The Decibel - Hudson’s Bay, Canada’s oldest retailer, faces financial crisis

Episode Date: March 14, 2025

In a moment when more people are looking to buy Canadian, Canada’s oldest retailer is facing a financial crisis. Last week, Hudson’s Bay was granted creditor protection. Court documents showed that last year, the company recorded a loss of nearly $330 million, and that they were within days of not being able to pay their staff. Now, they’re working on a restructuring plan that could include closing half of its 80 stores.Today, Susan Krashinsky Robertson, the Globe’s retailing reporter, is here to discuss where things went wrong for Hudson’s Bay, how restructuring could affect employees and customers, and what place the company holds in the Canadian imagination after 355 years.Questions? Comments? Ideas? Email us at [e-mail]

Hudson's Bay in a lot of ways, for many Canadians, is probably symbolically more significant than it actually is significant to their everyday lives. There's probably a lot of Canadians who haven't stepped foot in a Hudson's Bay in a while, and that's part of the problem. That's Susan Krishinski Robertson, the Globe's retailing reporter. You know Hudson's Bay is a pretty iconic brand in Canada. You think about the stripes, the blankets, you know those red mittens that for so many years were an iconic part of the Olympics.

You know the Bay is really a part of Canada and so I think that matters in and of itself. Now Hudson's Bay is in serious financial trouble. Last week, the company entered creditor protection, which gives them some time to restructure in this difficult moment. And now it's gotten so bad from a cash position that they've actually fallen behind on rent payments for their own stores. And so late last week when they filed documents in court as part of this creditor protection proceeding, they also disclosed that at a store in Nova Scotia, a landlord actually

locked Hudson's Bay out of its own location. And at another store just west of Toronto in a mall called Sherway Gardens, bailiffs came and actually tried to seize merchandise in the store. So those are two snapshots of just how bad things have gotten at Hudson's Bay. Today Susan is on the show to explain how Hudson's Bay got to this point, how it could affect employees and customers, and what it means that one of Canada's most iconic retailers is facing this financial crisis. I'm Maynika Ramon-Wilms

and this is The Decibel from the Globe and Mail. Susan thanks so much for being here. Thanks for having me. So Hudson's Bay was granted creditor protection. Susan what does that actually mean? Yeah so creditor protection is a process companies can use essentially to press pause in a way. So if you owe money to a bunch of different entities, these are your creditors. And when things get bad enough for a company that they realize that they're going to run out of cash

and be in a real crisis, which is what has happened for Hudson's Bay, they can use this process to ask the court for protection from those creditors, basically saying, please put a stay on any proceedings against us, any attempts to gather money that might be owed, any lawsuits against us, things like that. And what it does is gives companies a kind of breathing room to come up with a plan for the future.

And that can take a few different forms. It's often referred to by the word restructuring, which is a pretty broad term. Restructuring can mean a lot of things. It can mean winding up a business entirely and liquidating. You can sell a business while it's under creditor protection. That process is sometimes used for that. And sometimes companies can come up with a plan basically saying in order to move forward and remain a going concern, we've got to shed some of the debt that we owe to various people and we are not going to be able to repay all of this and so they'll sometimes come up with a plan

which then their creditors have to vote on. So there's all kinds of ways that restructuring or many forms that restructuring can take but the idea of creditor protection is essentially a company saying hang on the crisis has gotten out of hand and it's gotten so bad that we need a big pause button. Okay, so there's a few options that a company can take then in this situation. Do we know what Hudson's Bay is going to do next? We don't know exactly what the future looks like for Hudson's Bay, but we do have a good sense of what they're doing in the short term.

So The Globe was first to report earlier this week that Hudson's Bay was looking for concessions from its landlords in order to keep about half of its stores open. That's a big change, right? Hudson's Bay operates 80 department stores across Canada. And the company believes that with enough concessions from landlords, they might be able to keep about 40 of those open. That's not a hard and fast number. That could always change depending

on how these negotiations go. And what would that mean, concessions from landlords? It can mean a break on rent. It can mean free rent for a certain period of time. It can also, in some cases, mean a company may ask for an investment from landlords in order to keep a store open. And not all landlords will want to do that. But the reason why a landlord might be convinced to do something like that is that these big department stores,

they take up a lot of space in a mall. And when they go away, that is a really big problem for a landlord for a couple of reasons. One reason is simply that it's a bunch of suddenly vacant space. There's not a lot of retailers out there that need 150,000 square feet. And so that can be difficult to fill. We saw that with when there was the windup of Target in Canada. We saw that with Sears Canada. These big boxes is sort of the industry term for them that are really hard to fill. And when a landlord needs to divide those up and repurpose them for other uses

that might be easier to lease out, that takes investment and that takes money. And so it's not a good situation for a landlord when one of these boxes suddenly comes empty. The other thing that can happen is that anchor tenants, the original idea of these department stores is that they drew traffic into a mall. Now, I think it's arguable that they no longer really

