Hudson’s Bay, a company older than Canada itself, will begin liquidating all but six of its stores Monday, bringing a story 355 years in the making close to its end.
After a fraught week of contentious court hearings in which the future of the company hung in the balance, the Ontario Superior Court approved the beleaguered retailer’s proposal to liquidate most of its business after it filed for creditor protection earlier this month.
The court also granted the company the right to “terminate or temporarily lay off any of their employees as they deem appropriate,” putting some 9,000 jobs on the chopping block.
“This is the art of the possible and we are where we are today,” Ontario Superior Court justice Peter Osborne told a Toronto courtroom Friday packed with union members, suppliers and lawyers for various stakeholders.
“In my view, there is no other alternative but to approve the liquidation effective immediately to maximize the chances of success.”
The once powerful retail empire, known for its trademark stripes, was founded in 1670 and has a controversial history as a forceful player in the fur trade.
But recently it says it has been facing “significant” economic headwinds, including a post-pandemic decline in store foot traffic and trade war tensions with the U.S.
The company had initially planned to liquidate all of its locations, which include 80 Bay stores (36 located in Ontario), three Saks Fifth Avenue stores and 13 Saks Off 5th stores. In the process, it is expected to sell off nearly half a billion dollars worth of inventory.
It now seeks to keep six stores open, but will liquidate everything from clothing and shoes to racks and fixtures at the remaining stores by June 15 and the stores will be vacant by June 30, according to court documents.
The six locations the company wants to continue running, at least temporarily, are its flagship store at Yonge and Queen streets in Toronto, the store at Yorkdale mall, one at Hillcrest Mall in Richmond Hill, as well as three Quebec locations, specifically in downtown Montreal, the Carrefour Laval mall and Pointe-Claire.
Customers will be able to use remaining gift cards in stores until April 6, but Hudson’s Bay’s loyalty points program will remain suspended. As of Feb. 1, Canadian customers had outstanding gift cards worth a total value of approximately $24 million.
Ashley Taylor, a lawyer for Hudson’s Bay, told the court the company has seen a recent unexpected spike in sales since it publicly announced that it was seeking creditor protection.
This has provided the company with sufficient funding to help pay off $16 million in debtor-in-possession (DIP) financing, a form of capital companies in distress can borrow to tide them over while they attempt to restructure. The surprising sales have also allowed the company to pay off a portion of rent it owes to RioCan-Hudson’s Bay JV — a joint venture with RioCan Real Estate Investment Trust.
Taylor said the company no longer requires additional DIP financing of $7 million it sought earlier. “Sales have exceeded the expectations of the company and monitor,” he said.
Taylor added the company is in discussions with its landlords to find any opportunities for restructuring. If opportunities are found, “the time remaining to do so is very limited,” said Taylor, adding that if a solution is not found quickly, the six stores will be added to the liquidation sale.
“We are looking to find a restructuring solution and we will continue to work hard,” he added.
The court also granted the company permission to put its leases with landlords for sale, in order to generate proceeds to help pay off its massive debt. The retailer is still clinging to a shred of hope that its intellectual property, including trademarks, along with some of its stores, will survive as it continues to seek last-minute buyers and investors.
Hudson’s Bay retains the right to remove some locations from the liquidation list if it can secure a deal.
Retail analyst Bruce Winder said it’s his view that Hudson’s Bay is keeping six of its stores temporarily open to do two things: showcase the stores for any potential buyers; and also to provide the court with some hope that creditors might be able to get some money back.
“These top six stores could be an interesting little business,” Winder said. “I see this as a tactical move to get the liquidation across the finish line and a tactical move to showcase a few crown jewels to see if they can stimulate someone to buy some of the chain.”
Andrew Hatnay, a lawyer representing some Hudson’s Bay employees and retirees, told the court that the company’s plan to pull six stores out of its liquidation list is not good enough, as most of the company’s 9,364 employees will still be terminated.
“This is not a good news day,” Hatnay said. “This is the demise of the HBC, slowly but surely.”
He added that he expects more than $100 million in severance claims and is still trying to get information on the financial standing of the pension plans. Layoffs may not happen immediately as Hudson’s Bay still needs a workforce to help with the liquidation.
Hatnay told the Star after Friday’s hearing that he believes the normal operation of the six stores to remain open temporarily will be helpful to employees in the short term, but the longevity of those stores is a “big unknown.”
“It’s a terrible day for the employees. We’re getting calls that they’re very upset and distressed about their futures,” said Hatnay, who added he had been contacted by many 20- to 30-year employees and retirees.
Justice Osborne also heard concerns from some lawyers representing landlords, including for Cadillac Fairview which leases space to a dozen Bay locations, that some materials for Friday’s hearing were sent to stakeholders less than half an hour before court began, while other records were emailed at 3 a.m.
“I think it’s very important to understand, from a process standpoint, parties received a motion record at about 20 minutes before the court hearing began,” said David Bish, a lawyer for Cadillac Fairview. “No one, myself included, has had time to explain to their clients all of the things that are going on.”
Bish added that while he had almost no time to read the new restructuring support agreement submitted by Hudson’s Bay on Friday, he will oppose the proposal, which he said means the DIP lenders are “getting all of the powers that serve the company in no way.”
The court hearing will resume Wed., March 26 to address this agreement, along with other issues raised by the landlord lawyers.
As of Jan. 1, the company had about $3 million in cash on hand, $1.13 billion in secured debt, and owed its nearly 1,900 unsecured creditors — such as brands, governments and landlords — about $520 million.
“I’m satisfied that if we’re going to maximize whatever chances there are to recover, we’ve got to do this quickly,” Osborne said.
