Hudson's Bay said it has failed to raise adequate financing needed to restructure its retail operations, increasing the likelihood it will close all of its 80 stores, plus another 16 outlets it operates.
Moreover, the company founded in 1670 also said it plans to start liquidating its business this week.
Hudson's Bay filed for creditor protection under Canada's Companies Creditors Arrangement Act (CCAA) on March 7. A week later, HBC informed the Ontario Superior Court of Justice that it had been unable to obtain the financial investment required to improve its situation, that "it has only secured limited debtor-in-possession financing," and that the situation "will require the full liquidation of the entire business."
A complete closure of the Hudson's Bay chain would eliminate 9,364 jobs and represent the largest retail bankruptcy in Canada since 2015, when Target closed 133 stores and eliminated 17,600 jobs after failing to gain a foothold in the Canadian retail market.
In addition to its 80 Hudson's Bay outlets, the company operates three Saks Fifth Avenue stores and 13 Saks Off 5th outlets through a licensing agreement.
Hudson's Bay CEO Liz Rodbell, however, said she still hopes to find a financial lifeline. "We must continue to pursue every possible opportunity to secure the necessary support from key landlords and other stakeholders to save The Bay," Rodbell said in a statement.
The demise of Hudson's Bay would represent a major challenge to the dozens of shopping centre owners holding leases with the firm, some at rental rates below current market values. They include Cadillac Fairview, the real estate arm of the Ontario Teacher Pension Plan, which has 14 leases with Hudson's Bay. Cadillac Fairview did not reply to an email query asking for comment.
Another of HBC's major landlords, Primaris REIT, is already making plans for the space. Toronto-based Primaris, which has 10 HBC locations totaling 1,124,000 square feet of gross leasable area, said the retailer is its 12th-largest tenant.
Primaris prepares for vacancies
The departure of HBC could create opportunities for the REIT because the retailer is paying below-market rents. Primaris said HBC has a $4.14 weighted average net rent per occupied square foot across its portfolio.
"Primaris REIT has been preparing for this day for a very, very long time, in fact, years. We have learned so much over the past 10 plus years with the departure of Zellers, Target, Sears, and now potentially HBC," President and Chief Operating Officer Patrick Sullivan said in a statement. "Although there could be an impact to our financial and operating metrics in the short term, Primaris has detailed plans for all 10 locations, and is ready to take action if and when any locations are disclaimed."
A report from TD Securities labelled HBC's chances for survival "grim" as the retailer looks to reduce its store footprint or wind up its operations sharply. The TD did say the situation "remains fluid" and that the outcome could ultimately be decided during court hearings.
"While certain property owners will feel varying impacts, we expect the impact on Canada's retail leasing market to be less noticeable versus past department store closures," the TD analysts said in their report.
The analysts also said that, in most cases, the per-square-foot rents HBC pays are a small fraction of the average retail tenant.
"This is a direct function of the strong power that large department stores had in negotiating rents decades ago (particularly in greenfield development of new malls)," the analysts said.
Meanwhile, RioCan Real Estate Investment Trust, a major landlord of properties leased by Hudson's Bay, also owns properties with the retail outlet through a joint venture and has filed a legal appeal of a judgment allowing HBC to liquidate on a rent-free basis.
RioCan has a 22% stake in a joint venture with Hudson's Bay that owns and co-owns 12 retail properties across Canada.
On Sunday, RioCan filed a motion with the Ontario Superior Court of Justice to reverse a decision to free Hudson's Bay from rent obligations during the liquidation process.
Neither RioCan nor Hudson's Bay immediately responded to an email query requesting more information.