do that as much. But the original idea was they were an anchor on this mall. They drew things in. And so as a result of that, other retailers in a mall might have provisions in their own leases that if an anchor tenant goes away, they have the right to exit. So the disappearance of this big tenant can also sometimes lead to a domino effect if other retailers are kind of looking to exit a mall anyway. So that would be why landlords might be invested

in the bay not going away. It's not just a problem for the bay. It could be a problem for all the other stores in the mall as well. Absolutely. It's not good for any mall to have a big empty space. It's depressing and it's not really the kind of experience that malls look to offer. The flip side of that, of course, is that some mall landlords may feel that the Bay has declined to such an extent that it's kind of a drag on a property and so some landlords may not be willing to invest anything or to provide any concessions. So on Monday, this coming Monday, Hudson's Bay will have a court hearing where they have to go back to the court and tell them a little bit about what their plan is and ask for an extension of this court protection process.

And it'll be interesting to see what they come back with in terms of what they think their store footprint could look like in the future. We may not yet have really firm ideas of the final number, but we may get some more information early next week. OK. So that's what we'll be watching for then come Monday. You mentioned that they might cut up to half of their stores, Susan. I guess I'm wondering how many people this

is going to affect. Do we know how many people that the Bay employs? Yeah, it's going to have a big impact. The Bay currently employs more than 9,300 people in Canada, and the closure of half of its stores would obviously mean significant job losses across the country. So that would have a really big effect. Yeah. I guess I also want to ask you about the fact that Hudson's Bay is such an iconic Canadian brand, right? And of course, it does also have a complicated history in this country. Can you just remind us a little bit of that and just the cultural significance of Hudson's Bay? Yeah, Hudson's Bay as a company is older than Confederation. This was a company that was first launched in 1670 through a royal charter that gave

it a trading monopoly around a huge swath of territory, about a third of what is now Canada in the north, all around the drainage basin surrounding Hudson Bay, hence the name of the company. And so they built their business in the fur trade originally and turned these massive profits in the fur trade by relying on an extensive network of indigenous guides and traders to help them in that endeavor. And that is a long-standing history with Indigenous peoples in Canada that is very complicated and problematic. And that's something that Hudson's Bay has actually in recent years made some strides or some attempts to address. So back in 2022, the company gave its flagship building in Winnipeg to a group representing more than 30 First Nations in Winnipeg as a gesture of what they called at the time

economic reconciliation. This idea that they were sort of giving back to these communities and possibly repurposing this building for purposes such as housing and other community uses. Another thing they did in 2022 was that they announced that their Hudson's Bay Point blankets, those instantly recognizable striped blankets, that the profits from all of the sales of those blankets going forward would go back to indigenous led initiatives. And so that was something that was quite symbolic,

because I mentioned their history in the fur trade. In the fur trading days those blankets, that's the origin of those blankets, the stripes on those point blankets had significance to their value for trading and they were used extensively in the fur trade at the time. So it's a very powerful symbol of Hudson's Bay's history in Canada, both good and bad. And in addition to their role in the fur trade, these blankets also had a very dark symbolism for indigenous communities. So for some indigenous people, first contact with Europeans

came in the form of Hudson's Bay traders. And that also meant contact with diseases, such as smallpox, to which they had no immunity. And so you have a group of newcomers into a territory. And very soon afterwards, you see a huge percentage of the population falling ill and dying. And so the blankets that the traders used as currency, that blanket became inextricably linked

to disease in the oral histories of some of those communities. We'll be back after this message. So Susan, when did things start to go wrong for Hudson's Bay? I mean, how much time do you have? This is a long story, and it stretches back many years. The department store is a mode of retail that is quite old and was really designed for a world before we had the number of options that we have today. There were a few factors that started to decay that model.

And this is going back a couple of decades now. There was the entry, for example, of more big box stores. And then, of course, you have the rise of e-commerce. All of these factors really conspire to make it very much more difficult to operate as a department store and make the model a little bit less attractive. But there are also things that happen that

are specific to Hudson's Bay. So you think about basically five years ago, if you want to rewind, the company used to be publicly traded. They went private under their governor and executive chairman Richard Baker. He took the company private. And at the time, we knew what their finances looked like

because they were a public company. And they had lost money for the three years prior to going private. And at the time, we knew what their finances looked like because they were a public company and they had lost money for the three years prior to going private. So we knew they were already in trouble. And then shortly after going private, what happens? It's 2020, the pandemic hits, decimates the retail industry. Coming out of that, you have a situation where many retailers across the sector find themselves with too much inventory. You remember those supply chain shocks? Well, once those got resolved, inventory came in. And also, retailers bought thinking

that there was going to be a consumer resurgence. But they found themselves with too much inventory, partly because they overbought and also partly because shortly after that inflation spikes, interest rates are raised, people start tightening their belts, they pull back on non-essential purchases, and of course, who sells more non-essential stuff than a department store? And so all of these are external factors. But as I said before, there are also internal decisions that are made at Hudson's Bay that really hurt the company.

