Hudson’s Bay taking risk with German stores, analysts say

Shopping in Germany could leave Hudson’s Bay Co. with a handful of new challenges if it emerges the winning bidder for department store operator Kaufhof.

The Canadian retailer is reportedly planning to make a binding offer for the Kaufhof chain in hopes of expanding into a new market and scooping up the valuable properties that come with it.

But the move could also leave the iconic Canadian company taking a big risk as an outsider in a foreign land.

“There’s a considerable amount of due diligence that needs to be done to understand a new country,” said Sandy Silva, NPD Group’s fashion industry analyst.

It wouldn’t be the first time a retailer strolled into the tough German market with big hopes and was instead dealt a rude awakening.

Walmart left in 2006 after a colossal failure to understand local customs that stretched from its break rooms to the cash registers. Others like England’s Marks & Spencer and Castorama, the French home improvement retailer, also retreated.

Hudson’s Bay is said to be bidding for Kaufhof against Austrian real estate company Signa, owner of fellow German department store chain Karstadt, with unofficial offers pegged at around $3.5 billion.

If Hudson’s Bay wins, the company would hold a valuable slate of real estate, with 120 Kaufhof stores across Germany and another 16 in Belgium.

In Germany, one of the most valuable spaces would be Kaufhof’s flagship store at the heart of the Alexanderplatz public square in Berlin. The area is flooded with tourists and is one of the country’s busiest department stores.

But Hudson’s Bay would still be tasked with operating in a mature consumer market where the department store model is fading, said Thomas Roeb, an economics professor at Bonn-Rhein- Sieg University.

“Kaufhof is a high-risk investment for any prospective buyer,” he said in a statement. “History tells us it is particularly difficult for foreign companies that have struggled to understand the German consumer.”

When it comes to sales, Hudson’s Bay stands apart from Walmart and CEO Gerry Storch says he wouldn’t make presumptions before entering a new country.

While Storch declined to say whether Hudson’s Bay was in talks with Kaufhof, he called international markets a “huge opportunity” if certain standards are upheld.

“One of the rules that I always go by is that your team must be local,” he said in a recent interview.