They filed because the business has been failing for  As long as Richard Baker has had possession of it and before,  uh, it, it, it’s a business that hasn’t been paying its bills. It hasn’t been maintaining its stores.  Retail Unwrapped is a weekly podcast hosted by Shelley Cohan from The Robin Report. Each episode dives into the latest trends and developments in the retail industry.

Join them as they discuss interesting topics and interview industry leaders, keeping you in the loop with everything retail.  Hi everybody, and thanks for joining our weekly podcast. I’m Shelley Cohan, and very excited to have back on the podcast, Mark Cohen. He’s the former director of retail studies at Columbia Business School, and also, and very relevant to today’s topic, the former CEO of Sears Canada.

So, for joining us. Mark, always welcome to you. Thanks for coming on today.  Thanks for inviting me.  So, I understand, Mark, you might have a little bit of an opinion about what’s happening at Hudson Bay. Our topic today is to talk a little bit about Hudson Bay, Richard Baker, and possibly some Sax Neiman stuff as well.

I joined Sears Canada in 2001.  Um, there had been a, uh, a round of consequential negotiations between Sears Canada and Hudson Bay by way of a, an acquisition.  a Sears Canada acquisition. Sears Canada, uh, aborted those negotiations and instead bought Eaton’s.  Uh, it’s anybody’s guess which would have been more problematic.

Eaton’s was not a successful acquisition and a year after joining, I converted the seven Eaton’s stores all across Canada. Into Sears,  uh, but soon after I joined the CEO of Hudson Bay reached out to me  and asked to open up that conversation once again.  And when I brought that to my executive team, they nearly mutinied,  uh, absolutely were against any, any further conversation about the Hudson Bay company, um, claiming there was all sorts of.

reasons to avoid, avoid, avoid.  So at the time I said, okay, let me humor myself and look at the books,  which I did. And I immediately discovered why my team was so hostile to the view because, uh, the bay, which at face value was not particularly well run. Some of their stories look good. Some look terrible.

Uh, they were discounting to save their lives, all sorts of things that department stores weren’t supposed to be selling off price. In any event, the numbers suggested that my team was correct in wanting to avoid,  at any cost, any more conversation.  This, by the way, is all going to be in some de uh, re relate in some detail in something I wrote for the Robin Report, which we’ll publish at some point soon, which I titled, A Requiem for the Hudson Bay Company.

So back to my story.  Um, about a year or so later, maybe two years later, uh, Hudson Bay tried an around end and made an appeal or a pitch  to the then CEO of Sears Roebuck in Chicago. Again, looking to open up the prospects of Sears Canada buying the bay  and I made it very clear to the then CEO of Sears Roebuck,  who I didn’t get along very well with and I didn’t have any regard for,  that there was no way we would participate in any kind of a acquisition, let alone a negotiation concerning the bay.

So there was a meeting and I made my. Uh,  uh, points very clear and the matter was dropped  at that point, a, uh, a South Carolina based industrialist,  a guy who had an industrial enterprise in the South.  Bought the bay  from out of the blue.  Uh, what was his connection to the bay? I don’t think I ever knew or anybody’s ever known, but he became the owner.

Unfortunately, shortly thereafter, he died suddenly  and his widow did not have any use for the investment. And she sold,  uh, his stake to Richard Baker.  Richard Baker had apparently taken a minority position in the acquisition of the Bay. So Richard Baker immediately became the governor of the Hudson Bay Company, the oldest, uh, publicly held corporation in Canada.

And what, what year was that about? This, this was probably about 2003 or so, could be off by a year.  Uh, Baker was the, uh, scion of a real estate, uh, organization, a privately held real estate organization, which had no direct, uh, knowledge of or experience in running a retail business.  Um, and so he became the guy.

And, uh, he’s subsequent to that bought Lord and Taylor  from federated department stores, federated Macy’s, uh, federated Macy’s having no use for this, this acquisition that came along with their May company merger.  And so now Richard Baker is a self anointed retailer of consequence.  Uh, he was heard publicly to say.

Boldly or boastfully, how he had stolen Lord and Taylor from, uh, federated Macy’s. And that’s probably true because, uh, Terry Lundon at the time just wanted it all, just wanted out.  So, so the story gets nastier and uglier. He, he, he engaged in a whole series of, um, back of the house  consolidation between Lord and Taylor, based in New York and the Hudson Bay, based in Toronto.

