HBC is to sell its Lord & Taylor Fifth Avenue flagship for $850m (CAD1.08bn)

HBC is to sell its Lord & Taylor Fifth Avenue flagship for $850m (CAD1.08bn)

Canadian retailer Hudson's Bay Company (HBC) has announced a series of strategic transactions with WeWork Companies and private equity firm Rhône Capital – including the sale of its Lord & Taylor Fifth Avenue flagship – as part of a relationship designed to maximise the productivity and value of HBC's global real estate assets.

The partnership will see Rhône Capital buy US$500m (CAD632m) of convertible shares in HBC, and partner with WeWork to form a joint venture - WeWork Property Advisors - to buy the retailer's Lord & Taylor building in New York for $850m (CAD1.08bn).

The flagship store is currently expected to continue operations in the entire building through the 2018 holiday season, while thereafter the building is intended to be converted into WeWork's New York headquarters, WeWork office space, and a redesigned Lord & Taylor store of about 150,000 sq ft.

Founded in 2010, and based in New York, WeWork provides shared workspace, community, and services for entrepreneurs, freelancers, startups and small businesses. It currently has more than 170 physical locations in over 56 cities and 18 countries around the world.

The company will also lease retail space within select HBC department stores, beginning with the upper floors of the Hudson's Bay locations on Queen Street in Toronto, Granville Street in Vancouver, and Galeria Kaufhof in Frankfurt. HBC currently anticipates minimal impact on the earnings from these locations.

According to HBC, the partnership is expected to reduce its debt burden by CAD1.6bn, while the sale of the Lord & Taylor Fifth Avenue building, which it says is "many times less productive" than its Saks Fifth Avenue flagship building, will have a minimal impact on its earnings.

HBC is currently in the midst of a transformation plan it says will make it more agile, drive its business forward, improve its all-channel business model, and re-align its expenses to focus on growing its digital business.

Designed to increase operational synergies, sharpen capabilities and reduce expenses, the initiative is expected to realise total annual savings of more than CAD350m by the end of fiscal 2018, and includes plans to reduce total headcount by about 2,000, representing around 3% of the company's more than 66,000 employees. 

Last month, HBC said its efforts are "proceeding as expected".

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In addition, the retailer adds the formation of the strategic alliance is expected to produce future real estate transactions and monetisations, consistent with HBC's strategic objectives.

"HBC and WeWork have been working together to reimagine retail environments for current and future generations," says Hudson's Bay interim-CEO Richard Baker. "This is a transformative partnership that rethinks how retailers create exciting environments and leverage less productive space, while substantially improving the value proposition.

"Immediately upon closing, these transactions are expected to significantly strengthen HBC's balance sheet, enhance our liquidity, and advance our core strategies by monetising the Lord & Taylor Fifth Avenue building and increasing the productivity of key locations, which taken together, is expected to enable us to drive ongoing value creation."

For WeWork, the relationship provides an opportunity to partner with HBC across its 61m sq ft global real estate portfolio and an opportunity to attract new members through desirable locations associated with premium retail.

As part of the deal, the companies intend to implement a reciprocal benefits programme to enhance their respective product offerings. The programme is expected to allow the rapidly growing global membership of WeWork to participate in exclusive HBC sales online and in store, while HBC customers will be granted access to WeWork's We Membership platform.

Baker adds: "Our partnership with the WeWork team creates new opportunities for HBC to redefine the traditional department store by extending those communities and drive additional traffic to our stores, particularly as we add co-working and community space to existing, vibrant retail locations."

Yesterday, HBC announced Jerry Storch is to step down from the role of CEO in order to return to his advisory firm, Storch Advisors, with Baker taking the helm in the interim.

Storch to step down as Hudson's Bay CEO