go Forward Stores” on a going-concern basis, Sears said.
“We are pleased to have reached a deal that would provide a path for Sears to emerge from the chapter 11 process,” the restructuring committee of Sears’ board of directors said in a statement.
There remains a chance the deal could fall apart, as it still must be documented and approved by a U.S. bankruptcy judge.
Lampert’s only challenger in the auction was Sears itself, and how much it would reap in a sale of its businesses and assets in pieces, sources familiar with the matter told Reuters.
Sears had believed Lampert’s earlier bids fell short of covering the bills the retailer has racked up since filing for bankruptcy protection in October.
More than 20 U.S. retailers, including Sears and Toys ‘R’ US, have filed for bankruptcy since the start of 2017, succumbing to the onslaught of fierce e-commerce competition from companies like Amazon.com Inc.
Some creditors have concluded that they can recover more of their investment if the stores and other assets are auctioned off.
“The ESL bid is really perpetuating Lampert, who is the problem,” said Burt Flickinger, managing director of retail-advisory firm Strategic Resource Group. The company would be better off going into liquidation and selling off the profitable operating units, he said. “ESL isn’t the solution for Sears.”
Hudson’s Bay Chairman’s Firm to Buy Ontario Pension Fund Stake in Retailer
On Jan. 4, it was announced that an entity controlled by HBC Chairman Richard Baker will buy the stake owned by a unit of Ontario Teachers’ Pension Plan Board in the Canadian retailer, according to L&T B Cayman Inc, a top shareholder in Hudson’s Bay and a joint buyer.
The purchase of about 18 million shares at $9.45 each by Baker’s entity Rupert of the Rhine LLC represents a premium of 28.6% to HBC’s Jan. 3 close, L&T B Cayman said..
HBC stock surged 12.5% to $8.25 after the open on Jan. 4.
The acquired shares will represent about 9.76% of common shares on a non-diluted basis and 7.54% assuming the conversion of the outstanding convertible preferred shares of HBC into common shares, L&T B said.
Upon completion of the deal, L&T B will own about 25.03% of Hudson’s Bay on a non-diluted basis.
HBC, the owner of the Saks Fifth Avenue luxury retailer, has embarked on a mission to boost flagging sales as it combats market share erosion by e-commerce companies including Amazon.com Inc.
Last year, HBC formed a joint venture for its European business, sold its unprofitable online brand Gilt and had said it will close up to 10 struggling Lord & Taylor stores after selling the brand’s flagship building in Manhattan.
Still for some investors, the measures have not gone far enough. Hedge fund Land & Buildings in November called for HBC to sell the Saks Fifth Avenue and Lord & Taylor brands and its 50% interest in the European joint venture.
Hudson’s Bay CEO Helena Foulkes then said the company agrees with Land and Buildings that HBC is undervalued and that “everything is on the table in terms of increasing value for our shareholders.”
Shares of the company have fallen 37% in the last 12 months.
In early December, Hudson’s Bay Co. reported a wider third-quarter loss on higher depreciation and amortization expenses and foreign exchange losses.
The retailer reported a net loss from continuing operations of $124 million, or 52 cents a share, for the three months ended Nov. 3, compared with a loss of $116 million, or 64 cents, a year earlier.
Including Hudson’s Bay’s European operations, which are in a joint venture with Austrian Signa Holding, the company posted a net loss of $164 million, or 69 cents a share, narrowing from $243 million, or $1.33 a share, a year earlier.
Gross margin improved 10 basis points from the same quarter a year earlier.
“We’ve been focused on fixing the fundamentals of our business,” Foulkes said in a call with industry analysts, adding that the quarterly results were proof of progress.
CIBC Capital Market analysts called the results “encouraging” in a research note, adding that the same-store sales growth at Saks was the brand’s “best result in years and third consecutive quarter above 6%.” But the analysts found HBC’s Lord and Taylor stores were continuing to struggle.
After taking over as CEO, Foulkes said she saw no “sacred cows” in the company.
“Everything is on the table,” she said last March.
Earlier last year, Foulkes announced the closure of 10 Lord and Taylor stores. Closures at the department store will continue in 2019, HBC’s chief financial officer Edward Record told analysts. HBC is also closing roughly four Saks Off Fifth locations, he said.