Which having spent four years in Canada, running a Canadian based retailer of some significant consequence in size and complexity. Made absolutely no sense, no sense,  and it was all in the name of saving money. And of course, uh, money saving is foolishness unless you can continue to operate a business correctly.

And, uh, now fast forward a couple of years and Lloyd and Taylor gets pushed aside.  Um,  sold off to some organization in California which had no prior connection and then it subsequently disappears.  So so Richard Baker is a real estate born dealmaker  who has no chops in the retail business. Now I’ll go on for another minute or two if you’ll let me.

Of course.  He went on to do a deal in Europe with the, um,  with the Karstadt Galleria and, um, uh, there was a third, third entity in the mix, Kaufhof Galleria and someone else, uh, three German retailers who had consolidated out of weakness.  And, and Baker went on to do a real estate deal with that consortium, which involved opening up Hudson Bay stores in the Netherlands, which he did.

And I visited, uh, one of those stores in, uh, in Amsterdam in 2017. I think it had opened in 2016.  And it was a beautiful store. It was, it was, you know, a complete renovation of a, a Dutch retailer called Hema.  And I might have been the only customer in the store that afternoon.  And, uh, of course, uh, the, the, the, the strategy of opening up the bay in Europe, let alone in the Netherlands, just completely nuts.

And of course, the whole thing failed.  Uh, Baker claimed he made money on the deal. He might have, but everybody else who was in on it must have lost their shirts. And I remember that was a quick deal and it went south very fast. Well, it went south because the customer in the Netherlands had no connection whatsoever.

No reason to have a connection with the bay. And I’m told, and I’ll tell you the story if, if you let me,  uh, how stupid of an idea this was. So at the grand opening, which was attended by all sorts of,  you know, famous people, including the queen of the Netherlands.  Richard Baker made a speech where he said, Gee, it’s so wonderful to be here.

And we’re sure that the Dutch will really appreciate our presence because after all, they know that the Canadian army liberated,  uh, the Netherlands following World War II.  So I’m having lunch with a bunch of. Dutch retailers. This was during the, uh, world retail, uh, conference held in Amsterdam that year.

And I just visited the store and I asked, gee, what do you guys think of the store? And they all started laughing. There was four or five of them. They started laughing. I didn’t know them, I just met them.  And I said, okay, you don’t have to be polite. Why are you laughing? And they said, well,  they then recounted Baker’s speech.

And said, you know, there’s hardly anybody alive today who was an adult in 1945 when the Netherlands were liberated.  And if they are still alive, they’re certainly not buying things in a department store.  So the whole association between the Bay and Europe was just completely nuts.  Just completely nuts.

And then of course, Baker went on to acquire Guild Group, which was a failure.  He had something going called the Designer Collective, which was a failure.  And, and, and so, uh, his crowning achievement prior to the Marcus acquisition was to Was to capitalize both Hudson, bay. com and sack. com as separate financial entities.

Which made  absolutely no sense, but he did raise hundreds of millions of dollars. Yeah. I mean, that’s why he did it. It made, from a consumer perspective, it made no sense to separate the online and the in store shopping. So, what’s happening with Hudson Bay now? And also, if you could just shed some light, being an expert on the Canada market, you know, a lot of other department stores and discount stores, Target, Nordstrom, they’ve all tried.

to go into Canada have failed. Hudson Bay is one of the oldest, uh, department stores that are there. So what’s, what is it about Canada and what’s going on with Hudson Bay today? And why have they recently filed for Chapter 11?  Well, uh, Canada is the larger land mass than the United States,  but Canada only has 30 or 40 million.

And so half of those Canadians live in close proximity to the 49th parallel in Canada’s big cities, and the other half are dispersed throughout the country.  The Bay has a long standing history of doing business primarily in those larger Canadian cities all across Canada.  The Bay hasn’t been a particularly successful retail organization.

For many, many, many years, um, and when I joined Sears Canada and got to visit lots of their stores, it became apparent that their inconsistencies were rife. You’d visit one store and it would look pretty good and have good customer service. You’d visit another store and it would be like a different company entirely.

Right. Uh, they were also relying on tremendously aggressive, um, discounting.  Discounting through the form of scratch offs,  where, where whatever was being discounted was, was being discounted without being named as being discounted. But if you brought that scratch off coupon to the store, you got your discount on whatever you wanted, pretty much.

So, so the, the brands that weren’t happy about this kind of looked the other way.  Uh, because their names weren’t being, um, uh, used in public. Okay. Is that how they got around it? I mean, is that why they did the scratch off to avoid the, you know, multiple exclusion with some of the brands? They did the scratch off without exclusions.

