Why Hudson’s Bay Company Needs to Evolve to See Strong Growth

Over the past few years, advances in technology and the proliferation of mobile-first commerce have steadily taken over nearly every aspect of the retail sector. While there are some holdout segments of the economy that still have a sizable bricks-and-mortar approach to operations, times are changing.

One retailer that continues to grasp with that change is Hudson’s Bay Co. (TSX:HBC). North America’s oldest retailer has struggled over the years to cope with the declining sales and traffic that are a direct result of changing consumer tastes that favour mobile shopping. Several prominent retailers have tried and failed to adapt to this very different operating environment.

Sears Canada and Toys “R” Us are the latest examples of well-known legacy retailers that ultimately closed their doors because they could not innovate quickly enough to offset the growing threat from online retailers.

Will HBC be the next retail casualty?

Retail is a very different affair than it was just 10 years ago, but HBC still has plenty of potential, incredibly enough. The company did a great job of winding down the unsuccessful Zellers’ brand and then performed the ultimate flip in passing many those distressed leases over to the now defunct Target Canada before venturing south of the border for the additional acquisitions of, Saks Fifth Avenue, and Lord & Taylor.

Those three brands represent HBC’s strategy to grow in the U.S. market with both a premium retailer brand as well as a mobile distribution channel that can become the catalyst that HBC needs.

The only problem is that some critics see that vision not coming true soon enough to counter the growing threat from online retailers.

HBC should turn to Canada’s best retailer

What HBC needs is a fundamental change in how it perceives itself – something that you can’t buy yourself out of, and something that is more akin to repositioning the business to the changing needs of retail today.

Another legacy retailer did just that several years and has since become the envy of the retail market in Canada.

Canadian Tire Corporation Ltd. (TSX:CTC.A) experienced many of the same issues that HBC faces today. A wounded brand, declining sales and traffic numbers, and a less than optimized mobile strategy.

What Canadian Tire did was embrace technology and the changes happening in the market, rather than remain oblivious to them. Mobile-first commerce is not a fad. Consumers looking for the best price on a product will shop around – on their device.

To combat this, Canadian Tire pushed technology directly into the sales process in ways that assisted the buying process, rather than being afterthoughts. Customers could try out new tires in a driving simulator to see how they handle different weather conditions before purchasing them. Customers could also see how a new patio set looks in their backyard with the help of a VR headset.

And perhaps most important, Canadian Tire revamped its website e-commerce strategy, leading to it become one of the best retailers in Canada.

Is HBC a good investment?

HBC has all the makings of a work-in-progress stock. The “transformation plan” that the company announced, which cited the goal of generating $350 million in annual savings, is just one step in a very large puzzle that HBC needs to complete in order to see improvement.

That’s not to say that there hasn’t been any improvement, however. Both Hudson’s Bay and Saks posted same-store growth improvements in the most recent quarter, including a 30th consecutive quarter for Hudson’s Bay.

In short, improvements are being made, but they may not be happening quickly enough for most investors.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.


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