Can Hudson’s Bay Rise From Zellers’ Ashes?

By Doug Stephens

In many ways, this week’s acquisition of Canada’s long-floundering Zellers chain is symbolic of the conditions that so many North American retailers face.  Once the default down-market destination for Canadian shoppers, Zellers found itself backed into the middle when Wal-Mart arrived in Canada in 1994.  Losing any distinct or own-able position in the mind of the consumer, the chain was relegated to matching competitor prices in a desperate attempt to retain share.

Rather than innovating in the areas of store design or customer experience, Zellers attempted luke- warm iterations of Target-esque merchandising concepts while fluffing up its marketing somewhat.  None of this, however, really resonated with consumers in a meaningful or sustainable way. Like so many retailers over the last two decades, this failure to act boldly on significant shifts in economics and consumer behavior proved fatal and Zellers simply never recovered.

Struggles at Hudson’s Bay Company

Meanwhile, the Hudson’s Bay Company, Zellers venerable parent, had its own set of problems.  Canada’s longest standing retail entity was saddled with outdated stores, mediocre product, onerous infrastructure and an aging customer base.  The Bay had also been struggling since the mid-90’s to find its rightful place in the market. Vacillating between the promise of an upscale shopping experience and blow out sales, the chain slowly marginalized itself with its core 30-55 year old customers while having little to no relevance to younger consumer segments.  Meanwhile, the Canadian retail market increasingly polarized between luxury purveyors and everyday-low-price leaders, book-ended by upscale retailer Holt Renfrew at one end and discount giant Wal-Mart at the other.  The Bay was neither and after years of lacklustre performance, it was eventually acquired in 2008 by American entity and Lord & Taylor owner, NRDC Equity Partners.

Since then, Hudson’s Bay has trying to reposition itself and escape the mid-tier with overtures of designer goods and an upscale consumer experience. While this is sensible from a strategic standpoint, little of it has really materialized on the retail salesfloor.  Now, however, with the promise of a $1.8B  capital injection that the Zellers sale will bring, the Bay plans to renovate its stores and complete its market strategy shift.

Can You Renovate DNA?

What remains to be seen is whether the Bay can reverse decades of brand and cultural decay with a simple chain makeover.  Can the mind-set of a business, which for so long has been schizophrenic with respect to positioning and value, be renovated so to speak to become a credible up-market destination? Can the genetic code of a retailer be altered by replacing fixtures and finishes?  It’s hard to say, especially when the economy is entering a more conservative growth phase. Not to mention that they will soon have Target stores to contend with.

What is certain is that we live in a world of absolute value and it’s now up to the Bay to shed its non-committal positioning and not only declare what the brand stands for but also to bring the proposition to life.  If they’re to succeed, they will have to carve out a distinct space in the mind of the Canadian shopper and rapidly bridge the generation gap with younger consumers.  Rather than focus their offering on anyone who will listen, they need to make bold decisions about who their customer is and more importantly, who it is not. Their stores have to be elevated and include trademark experiences that are own-able and distinct.  In essence, The Bay must become known for something…anything, or it, like Zellers will simply die of irrelevance.