Over the past few years, things have been terrible for any stock related to brick-and-mortar retail. South of the border, Sears Holdings Corp. (NASDAQ:SHLD) has been going from bad to worse for many years now. Shares have declined to a price close to $7. The CEO has injected fresh money into the company; otherwise, the company would have shut down by now.
In Canada, Sears Canada Inc. (TSX:SCC) is now trading under $1 per share. Clearly, the writing is on the wall when a number of suppliers are cancelling contracts and refusing to sell to the retailer. It is highly likely Sears Canada will go bankrupt, leaving one fewer competitor in the space. While investors have not done very well by owning shares of competitor Hudson’s Bay Co. (TSX:HBC), there is always the potential for the tide to turn.
Although the shift from brick-and-mortar retailers to online retailers has left many in the dust already, the fact of the matter is that there are currently fewer consumers going into department stores, which is resulting in Sears Canada lowering prices and being more aggressive to sell things today. The long-term strategy of the company is sometimes put on the back burner when survival is a concern. Although this is good for consumers on a temporary basis, the shareholders of Hudson’s Bay are suffering.
With a competitor struggling to keep the lights on, it remains very difficult for Hudson’s Bay to be able to maintain adequate prices and healthy margins. Instead, customers are crossing the street to get lower prices elsewhere. The good news for shareholders is that these competitors are going out of business one after another. Once Sears Canada throws in the towel, the market will be much better balanced with only one main Canadian department store.
While there is always going to be competition from the likes of Wal-Mart and Canadian Tire, the traditional department store space will be almost empty. Hudson’s Bay will become much more valuable as an anchor tenant for malls across the country.
Hudson’s Bay is currently trading at a price around the $8.50 mark, so the 52-week low is not far away. The trading range for Hudson’s Bay shares have been between $8.44 and $18.60 over the past year. The company made the decision to close many underperforming stores over the past few weeks. Investors will need to be patient as the landscape in this industry shifts and a new norm is found. The company has cut the dividend to $0.01 per quarter, but this investment is not about dividends, nor is it for the faint of heart.
While the risk of a continued decline in revenues is still very real, the reality is that the disappearance of Sears Canada will be the best thing for shareholders of Hudson’s Bay. If that doesn’t lead the company back to profitability, there may be nothing else that can.
