Hbc Financial Analysis Investment

Topics: Revenue, Hudson's Bay Company, Inventory Pages: 11 (3605 words) Published: January 27, 2013
Hudson Bay Company & Target Corp.

External size-up
The Canadian economy is expected to grow by 1.8% by the end of 2012 and the United States’ economy is expected to grow by 1.5%. With low growth prospects and stagnant consumer spending, retail sales are threatened. A strong Canadian dollar poses another potential threat to Canadian retailers, as consumers are tempted to shop across the border. In addition, the IPO market in Canada is declining, with only three issues so far in 2012, compared to 14 in 2011. The limited number of recent IPO issuances demonstrates a lack of investor confidence in the unstable economy. Industry

The Hudson’s Bay Company (HBC) and Target Corporation (Target) operate department stores in the highly competitive and fragmented North American merchandise and retail industry. In Canada, department stores account for 13.7% of retail sales as opposed to American department stores representing 8.5% of U.S. retail sales. With department store sales in the U.S. The low percentage of department store sales can be attributed to increased competition from big-box retailers, warehouse clubs and e-commerce websites. As a result, traditional department stores are being squeezed out of the broader retail industry. Thus, they must capitalize on high margin products and have goods available for online purchase to increase revenue growth. In addition, department stores are faced with the threat of volatile consumer spending, driven by the level of disposable income, brand equity, trends and seasonality. Department stores must predict fashion trends and time the release of goods according to seasonal trends to successfully attract consumers. Internal Size-Up

Target is the third largest retailer in the United States, with revenues of nearly $70 billion in 2011. Target has plans to open 125 to 135 stores in Canada by 2014, and has already purchased the leases on Zellers properties from HBC. Target emphasizes high quality and well designed merchandise at a slightly higher price point than competitors, such as Wal-Mart, and is targeted towards young, well-educated Canadian parents. It is seen as a threat to department stores, like HBC, with its product offerings that include hardlines, apparel, and home furnishings. Target has built high brand awareness and guest loyalty with its rewards program and has become the top gift card seller in the U.S..


With a new executive team appointed in 2008, HBC revised its branding strategy by putting an emphasis on company heritage and enhancing its brand offerings to appeal to high spending customers. To draw in more customers, credit cards, rewards and direct mailing programs were introduced allowing marketing analysts to track customer information and develop an optimal merchandise mix. By making consumer behaviour more predictable, this system decreases demand risk, which is considered to be low to medium.

In 2008, HBC decided to focus on their three main banners, The Hudson’s Bay Company, Lord & Taylor and Home Outfitters, and discontinued their discount segment of Field and Zellers stores. The $1832.4 million gained from the transaction acted as a key source of cash for HBC and allowed them to pay off debt and further implement the business transformation strategy.

As part of their business transformation strategy, HBC invested in refreshing store interior and exterior features to enhance shopping experience. Capital expenditures over the last three years have also included upgrades to their information technology (IT) platform, software development and ecommerce initiatives as ways of improving store operations.

Since the acquisition in 2006, an effort was made to integrate HBC, Home Outfitters and Lord & Taylor. In particular, head office functions, IT, distribution centres, marketing promotions and real estate management were streamlined in order to create cost synergies and lower expenses. Comparing Accounting...
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