Deal turns part of HBC stores into workspace
A day after an activist investor lodged his latest grievance against veteran retailer Hudson’s Bay Co., the retail company countered Tuesday with a blockbuster real estate deal that will cut debt and increase cash by $1.6 billion through a joint venture deal and the sale of its Lord & Taylor flagship in New York.
The deal with Rhone Capital LLC and New York-based WeWork Cos. will see floors of HBC’s key department stores in New York, Toronto, Vancouver and Germany converted into WeWork’s shared office workspaces for entrepreneurs, freelancers and small businesses.
The iconic Lord & Taylor building on Fifth Avenue in Manhattan will serve as global headquarters for the office space startup, and the existing Lord & Taylor will shrink to about a quarter of its size within the 660,000-square-foot building, leasing back 150,000 square feet on its lower floors.
“Retail space is very valuable on the ground floor, one floor down and one floor up — and it becomes less valuable as you head up from there,” said Ian Putnam, chief corporate development officer at HBC.
The deal, coming at a time of profound struggle for traditional department stores, will see Rhone Capital LLC buy $632 million worth of convertible shares in HBC, the owner of Saks, Gilt.com and Hudson’s Bay department stores.
Rhone and WeWork have also teamed up to buy the Lord & Taylor building on Fifth Avenue for $1.08 billion.
“With this transaction we are shrinking the square footage and making the upper floors much more productive,” Putnam said. “And from our perspective, the interaction between the WeWork space, the store and the food and beverage offering will be very exciting and attract a new, younger millennial customer into the department store.”
While Putnam did not elaborate on the current productivity of those sales floors, he said HBC believes any sales impact will be offset by increased traffic.
“If you go to a WeWork it really is a way to shop and live and work in one environment. There are a lot of young, talented people who are interacting — it’s very communal.”