BUSINESS

Hudson's Bay says Ottawa and Quebec aren't major markets for luxury retail

09/12/2014 08:04 EDT | Updated 11/12/2014 05:59 EST
TORONTO - Hudson's Bay says it still sees most of its future growth coming from the high-end retail market even as one of its major competitors, Holt Renfrew, recently announced it was shuttering its stores in two Canadian cities.

Hudson's Bay, which also owns Home Outfitters and Lord & Taylor, is in the midst of preparations to bring the first two Saks Fifth Avenue stores to Canada in the spring of 2016. It also plans on opening the first Canadian store in the Saks' discount chain, Saks Fith Avenue Off 5th, around the same time.

CEO Richard Baker shrugged off news that Holt Renfrew has decided to close its stores in Ottawa and Quebec City in January 2015, adding that he doesn't see it as an indication of a shrinking appetite for luxury retail in the country.

"What happens in Toronto has nothing to do with Ottawa," he said in an interview Friday, following the company's latest earnings release.

"We don't plan on going to Ottawa, or Quebec City, because we don't consider those to be major luxury markets. But we certainly believe that a spectacular city like Toronto can more than handle two luxury department stores."

Baker said Hudson's Bay sees Holt Renfrew as a direct competitor to Saks Fifth Avenue, but doesn't see the upcoming arrival of U.S. retailer Nordstrom as much of a threat.

"We don't consider Nordstrom a luxury retailer, we consider Nordstrom a mid-tier retailer," he said. "We think that Saks and Holt will sit above Nordstrom."

Seattle-based Nordstrom Inc. is set to open its first store in the former Sears location at the Toronto Eaton Centre by the fall of 2016.

HBC said it will eventually bring a total of seven Saks Fifth Avenue stores and as many as 25 Saks Off 5th stores to Canada.

"I just believe that major Canadian cities have been underserved with luxury retail compared to peer cities throughout the United States and throughout the world," said Baker. "It's more typical in major markets throughout the world to have more than one or two luxury purveyors and in any given metro market."

The retailer said its sales jumped almost 87 per cent during its second quarter, helped largely by its acquisition of Saks in 2013 for $2.9 billion.

It reported that it cut its loss by nearly half to $36 million in the period, boosted by strong sales from Saks. That loss of amounted to 23 cents per diluted share from continuing operations, compared with a loss of $66 million or 55 cents per diluted share in the same quarter last year.

Retail sales were $1.76 billion, an increase of $821 million, or 86.6 per cent, from $948 million for the previous year, primarily due to Saks.

Sales growth at Saks Fifth Avenue was led by menswear, gifts and accessories, while Saks Off 5th stores saw strong sales across the majority of its product categories.

Consolidated same-store sales, which refers to stores open for at least a year and a key metric in the retail industry, increased by 1.9 per cent on a local currency basis. Same-store sales at Hudson's Bay and Lord & Taylor grew by 1.1 per cent; Saks Fifth Avenue grew by 2.2 per cent and Saks Off 5th grew by 1.49 per cent.

Online sales, an area where Hudson's Bay has been concentrating efforts, were $162 million, including $116 million from Saks.

The retailer has been working to integrate its Home Outfitters business with the home business of its department store banner. The move has been touted as a way to drive efficiency and bring down costs.

Hudson's Bay has 90 locations, one outlet store and thebay.com. Lord & Taylor operates 49 full-line locations primarily in the northeastern and mid-Atlantic U.S., four Lord & Taylor outlet locations and lordandtaylor.com.

Saks Fifth Avenue has 39 U.S. stores, five international licensed stores and saks.com. Saks Off 5th sells value-priced merchandise through 78 U.S. stores and saksoff5th.com. Home Outfitters is Canada's largest kitchen, bed and bath specialty superstore with 69 locations.

HBC shook off early losses and closed up 20 cents at $17.87 Friday on the Toronto Stock Exchange.

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