Case Analysis of Hudson Bay Company: Restructuring in a Retail Decline
“Hudson Bay Company” (HBC) began in 1670 as a Canadian retailer targeting trading posts; this was before the 20th century where it shifted and became a department store. With an aggressive acquisition strategy, HBC grew its market share as it continued to acquire other businesses within Canada, leading to an expansion in the number of its departmental stores. In 2000, another great move by the company was initiated in terms of e-commerce, making HBC compete on the online market with US great brand names such as Amazon. However, the competition and acquisitions were not significant problems for the company; when it began its losses, a threat was conceived. As an external consultant, HBC’s major problem is its investor in land and building management (LBIM) as an activist for real estate sales increase and a hindrance to the company’s growth.
According to Kramer and Porter (2011), it was making money, and social progress is not mutually exclusive dimensions of a company. There is a simultaneous commitment to community progression and economic success based on their shared value understanding (Porter & Kramer, 2011). For HBC, therefore, shared value is understood on three dimensions starting with products and services problems. From its inception to 2015, the company has been acquiring various businesses and then selling these acquisitions except for Europe’s Galleria. The purchases ranged from trade items, Olympic items, wholesale products, mattresses, and catalog stores, among others, which form the genesis of its major problem and that are LBIM. Dealing with real estate, yet HBC is not investing or instead acquiring products and services in the sector, increases the investor’s pressure on the company.
It is, for this reason, those other secondary problems such as complexities in including a change to the management of the company and CEOs among other top leaders leaving the company to arise. The underlying assumption in this problem is that LBIM holds a significant share in the company, but its investment is not realized. Since the brand was launched, it captured the Canadian market share giving it a competitive advantage until acquisition and reselling became its core activity leading to losses (Leetaru, 2019). Since the business’s real estate service is not growing and expanding as the business expands, the other products are also suffering as LBIM shifts the company leadership focus on profits rather than sustainable economic progress and community well-being. Moreover, its ability to recover from an economic downturn is no longer a pride for the company. Its major investor is creating a lot of high-profile internal battle with the company.
Anand and Barsoux (2017) state that addressing problems through the company’s operations would have been the viable shared value way of solving its LBIM problem; however, resources have been diversified into a lot of other businesses that have been sold off with limited return on investment. The above has made decision-making difficult at the company; that is why losses continue to be incurred as the company’s future direction is not yet defined. The underlying assumption was for HBC to steer the company towards external investment whereby the Austrian firm offered to invest. It is important to note that before investing in the non-binding agreement with HBC, the share percentage of the company went up by 9%. This is a clear indication that other players want HBC’s largest share to belong to another investor rather than LBIM. Moreover, since the company’s direction is not yet defined due to the high profile battle with LBIM over real estate monetization, CEOs will still leave the company.
The basic premise in this assumption is based on the fact that CEOs have a vision and mission to achieve as set out in company goals and objectives while accruing profits for shareholders and employee satisfaction. Without the goals and objectives, no CEO will continue in a company with no direction, which is another complexity of change (Groysberg et al., 2018). While already engaged in innovative e-commerce shared value, capitalizing on the platform for its products and services while addressing the LBIM investor pressure issue could help increase profits, leading to a reduction in negative pressure from the investors. Activists are change-driven, and with all the acquisitions and sales that HBC has made over the years, it is only evident that HBC change is about more engagement in real estate. This will boost investor profits and establish their primary goal of acquiring land and buildings as part of the investment objective.
Investing outside its operations has been regarded as a way to solve HBC’s problems since it would connect the company to growth and productivity. The technique and means of these acquisitions have been the problem because they were made in a rush and not thought through entirely, or the operations could not sustain the business. HBC management also indicates that its last acquisition of Lord and Taylor will be run by different leaders, one for HBC and another for Taylor division. Though a smart move, it would be essential to delineate where the investment of LBIM extends to. A vision for change must be sustainable for the business and the community so that shared value can be achieved. This is particularly important in overcoming the HBC market failure and the recent CA $201 million loss in 2017. When a business model makes products and services affordable with high quality, it grows to overcome market failures.