When they did exclusions, the exclusions were ignored at store level.  So when a customer presented the coupon, they got the discount. Okay.  The, the bay was struggling for years financially,  um,  trying to make a case for itself as the original Canadian department store, yada, Okay.  So fast forward to today, they just filed for chapter 11, which is restructure or, uh, uh, restructuring Canada.

It’s the same more or less as, as chapter 11 in the United States.  And what this, what this reflects is Richard Baker jettisoning off  the Canadian operation, which has been a serial failure,  uh, over the years. I’m told they have stopped maintaining the stores. There’s apocryphal stories of escalators in their biggest stores not running,  um, He did move Saks Fifth Avenue into two bay locations,  one of which was completely nuts.

It was an over large bay store opposite the Eaton Center, which is definitely not a Saks Fifth Avenue marketplace. And yet, the dealmaker, Richard Baker, saw this very, very problematic space that was not productive. So he So the sacks into the space,  the sacks customer in Canada, uh, more than likely was shopping at sacks in New York, not Toronto, let alone in a,  um, uh, kind of a consumer gateway, uh, a transient gateway, which is the center.

So everything he’s done in Canada has more or less been a failure. Oh, by the way, he opened sacks off fifth in Canada. That’s right. Which, which I don’t think has done very well. And it didn’t do very well here. It is. And a poor performer here. So, so what has he done now? He’s now,  he’s now, um, succeeded at merging  or acquiring, I should say, with Neiman Marcus.

Another,  um, legacy retail luxury store that has been falling on hard times for years. In fact, had filed chapter 11 some years ago and it limped out of bankruptcy. Right. That  was back during the pandemic. Early in the pandemic. I remember Neiman Marcus was like the first department store to kind of file for, you know, bankruptcy protection.

But then they came out of it like within a year. So it was pretty quick. But I want to go back mark before we jump into sacks and Neiman Marcus, I have to jump back and ask you this question about Hudson Bay, because one of the kind of things I’ve heard is that they’re blaming the Chapter 11 restructure based on the current quote unquote trade war happening with the market. 

But what you’re saying is kind of a different story. This has been a long time coming, no? It’s been a very long time coming and it’s, it’s, it’s absolutely, uh,  specious to be blaming the bankruptcy on the current trade war, which will have an effect by the way, because Canada, Canada historically sells a lot of American goods, which are now going to be tariffed by way of retaliation.

But, but that’s not the reason they filed. They filed because the business has been failing for  as long as Richard Baker has had possession of it and before  Uh, it, it, it’s a business that hasn’t been paying its bills, that hasn’t been maintaining its stores.  Um, it’s a business that was circling the drain long before Trump got reelected.

So, so, you know, there’s, there’s no, there’s no veracity behind the excuse they’ve used.  And I know with your background, so you have this company that’s been struggling for many, many years, right? And so they acquire Saks. Fifth Avenue at the time. So again, another company layered into a company that hasn’t really been running successfully.

Then they go out and merge yet another company, Neiman Marcus, recently. It’s like, where’s the, how does that work? And from a business perspective, when you’re mapping out the, you know, LVMH, if you look at LVMH, and I know it’s a grand, you know, vast, you know, difference between the two companies, but how do you make all these acquisitions when you can’t even take care of your own, you know, company?

Well, you would probably agree that at least half, if not more, mergers and acquisitions fail. Absolutely.  And in retail, almost all of them fail or have failed  or eventually fail.  And I’ve got some significant experience having joined Lazarus as the CEO following a merger between Lazarus, Stilettos, Reichs, Herpelsheimers, and Blocks.

Five banners that were smashed together all in the name of realizing synergistics, synergistic cost reductions, yada, yada, yada. Uh, at the end of the day, LVMH has done A brilliant job of acquisition  and, um, accommodation  and taking on a new business, spending a lot of time and energy and money, learning a lot about the new business and then bringing it into the fold slowly and carefully,  as opposed to making, um, uh, knee jerk, uh, financial, um, uh, decisions, which then have to be rationalized after the fact.

So at the end of the day, um, there was no  synergy between the Bay, Hudson Bay in Canada and Lord and Taylor. And there certainly was no synergy between Hudson Bay in Canada and Saks Fifth Avenue.  And when all is said and done,  um, it’s anybody’s guess  whether someone like me will be writing about a requiem  for Saks Fifth Avenue and Neiman Marcus.