While its luxury Saks Fifth Avenue brand appears to thrive, HBC’s contingent of mid-level chains — Hudson’s Bay, Home Outfitters, Lord and Taylor and Saks Off Fifth — are the “albatross” around the company’s neck, said Winder.
“The department store business is in decline,” he said, pointing to shifting consumer preferences to e-commerce and specialty stores. Only a few luxury department stores, and discount chains, have managed to make it work, leaving stores like Hudson’s Bay “caught in the middle.”
The solution, Winder said, is to gradually cull underperforming stores, freeing up HBC’s valuable real estate holdings.
HBC has been hounded by an activist investor, Land and Buildings Investment Management, to do just that. In a letter to HBC shareholders, Land and Buildings founder Jonathan Litt gave HBC a laundry list of ways to unlock real estate value, including selling the Saks flagship store on Fifth Avenue in Manhattan, as well as selling off the Lord and Taylor brand and liquidating its inventory and real estate.
“HBC’s Board has an appalling track record,” Litt wrote. “We believe change on the Board is needed to ensure that the Board listens to its shareholders and takes the steps needed to truly maximize value for all shareholders.”
Loblaw Rolls Out Amazon Prime-Style Loyalty Program for $99 a Year
Loblaw Companies Ltd. recently announced that it is launching its new loyalty program across Canada, offering an assortment of perks for $99 a year in an attempt to convince more customers to shop exclusively with its massive grocery chain — creating what one senior executive called a “loyalty loop.”
The PC Insiders program, styled after the popular Amazon Prime (minus the streaming service), includes free “click and collect” grocery shopping, where customers order online and pickup at one of 600 designated locations, as well as free shipping on purchases from Loblaw’s Joe Fresh apparel brand and Shoppers Drug Mart.
The program — available at $9.99 a month or $99 a year — is now available to the 16 million members who currently use PC Optimum, its free rewards program.
“It’s not 16 million customers all at once,” said PC Financial President Barry Columb, who started PC Insiders and continues to oversee the program. “But if we go out in the next six months and we put 100,000 customers into the program, we would be very, very satisfied.”
The announcement comes after a year-long pilot ballooned to the point that Loblaw had to turn members away. When the pilot started last year, the plan was to open the program up to 5,000 hyper-loyal customers who already used Loblaws PC Optimum and the President’s Choice Financial Mastercard.
Instead, Loblaw added 25,000 members after media attention and word-of-mouth saw prospective members signing onto a waitlist by the thousands. Even after expanding to 25,000 members, 3,000 people were still on the waitlist.
“There’s always a moment when you think it’s not going to work,” Columb said. “That moment is always before launch.”
“But when you actually roll it out, and your expectation is to get 5,000 users on a pilot and you get 25,000 … you realize you’ve got something good here.”
The pilot saw members take to Loblaw’s new grocery pickup service, Columb said, with an average member using it 10-15 times during the year.
Along with free shipping and grocery pickup, PC Insiders members get 20% back in reward points when they buy baby products and Loblaw store brands like PC Organics and Black Label, as well as online purchases on Joe Fresh clothes and Shoppers luxury beauty products.
The incentive on baby products seems strategic, said Stewart Samuel, program director at IGD Canada, since having children is often a “key tipping point” toward online grocery shopping.
Samuel called the grocer’s paid program a “first-to-market initiative in Canada.”
“It’s a great way to limit the amount of cross-shopping that customers may do in other retailers,” he said.
The program also comes with $99 travel credit at the Loblaw travel service and “a surprise home-delivered box” of PC products.
“I mean, that alone pays for your annual fee,” Columb said.
PC Insiders is the latest in a series of shakeups to Loblaws’ loyalty programs. Its current free rewards program, PC Optimum, was itself born earlier this year when Loblaw merged its PC Plus card with Shoppers Optimum.
But Columb denied that all the changes could confuse customers, pointing to the thousands who were quick to join the Insiders pilot program. In the year of testing, he said he saw a need to better show plan members how much they were apparently saving. Members now have access to an improved online dashboard that gives daily updates, as well as updates on their receipts in-store.
“It’s all about creating that loyalty loop,” Columb said, “and driving customers back into the store, where they find value and convenience.”