Q&A with Jerry Storch, CEO Hudson’s Bay Company

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\"GerryRobin Lewis:  I told Richard [Baker, Governor and Executive Chairman, Hudson’s Bay Company] a while back that he is a real estate guy, albeit a brilliant one, who’s leading a retailing operation, and in my opinion, he needed retailers running the business. He certainly followed my advice by hiring you. What about this position appealed to you?

Jerry Storch: What appealed to me most about this position was the people. It starts with Richard. He is an amazing guy and has a vision that he executes. He is a good person of high integrity and I appreciate that. I could have stayed independent, I was very happy, but I thought as I was  working with  him  as an advisor, that I like this guy,  and as I worked with  the  team, I realized I really liked  the  other people here too.  There’s a huge opportunity here to help Richard pull this  all together. He’s a very intuitive, high quality retailer, not just a real estate guy.  I’ve been doing retail for decades and saw how we could be synergistic, bigger than sum of the parts.

RL: Tell our readers a bit about your background.

GS: I went to Harvard three times, for college, law school and business school. I always figured I would be a lawyer. I had 30 offers from Manhattan law firms, and an offer from McKinsey, because I had the MBA, and I thought that business sounded a little more fun and exciting than law, and I figured I would learn a lot. A friend of mine I worked with at McKinsey recruited me to Dayton Hudson. The lifestyle at McKinsey was grueling, and I wanted to spend more time raising my family. I thought the pace at retailing would be more like semi-retirement. Boy, was I ever wrong! We renamed Dayton-Hudson Target Corporation, and I started the internet business there in the late 1990s, taking it from zero to the first billion dollars.

RL: So you were an Internet pioneer?

JS: At Target I was viewed as the wild-eyed crazy Internet guy.  I talked my then boss into buying the rights to Target.com for $10,000 even though he thought it was a waste of money for a name. For the first five years or more, we were bigger than Walmart.com.  At Target I started the grocery business, the financial services red card business, eventually becoming Vice Chairman. I ran supply chain and the department store businesses reported to me.  I left in 2005 and went to Toys ‘R Us as Chairman and CEO. I was at TRU for seven years, and we grew that Internet business dramatically into the most complete omnichannel paradigm of any business. We were the first to ship  from store. If the Internet at TRU were a stand-alone business, it would be valued at $10 billion. We bought FAO Schwartz, and started a joint venture in China with Li & Fung.

RL: How did you and Richard start working together?

JS: I left TRU in 2013 and then started my own firm, Storch Advisors, and one of my clients was Richard. I remember flying around with  him, and he said “I’m going  to buy  Saks Fifth  Avenue,” and he asked me  to work on the Off Fifth off-price business. We repositioned it from being a pure outlet business to a true off-pricer. We started opening stores in locations in Costa  Mesa and other locations where you would find a TJ Maxx, instead of just being in outlet malls. TJX in fact was one of my early clients at McKinsey. They were at 300 stores, and thought they’d grow to 500  stores and that would be it because there wouldn’t be enough off-price or overstock product available. But look at them now!  Off-price has much more potential than outlet. It’s the fastest growing part of the business, and we’re very excited about Saks Off Fifth.

RL: What are your biggest challenges?

JS: Clearly, one of the biggest challenges is to rapidly expand our internet and all-channel capabilities. I use that term instead of omnichannel because it’s everything, not just internet and physical stores. There are three critical nexus points in the all-channel paradigm. The first is where the customer is when he places the order, the second is where the product is and the  third is where the customer receives the  product.  Where the customer is could be at home, at work, on a mobile phone, or it could be in the store. And the customer could receive it in any of those places. Product could be anywhere—in a distribution center, at the vendor, in the store, or not manufactured yet. And when you draw the possibilities there are over a hundred different options. Order online, order in store, ship to store, pickup in store, ship to home… We do some of this at Hudson’s Bay,but  not  as much as other retailers are doing. So it’s a huge priority for us, because it’s the future of the modern American department store.

RL: Isn’t it unusual to have a single CEO leading all these businesses in four different countries? I mean, it’s difficult enough to be CEO of one brand.

GS: We have very strong banner presidents. I view myself as the coach. Liz Rodbell has been at Lord  & Taylor for 30 years. She’s a very skilled merchant and president. Then we have Mark Metrick at Saks, who’s been there for 15 years. Then we have Jonathan Greller at Saks Off Fifth. He’s newer but he’s a tiger, very aggressive. The management team at Kaufhof in Germany is solid, or we wouldn’t have bought the business. We have quarterly business review meetings, less formal monthly conversations.