I would suggest.  It’s going to happen. The, the catastrophe that has befallen Canada and Lord and Taylor  is going to happen. Okay. Uh, because, because the likelihood that this merger has been well thought out,  uh, well planned and of course, well capitalized is nil and none. In fact, it’s absolutely amazing that SACS, which hasn’t been paying its bills  for a year.

Would be so bold as to go borrow 2. 4 billion to acquire Neiman Marcus, which I’m told wasn’t paying its post bankruptcy bills particularly well.  Uh, and then of course  publish this  ridiculous vendor letter, which maybe we’ll talk about  proclaiming how things are going to be.  Uh, so if I had to guess, this is a,  this is a train wreck,  uh, for a whole variety of reasons.

Um, not the least of which is these two businesses are not doing particularly well,  and there’s nothing that suggests combining them will improve their fortunes. Well, I mean, I just have to go back on something is I actually think their bill backlog is like 18 months. I think it’s more than a year of unpaid bills.

And the newest, um, announcement that went out or letter to the vendors was they. Will get paid starting July on a 12 month rolling basis, which means that goods delivered in 2024 last year actually won’t be paid in full until July, 2026.  So, I loved a, uh, this was in WWD, Evan Clark, I love how he wrote this, which is, you know, kind of sad in a way, he wrote, in a sense, the brands selling to SACs are helping finance the payments that they’re already owed.

Well, and the brands selling SACs will also accept 90 day terms. That’s the new thing. And if they don’t, uh, they broker possibly losing this new monster’s  affections by way of purchases.  So look, look, I, I have been to the bankruptcy rodeo  several times. I’ve only been there once. Okay. And I, and the fact that this letter was written and made public,  this proclamation,  I find completely shocking.

First of all, the big guns in luxury are not going to go along with this.  Okay. The big guns in luxury, the big Kering and LVMH houses, Have been for quite a few years, investing enormously, uh, in their own stores, their own web businesses. Whereas once upon a time they needed sacks and Neiman’s as a portal to their customer, they don’t any longer.

They absolutely do not. They have some other alternative retail partners in Nordstrom to some degree in Bloomingdale’s. Uh, there’s, there’s some issue about where’s Bloomingdale’s headed and where is Nordstrom headed now that it’s been acquired. But, but at the end of the day, they don’t require a, a, um, a Sax or a Neiman’s  at all.

So I would be willing to bet they would have received this letter with derision and will not accept these terms.  The fact is, this is a stick in, this is a poke in the eye.  Which is kind of like what’s coming out of Washington these days.  Assuming that whoever you’re poking in the eye is just going to put up with what you’ve said.

What you’ve demanded because they don’t have a choice.  Well, not to, not to veer off topic, but, um, Mexico, Canada, and the EU and China are clearly exhibiting a willingness and an ability to retaliate.  And I suspect that the, the larger luxury vendors who traditionally have sold goods to Sachs and Neiman’s are not going to put up with this and they would have good reason to be wary.

Of how this monster is going to be able to pay its bills, even with this promise of sorts.  Yeah, a hundred percent. I think, you know, who loses in this and, you know, is these young designers. So, you know,  Saks has always been very good in the past about bringing up these up and young coming designers and, you know, bringing this, you know, very avant garde kind of new cutting edge designers to the forefront and these young designers can’t.

Let companies like Sachs borrow their goods for, you know, an 18 month, two year period before getting paid. That’s, that’s not sustainable for them. So we’re going to lose some innovation possibly, uh, in our industry because of that.  Well, this is the, uh, this is the road, uh,  uh, down to perdition that Barney’s was into.

Right. Where quite a few up and coming.  Innovative, exciting designers were putting goods on Barney shelves and either not getting paid  or being, um, uh, basically charged back to death,  essentially not getting paid.  So, so my suggestion to these folks is.  To avoid sex and demons  to find a way to billboard what they have to say and sell online  and, uh, try to find other smaller regional players who will behave normally, financially,  this letter is absolutely Abnormal.

I, I, I was thunderstruck. I almost couldn’t believe this was actually the letter that was sent. But then I spoke to a luxury vendor who acknowledged that, yeah, it hasn’t been paid in over a year.  Uh, one of these two players owes his company over 400, 000 bucks  and he probably isn’t going to ship them any goods.