AMT. Yeah. So what are some of those things that they were doing? Yeah. One of those things was a big e-commerce investment that they made in 2021, thinking that they were going to be able to really compete with the online giants. And they plowed a ton of resources into this. They plowed about $130 million of investment into this e-commerce expansion project. They hired more than 500 people to lead this, and it didn't result in the financial results

that they were hoping for. And meanwhile, while they are plowing all this money into e-commerce, they under-invested in their stores. And that's where you start to hear reports of broken escalators, washrooms out of service, stores being understaffed, hours being cut. And so I feel like a lot of people have this image of Hudson's Bay where, yeah, the escalator doesn't work, and you can't figure out

who to ask because no one is around. Yeah, they were not investing in their stores. And that's a big problem because while e-commerce is extremely important and there's no retailer that can get away without investing in their stores. And that's a big problem, because while e-commerce is extremely important, and there's no retailer that can get away without investing in e-commerce, it's important to say that. For Hudson's Bay, the majority of their sales still come from their physical stores.

And so it's important to have a functional e-commerce business. But they really lost sight of what is the driver of their business, which is those physical stores, that in-person service, and the experience of shopping somewhere that you actually want to visit. So it leads to kind of a bit of a downward spiral, where they had hoped that by investing in e-commerce,

they could make up for falling sales in their brick and mortar stores and falling traffic, which was already a problem. But because they then under invested in those stores, the experience got worse. People don't want to go. The traffic falls further. The sales fall further.

And then you under invest in the store, because you don't have enough money to do it. And on and on the cycle goes. And so these decisions that were made internally did absolutely contribute in addition to a very difficult retail environment that Hudson's Bay is operating within. Yeah.

In addition to all of this, Susan, I know that Hudson's Bay's corporate structure also changed dramatically during some of this, right? Can you tell me about that? There was a major corporate restructure actually just this past December. So Hudson's Bay, its parent company, used to own not just Hudson's Bay, but also Saks Fifth Avenue, another very famous department store in the United States, and its discount arm, Saks Off Fifth. And last year, HBC, which was the parent company of both Saks and Hudson's Bay, bought Neiman Marcus, another struggling department store

retailer in the United States. And as part of that deal, it was a mega deal, it was worth about $2.6 billion U.S. As part of that deal, they split the companies up. So in December, when the deal closed, they spun off the U.S. operations into a new company called Saks Global, which now owns all of those US department stores, Sax, Sax Off Fifth, Neiman Marcus, and Bergdorf Goodman. And also what the company says is about $7 billion US dollars worth of real estate. That's now all under a separate company. And Hudson's Bay is now a separate company that operates in Canada, no longer under the same corporate

umbrella as the rest of those operations. And it also has what the company says is about two billion Canadian worth of both real estate, but also the value of some leases that it holds. And so that's essentially the shape of the Canadian operations going forward. So when those two companies split apart, Hudson's Bay had some debt and those U.S. companies in order to basically sever their part of that debt, repaid a part of it, but not all of it. And so Hudson's Bay is still an indebted company. It's running low on cash. It's unable to pay people. And it eventually gets to the point we saw last

week where they hit this crisis point. Yeah. And do we have a sense then of how bad things are actually now for the company? Yeah, because of this court process, we do know a little bit more. As I say, they were private, so they were not reporting financial results for some time. But in the court documents, Hudson's Bay

disclosed that last year they had a loss of about $330 million in the retail operation. So that tells you something right there. And also that they are now carrying about $1.1 billion in secured debt obligations as of last week. And so that is a combination of mortgage debt, but also some outstanding debt for financing that was used to run the company, essentially.

And you also get a sense from some of the moves they've made that these losses have been ongoing. So Husands Bay has been cutting costs in recent years. They've slashed their marketing budgets and announced hundreds of layoffs in 2023 alone and dozens more just last year. Earlier this year, the company cut a further 41 jobs. So the cutting has been ongoing and that is obviously the company cut a further 41 jobs. So the cutting has been ongoing and that is obviously the sign of a company that is attempting to rebalance itself as it tries to regain profitability. Yeah. Okay. So that gives us a sense of over the last few years, the difficulties then

that that Hudson's Bay has been facing. I have to ask though, because when we're having this conversation, we're talking these days about terrorists from the US and the back and forth on that trade war. Has that at all affected the company's position? The company says it has. So in court documents, they disclosed that earlier this year they were in talks with potential investors for a new round of financing for the business. And according to the court documents, those talks fell apart amid the trade tensions with the US. And we have heard this, by the way, out in the industry.

