Buy Now, Pay Later: The Real Estate Trap in Retailers Like Hudson’s Bay

Earlier this month, Hudson’s Bay Company (“The Bay”) filed for creditor protection. It’s a sad moment for many, especially for those who remember when it was one of Canada’s last remaining retail giants.

After Eaton’s closed its doors in 1999, The Bay stood alone as the flagship domestic department store for Canadian shoppers. In 2006, it was bought by American investors and went public in 2012, but its long history began way back in 1670 — predating Confederation by almost two centuries. Through every boom and bust, The Bay was a fixture in the retail landscape.

But times have changed. An Ontario court recently approved The Bay’s plan to close all but six of its locations due to reduced consumer spending, global trade tensions, and a post-pandemic slump in store traffic. Between March 24 and June 15, 80 Hudson’s Bay locations, three Saks Fifth Avenue stores, and 13 Saks Off 5th outlets will shut their doors.

Unfortunately, The Bay’s struggles are part of a broader trend. Over the last decade, several U.S. department stores, including Nordstrom (2014-2023), Sears Canada (1953-2018), and Target (2013-2015), have also shut down on this side of the border.

Retail investors often tout the value of a company’s real estate as a reason to buy the stock. But trust me, this strategy rarely pans out.

A decade ago, I too fell for the allure of The Bay. I bought shares, drawn in by the belief that the value of its real estate alone was worth double or even triple the stock price. I even heard their jingle in the back of my head as I looked at the inexpensive stock price and sent my order in: “Yes, that’s all it costs when you shop at The Bay!”

The value in The Bay’s real estate never materialized, and I ended up selling for a loss years later. In March 2020, The Bay was privatized for just C$11 per share — a far cry from the $30-per-share that the real estate was said to be worth.

The Bay’s shareholders are not alone in this experience. Macy’s, for example, is believed to own real estate worth US$5-9 billion, yet its market cap is just US$3.7 billion. Macy’s investors have suffered just like those of The Bay. Today, Macy’s share price is at the same level it was in 1995.

When it comes to retail, don’t get distracted by the real estate hype. The heart of any retailer’s value lies in its core business — selling products to consumers. Real estate is only worth what someone is willing to pay for it.

After all, it’s not the buildings that will make or break a retailer — it’s whether customers keep coming through the door.

–written by Jeff Pollock