How Hudson’s Bay — and Canada — Is Not Immune to the U.S. Late-Cycle Retail Market

Stephanie Hughes
6 min readJul 17, 2019
As the secular market is turning, the U.S. is locked in a “retailapocalpyse”. However, the Great North isn’t immune to these same late-cycle dynamics, as the Hudson’s Bay Company signalled this year. (Source: Can Pac Swire)

The Hudson’s Bay Company (HBC) closures represent a contraction in its business plan after the company underwent an overly optimistic expansionary phase. Late-cycle market dynamics have challenged sales revenues for retailers like Home Outfitters and Saks OFF 5TH. While the proverbial “retail apocalypse” is largely focused on the United States due to the country’s over-retailed commercial real estate market, Canada is not immune to the effects of declining retail sales, the prominence of e-commerce and too-optimistic business expansions that put retailers in debt and eat away at revenues.

The largest retailer to file for bankruptcy in the United States was Sears, which filed for Chapter 11 bankruptcy protection in October 2018 due to a combination of excessive debt loads, brick-and-mortar retail mismanagement and an inability to compete with online retail. Such trends have caused other companies like HBC to scale back their retail footprint and shutter stores that present a liability.

Since the beginning of 2015, HBC has been hit by the retail slump harder than competitors such as Macy’s, Nordstrom and Kohl’s, according to stock performance analysis by the Financial Post. When the problem was initially identified in 2018, the strategy was to turn around sales declines in the company’s Lord & Taylor brand and close several locations (most notably, the iconic Fifth Avenue flagship location, which was sold to coworking giant WeWork as flexible workspace real estate). Now, in 2019, Saks OFF 5TH and Home Outfitters are in the company’s crosshairs. According to a recent announcement by HBC, the widespread closures of the two chains is “part of the company’s strategic plan to reduce costs, simplify the business and improve overall profitability.” There are some winners in the HBC family, such as Saks Fifth Avenue, which enjoyed positive comparable sales growth, followed by a sales increase of 2.4% in Q1 2019 and a two-year stacked comparable sales increase of 8.4%, according to company reports.

Another challenge to HBC-occupied brick-and-mortar retail assets in the commercial mortgage-backed securities (CMBS) universe is e-commerce, whether it comes from competition from other stores operating online or whether HBC’s online presence draws sales away from its own physical department stores. E-commerce has caused revenue per square foot (psf ) across the luxury retail market to flatten considerably. Improving profitability for the entire parent company is key, considering that the latest full-year adjusted EBITDA posted a significant decline and remained in a loss position through the first nine months of F2018. Whether this means that HBC will invest more into an online presence like JCPenney, Macy’s, Nordstrom and other comparable department stores or whether it will divert customers from underperforming locations that present a real estate liability to stronger locations that generate higher sales psf remains to be seen. More recently, HBC reported a 3.3% sales decrease in Q1 2019, as well as tumbling sales at Lord & Taylor, likely affecting how the company will treat its other commercial assets going forward. Below are descriptions of how these revenue drops and market dynamics have so far affected HBC’s stores.

Lord & Taylor Impact

Lord & Taylor’s declining sales, reflected in the HBC Q1 2019 results released mid-June, has prompted the company to begin pursuing “strategic alternatives” for the department-store chain. There are rumors that HBC is considering either selling the company, merging the company or setting up a joint venture. As far as real estate goes, the impact on the CMBS market is expected to be very minimal. There are no Lord & Taylor locations in Canada, though there are 45 stores in the United States as of May 4, 2019, according to HBC’s financial reports. The DBRS Viewpoint platform currently reports on 39 separate properties. Among the locations that reported physical occupancy and tenant percent of total net rentable area (NRA), (The net rentable area comprises the entire space that the commercial property operates. Each tenant takes on a segment of the total NRA as a percentage. These figures present the average segment size of tenants and average occupied percentages) Lord & Taylor stores took up an average of 14.2% of the NRA on the average 98.8% occupancy of the total NRA. This physical commercial real estate footprint is small compared with other department stores largely due to the fact that Lord & Taylor is anchored in malls and shopping complexes. However, the financial impact on the broader CMBS universe may be somewhat more significant.

Home Outfitters Impact

HBC’s February 2019 press release states that the Home Outfitters closures are “expected to be slightly favorable to Adjusted EBITDA.” The entire Home Outfitters chain of 37 stores is anticipated to get the axe. The brand has struggled to maintain profit margins and foot traffic, meaning that the cost of maintaining and operating these retail spaces is not worth the declining income it has generated. Of its locations across Canada, two Home Outfitters stores are secured in ongoing CMBS transactions, as shown in DBRS Viewpoint (refer to the Appendix for a complete list). These properties have an average occupancy of 97.0%, of which 12.9% is taken up by Home Outfitters, which average, in turn, 509,108 square feet.

Home Outfitters often occupies retail spaces at power centers (large outdoor retail complexes with a handful of big-box department stores). Home Outfitters is vacating two properties in current CMBS transactions: Lime Ridge Mall in Hamilton, Ontario, and Skyline Thunder Centre in Thunder Bay, Ontario. Surveillance commentary is somewhat favorable for Lime Ridge Mall, stating that despite the prevalence of e-commerce, this location still has strong tenant productivity with sales improving by 9.5% to $763 psf as of YE2017 from $697 psf as of YE2016 (latest information available). With the vacancy of Home Outfitters, which takes up 6.9% of the NRA, the landlord can explore some redevelopment options. For Skyline Thunder Centre, the departure of Home Outfitters, which occupies 18.8% of the total NRA, may present concerns by 2021 when seven tenants, representing 43.1% of the NRA, have lease expirations. While the chain’s closures may affect some properties more than others, overall the small retail footprint that Home Outfitters holds presents limited risk to retail real estate in Canada.

Saks OFF 5TH Impact

In February 2019, HBC also announced that it would be performing a “fleet review” of its Saks OFF 5TH locations, aiming to close 20 of its 133 stores (approximately 15.0% of the portfolio). While HBC subsidiaries like Lord & Taylor largely struggled to keep sales up, Saks OFF 5TH has largely been able to weather the effects of e-commerce, which has chipped away at brick-and-mortar revenues across North America.

CMBS exposure for Saks OFF 5TH is relatively small, with four different property listings holding an average tenant occupancy segment of 4.9% over a property-wide average of 95.8% of the NRA. In Twin Cities Premium Outlets, Saks OFF 5TH experienced sales declines of 9.2% from its prior trailing-12-month sales of USD 194.81 psf in 2018. These Saks OFF 5TH stores are usually located in outlet and strip malls and do not have an unanchored, stand-alone store.


The Canadian retail market is facing significant challenges caused by U.S. late-cycle market dynamics cutting into what can now be characterized as retailers’ over-expansion. As reported by BNN Bloomberg in early July 2019, HBC is exploring the strategy of closing down some namesake department stores in Canada to scale back real estate liabilities, stating that there are “no sacred cows” when it comes to choosing locations. Such a strategy shows that department-store retailers in Canada are not immune to the same challenges that U.S. retail companies are confronted with, and many retailers will be faced with difficult decisions with how to (re)structure its real estate footprint. As the late cycle in the market rolls by, retail giants are certainly not immune when it comes to department-store retail companies on either side of the border.

You can download a copy of this commentary from or by requesting it from Follow DBRS on Twitter @DBRSRatings and follow Stephanie Hughes @StephHughes95 or @StephHughesDBRS.



Stephanie Hughes

Freelance financial journalist and research writer, covering market trends, company news and industry disruptors. Follow me on Twitter: @StephHughes95