This is a rough time to be trying to raise money in general. And certainly, the prospect of a trade war with our largest trading partner has not helped that climate. But it also does go back to the fact that Hudson's Bay needed additional debt in order to run their operations. That tells you a lot about the amount of trouble that they were in, that they were running out of cash to that extent. So now they are still looking for additional financing, but in a very, very tight market.

So it sounds like the future of Hudson's Bay is very uncertain at this moment. What about customers who maybe used to shop there, who have gift cards, they also used to do loyalty points? What does that mean for these customers? So, I have good news and bad news. If you're holding a Hudson's Bay gift card, for the moment, that still has value. So there is, we actually know from the court documents, there's about $24 million worth of gift cards floating out there.

So if you're one of those Canadians who holds a chunk of that in a card, those continue to be worth something in the stores. Of course, that could always change. A restructuring process involves a lot of changes. And sometimes when things like liquidation sales start, the treatment of gift cards can change. So it's as of now, those are still good to use within stores. The loyalty points, I have bad news. So they haven't been erased entirely.

But at least for the moment, Hudson's Bay has put a pause on any loyalty point redemption. So you can't go spend your points in Hudson's Bay stores if you've got them. You can't earn them. The whole loyalty program is on pause right now. And just to give you an idea again of how much that means to Canadians, there's more than 58 million dollars worth of loyalty points circulating out there in the markets of unspent points. If the company is able to come out the other end of this as a going concern, the big question will be what happens to those points.

Okay, so that's what customers have to think about. What does all this mean for vendors though, Susan? Like people who sell their products to the Bay, where are they left? Yeah, for vendors, it's not a great situation. So in any creditor protection process, there is always a lineup of people who are owed money, and some of the people who are owed money get to go to the front of the line. Often that's large financial institutions. We don't know yet what the plan for Hudson's Bay is, so we should be careful to say that. But in these processes, sometimes what can happen is that companies, as I mentioned earlier, might say, we need to wipe out a bit of this debt in a big restructuring.

And they'll come forward to the court with a plan for creditors to vote on that involves sometimes people being paid cents on the dollar, if anything at all. And that's really unfortunate for vendors, particularly because there are big fashion brands or big kitchenware brands that sell products to Hudson's Bay. But of course it's important to remember

there are also plenty of small businesses that do business with the retailer. I spoke with one business owner in Thunder Bay last week who provided an order of, they're called thermal rolls, the kind of paper that goes into credit card machines. You know, he's out $80,000, and he's been chasing Hudson's Bay for more than a year to get his invoice paid, and kept being told

that there was gonna be a payment plan in place. And then last week, come to find out that there's a creditor protection process, and he's now left in limbo, wondering how much, if any, of that money he's ever going to see. And, you know, he told me that he feels a particularly keen frustration at his predicament as any small business owner would, but also for him as an indigenous business owner. He told me that given the longstanding history that HBC has with indigenous peoples in Canada,

he just finds it ironic the idea that this is happening to him in 2025. He saw all that news back in 2022 about the economic reconciliation efforts that they had put forward and said he felt that they were sort of trying to make good and he respected the effort and was happy to do business with them. But he now feels quite slighted, understandably, that he's out this money. Before I let you go, Susan, these days we're talking about supporting Canadian businesses a lot with this trade war going on.

And as we mentioned before, the Bay is an iconic Canadian company. So what would be the impact, culturally, I guess, of Hudson's Bay shutting down? It may largely be a symbolic impact. You know, people have emotional associations with the Bay. They may. You know, just as something that's been around since they were kids. The largest impact in concrete terms

would certainly be for those 9,000-plus employees who depend on the Bay for their livelihood. And that would have a large impact. But you know, it is interesting to think about what it is that we're talking about when we're talking about the Bay continuing to exist or wanting to save the Bay. Is it the Bay in its current form?

Probably not, right? Probably the company that exists as of right now is no longer fit for purpose in the Canadian retail marketplace. It will be interesting to see what form it moves forward in. Is it smaller stores that are maybe better able to operate under a cost structure that makes sense and where they're able to invest in the kind of store experience that might actually bring people back through the doors, I think that will be the big question moving forward so that we're not having this conversation again in a couple years time as the Bay hobbles

along, fails to invest in its future, and ends up once again in a crisis. So this is a real turning point for this 355 year old Canadian company to see what the future looks like and whether it is going to work out. Susan, thank you so much for taking the time to be here. Glad to be here. That's it for today. I'm Maynika Ramad-Wilms. Our intern is Amber Ranssen. Our producers are Madeleine White, Michal Stein, and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Matt Frainer is our managing editor.

You can subscribe to The Globe and Mail at globeandmail.com slash subscribe. Thanks so much for listening, and I'll talk to you next week.