Anytime, soon, ever again, maybe.  Yeah. And Mark, I had the same conversation with a colleague of mine who is also a company that sold sacks, who’s also hasn’t been paid and it’s the same, you know, story there. So I don’t, I don’t know what’s going to happen in terms of the vendors and the assortment mix and the long term strategy in terms of product assortment down the road.

But certainly. I know who’s going to be the winners here. It’s going to be Nordstrom’s and Bloomingdale’s. They’re going to, they have a golden opportunity right this minute to really kind of swoop in.  Well, I agree. I agree with you completely. Look, the, the, the deal making that has gone on in retail has almost always resulted in failure.

You know,  when all is said and done, it’s arithmetic. You have to have enough top line sales leaving you with enough gross margin to cover your expenses and all the other things you’ve loaded onto your P& L by way of leverage.  In doing deals with debt  and if your business is not robust, let alone consistent,  this becomes a pipe frame as, as a, as a future strategy.

And I lived through the federated allied  madnesses and I, and I, don’t forget Campo, Campo was the principal player. I mean, I, I, I was the recipient as one of the CEOs of one of the divisions of the banker’s book that Campo had, had commissioned.  That explained how the debt that he was taking on having bought allied and now having taken over federated How it was all going to be reconciled and it was like a comic book  It called for comp store increases that had never been achieved in a contemporary Let alone a mainstream department store in the united states.

It called for expense savings that were  crippling if not actually impossible and it called for some financial shenanigans by way of Uh, uh, refinancing the bridge debt that was taken on, which could never take place and didn’t. And that’s why federated went into 11. Right. So, so this is, this is, this is a train wreck.

I can’t describe it any other way. Well, let me ask you one more question, uh, before we leave. Time with you always goes so fast, but I have to ask this question because I, I, you know, I’ve heard a lot that a lot of these deals that Baker makes, it’s about real estate. So you mentioned Lord and Taylor, they had that beautiful building on 40th and 40th street in Manhattan sold off.

Um, now we have another real estate deal. Going south in Dallas, and I think what bothers a lot of people that are seeing these things is kind of what you mentioned about this. You know, these stories, this smoke and mirrors. And so the latest thing is the closing of the downtown Neiman Marcus store. Based on land that isn’t owned underneath an escalator.

So is that all this just smoke and mirrors? Is it like what’s going on?  Well, if baker could have sold the bay Stores in canada, he would have done it  long ago if there were takers for these Large spaces he would have he would have made deals But there’s nobody looking to make a deal for a department store space in canada  so so the the bankruptcy is the is the net result of  No way out as far as this Dallas, Neiman Marcus nonsense.

Hey,  he doesn’t want that store. He wants to redevelop that space that sliver of land underneath the part of the store. That’s nonsense. The city of Dallas is basically said we’ll deal with that lease.  He’s not interested. He wants to get rid of it.  And oh, by the way, transparent, why not just be transparent and tell people that?

Because this guy isn’t transparent.  And I’ll go one step further. It’s anybody’s guess how they’re going to reorganize Neiman Marcus and Sachs,  whether they’re going to operate them as separate banners  or consolidate them a la Hudson Bay, Lord Taylor, some degree.  And so  if, if I had a guess, there’s no future for the Neiman’s organization.

at least at face value based in Dallas. And oh, by the way, I don’t know that Neiman’s got their organization back following COVID. Yeah. So, so Baker doesn’t need a, uh, downtown store or headquarters facility.  Uh, and this excuse that they used  is really, um, completely transparent. Yeah.  Well, Mark, always a pleasure to have you on Talk and Chop.

Any closing words you have for our audience today?  Well, it’s anybody’s guess where our economy is headed. Uh,  you know, it’s  None of what’s going on is good news for business.  None of it.  Prices are already, uh,  plans are in place to raise prices If only defensively, but in actuality, as these tariffs and retaliatory actions are taken and anything, as you know, that causes prices to rise at retail,  what’s demand under tremendous pressure.

And so, uh, it’s going to be tough sailing for the foreseeable future. Well,  This craziness sort of runs its course.  Yeah. And I think it takes a toll on the consumers. You know, we already saw the drop in consumer sentiment, um, last month. So I think it really kind of plays with the psyche of the consumer, which is not good for them.

for our business. You bet. You bet.  Thank you, Mark.  Good talking with you.  Thank you for listening to Retail Unwrapped. We’ll be back in one week with another podcast. Please subscribe on Apple Podcasts, Spotify, or any podcast service. If you have questions, ideas for a podcast, or anything else, please contact us via the RobinReport.com.