RL: Do you think at some point you will take all the retail brands and make them the same, like Macy’s did?

JS: I don’t see that as a possibility, to be honest. Without commenting on whether what Macy’s did was right or not, there are a lot of people in Chicago who will never forgive them for getting rid of the Marshall Field banner. There’s a lot of equity in our brands and in our banners, and although our businesses are similar, they’re not identical. With Saks we have a true elevated luxury brand. At Lord  & Taylor, although it’s an upscale brand more elevated than Macy’s it’s not at the level of Saks Fifth Avenue. So they’re positioned differently. Then by its nature, Saks is more of a full-price business—you don’t discount Chanel—whereas Lord & Taylor is a bit more promotional. In Canada with Hudson’s Bay you have a much broader line, with the home goods, and you serve customers from the high end  to the  low end, much more like a Macy’s.  Kaufhof is very similar to Hudson’s Bay.  But we can invest in the stores to contemporize them. We can add more capacity and elevate in the shoe, handbag and beauty business. These businesses are being managed the way department stores managed them in the U.S. ten years ago. Their management agrees there is opportunity there, and they’re excited about it.

RL: How do you bring those banners together culturally?

JS: The executive leadership team met and discussed this for a long time. We are a company that was built on acquisition, so we talked about what our core values are, and what the winning ways are—how to execute those values. We have big heritage. We operate the oldest department store in the U.S., in Lord &Taylor. Hudson’s Bay is the oldest corporation in North America, since 1670. We need to treat people with trust, respect and integrity. We hire retail executives with those values and who are willing to take risks. We make sure our leaders embrace that. We want to have an adventuresome spirit – maybe that’s the Canadian heritage. I’m a big believer in the heritage. You can see it in some of the things we’ve done, the real estate structures Richard has built. We do it differently. The money makes a round trip, so we’re not leveraging the  business— we’re deleveraging it. Any money we get goes right back into the business. We’re putting $250 million into the Saks Fifth Avenue building. I didn’t come here to do anything but build a great retail business. You say Richard is a real estate person, but he understands you can’t let the retail business go, you have to keep investing in it.

RL: Many upscale retail brands are realizing that in order to survive they have to appeal to Millennials. How are you doing that?

GS: We’re always focused on the customer, and it’s clear that Millennials are becoming a bigger part of the customer base, so we have to address that. We segment our business, and think of that group as one of the clear targets for growth. The design lab at Lord & Taylor is serving that customer, and it’s also exclusive product. It’s different from what’s available at other companies.

RL: One thing I noticed in the Toronto stores was what I considered a lack of technology considering what’s available and what others are doing.

JS: It’s important to keep in mind that there’s a lot of technology out there, almost an unlimited supply, but it doesn’t make sense unless consumers will actually use it. We’re not looking for the nerd’s dream, we’re looking for what will help regular shoppers. Customers today want to interact with their smart phones, so we have mobile apps and beacons and other things you might not see because customers have to opt into them. We use RFID for stock keeping.  The real genius is in knowing how to distinguish between the meaningful technologies and the fluff.

RL: Why are stores still important?

GS: They’re more important than they ever were. Of the 100 all-channel possibilities, 70 of them are in physical stores. Anyone who says consumers don’t like to shop in stores hasn’t done their research. Shopping is the number one form of entertainment in the country. It’s more important than ever to have attractive physical environments and great customer experiences.

RL: What’s the next challenge for retail?

JS: I think using Big Data to personalize and actuate CRM is the next frontier. Some internet retailers do a good job, but they only have the internet data. We have the in-store too, which is a great advantage.

RL: Are you concerned at all that over time the off-price will devalue the mother brand?

JS: I think it’s the reverse. I think it’s a great way to get customers introduced to the Saks  brand who thought it was unapproachable before. It’s a great way to get new customers, maybe people in earlier life stages into the brand, so that they’ll migrate to the mother brand later on. Nordstrom feels the same way about Rack.

RL: What is your vision for HBC?

JS: We want to build a multigenerational retailer that will have meaning for the next two generations. We frequently want to involve our kids in our meetings because we want to run a business that will appeal to them. We have a lot of restaurants, and we think food is a very important part of the experience. It helps with the in-store circulation, and we want to take that to a better place. As big as we’ve become, we’ve only just started. We think that within the next few years there will be another acquisition. First leg, running great retail banners; second is mergers and acquisitions; third is taking care of the real estate.

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