There is an issue of transparency and communication from HBC to shareholders and competition bureau, which indicates that the business model does not consider the ethical dimension of shared value. Leetaru (2019) finds that this issue has to deal with company productivity when there are affordability and improvement of the social and environmental deficits to create economic costs, especially in the market. This means that HBC has to think differently about its markets, customers, and products. For instance, one of the competition bureau concerns was a lack of data to normalize prices for HBC products, which will help determine if they are within the market range or over the market range. Since the assumption here is to seek behavior change through interaction and collaboration, the shared value provides a need for weaknesses to be overcome so that market failure can be overcome. Since taking the company private is a viable solution under consideration, the problem remains with the most significant investor LBIM and their impact on company progress.
The primary solution for this HBC problem is changing or instead of finding a new significant investor even if it means taking up the Austrian firm offer. The underlying assumption behind this proposed solution is that HBC can dissolve the agreement when it wants because the contract is “incomplete, unsolicited and non-binding” from Signa Holdings. Other than providing a considerable investment in the company for a larger share of the company, it also serves as a solution for the escalating problem that the company has with LBIM, which has been urging HBC to tap into real estate, especially with the 2017 losses. Moreover, getting Signa on board will increase the dwindling shares prices of the company that have reached $0.0125. With public disagreement about Galleria, taking on Signa’s offer will cool the company’s pressure as it takes a step back to focus on the whole change process and determine the company’s future without undue influence from LBIM.
Secondly, HBC can consider taking the company private a feasible solution that will secure the company’s loyal consumer and shareholder base. In this solution, the assumption is that HBC will capitalize on its rich Canadian heritage as the communication direction. Reminding the people that the company is deeply embedded in Canadian culture, and losing it is not an option. Moreover, it communicates the company’s ethical stand to the community, increasing their consumer base and market share in the process, which is a crucial aspect in dealing with investors (Groysberg et al., 2018). Privatizing the company will mean less tension from investors as they may decide on what they want with the company, but the owner will make the final decision on what is implemented. Consequently, getting a CEO to join this type of company would not be a problem since the owner will be dealing directly with the CEO making their work not necessarily easier but doable after a long time of struggle.
Thirdly, focusing on the products and services of the company more than acquisitions can help the company. They were acquiring businesses without really aligning the new business operations with the parent business operation to increase investors’ trouble because their profits are interfered with if a particular brand does not sell (Anand & Barsoux, 2017). The product and service sell the brand, while acquisitions expand the brand through the sales might not be reflected in the whole process. In this end, HBC can consider reinventing its products and services as they reinvent the business itself, thus offering consumers more for their money’s worth in terms of quality. With this in place, a tradeoff of price can be achieved whereby consumers focus more on the value than the price, and this is how willingness to pay premium prices for products and services is established.
Recommendation for HBC, therefore, is to find a possible investor or instead take on Signa’s offer making them the principal investor in the business. This will reduce the tension with LBIM and other shareholders in the company. It will increase the shares of the market, which was already evidenced after its offer before engagement. Replacing LBIM with an investor not overly concerned with real estate will allow the other acquisitions to thrive as resources will be accordingly distributed for profitability and sustainability purposes. Moreover, undue pressure to invest in real estate and buildings will not be a primary concern for the company. Rather, it will reinvent its image as a Canadian retailer of choice with rich heritage being exploited for the benefit of the people of Canada and the broader retailer market. Investment of Signa will help in dealing with the cost-cutting that the company has been engaged in while addressing its overextending concern. The e-commerce portfolio that has been struggling can also be aided with this change in the company’s primary investor, which might go a long way in helping the European Galleria acquisition uplift the company’s global face.
References
Anand, N. & Barsoux, JL. (2017). What Everyone Gets Wrong About Change Management. Harvard Business Review, 95(6):78-85.
Groysberg, B., Lee, J., Price, J. & Cheng, J.Y. (2018). The Leader’s Guide to Corporate Culture. Harvard Business Review, 96(1):44-52.
Leetaru, L. (2019). The Wrong Ways to Strengthen Culture. Harvard Business Review, 97(4):21- 24.
Porter, M.E. & Kramer, M.R.(2011). Creating Shared Value. How to reinvent capitalism—and unleash a wave of innovation and growth. Harvard Business Review, 89(1-2):62-77.
Appendix: Shared Value