Retail Sector

Kaufhof at Heart of HBC's European Expansion

kaufhof. Oliver Berg.dpa
Germany's Kaufhof chain is helping new Canadian parent company HBC conquer the Dutch market.
  • Why it matters

    Why it matters

    Canadian retailer Hudson’s Bay Company is making good on its promise to expand in Europe following the 2015 acquisition of German department store chain Galeria Kaufhof.

  • Facts

    Facts

    • Toronto-based Hudson’s Bay Company is planning 20 locations in the Netherlands.
    • HBC also plans to modernize its 100 stores in Germany.
    • Some 16 HBC stores in Belgium are already being managed from Germany under the name Galeria Inno.
  • Audio

    Audio

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When Hudson’s Bay Company took over German department store chain Galeria Kaufhof last year for €2.8 billion ($3.17 billion), the chairman of the Canadian retail group delivered a clear message.

“We want to grow,” Richard Baker said.

Some observers thought he might be either naive or a megalomaniac, considering how many of the department stores in Germany have lost sales and shut down in recent years.

But Mr. Baker is making good on his promise. Just recently he announced investing €1 billion in modernizing the current 100 German stores. And now there are plans for an expansion into the Netherlands.

“The further expansion of HBC in Europe is also absolutely critical for Kaufhof. There is the danger that HBC will spread itself out too thinly in Europe. ”

Jörg Funder, Expert, Institute for International Retail & Distribution Management

The first flagship store of the Hudson’s Bay brand will open in Amsterdam by mid-2017. Within the following two years, the company aims to develop the market there.

“We are initially planning 20 locations and will see what the possibilities are for further expansion,” Mr. Baker told Handelsblatt.

Although the Canadian parent company is launching in the Netherlands under its own brand name, the effort will be directed from the European headquarters in Cologne by the head of Kaufhof, Olivier van den Bossche. This makes Kaufhof the nucleus of HBC’s European expansion.

“This is a huge opportunity for Kaufhof,” Mr. van den Bossche said. “We are being given an enormous size advantage that will provide us with more efficiency here in Germany, as well.”

Benefits will include using the same platforms for IT, purchasing and the digital sector.

Sixteen stores in Belgium are already being managed from Germany under the name Galeria Inno. Another department store is scheduled to open in 2018 in Luxemburg.

“We can use the same suppliers in Germany and in the Benelux countries, and we can test things on the Dutch market, for example, and then introduce them in Germany,” Mr. van den Bossche said.

 

18 p16 Key Figures-01

 

HBC chairman Mr. Baker said that the Kaufhof connection will benefit the parent company.

“We are running the business in the Netherlands from out of our headquarters in Cologne, that makes for very high efficiency in the use of IT platforms and in purchasing, as well as in management,” he said.

HBC has Dutch department store chain V&D’s insolvency to thank for being able to expand so quickly in the Netherlands. Since no investor could be found for V&D’s 64 stores, HBC was able to pick and choose the best locations – without having to assume V&D’s inherited liabilities. With additional plans to invest some €300 million in modernization, some 2,500 jobs are expected to be created in the branches.

But experts are warning that V&D didn’t go bankrupt without reason. The Netherlands is a very difficult market, says retail expert Frank Quiz from Q&A Research & Consultancy in Amersfoort. The crisis, he says, hit the country hard. While sales have dropped significantly, retail space has tended to grow in recent years. This, he says, also contributed to V&D’s financial woes.

Jörg Funder of the Institute for International Retail & Distribution Management sees the expansion as a sign of strength but said it is not without risk. “The further expansion of  HBC in Europe is also absolutely critical for Kaufhof. But there is the danger that HBC will spread itself too thinly in Europe,” he told Handelsblatt.

HBC’s Mr. Baker said he is not worried about his firm’s European plan. “No, as a company with billions in sales, we have to be in a position to seize such opportunities. We are convinced that our team in Cologne is capable of doing that. We are prepared to meet this challenge – without endangering our expansion in Germany.”

 

18 p16 Department Stores in Crisis-01

 

But as a newcomer to the Netherlands, HBC also has advantages like lower rents, retail expert Mr. Quiz says.

And there are no longer any other department stores in the Netherlands. It was a good decision, he says, for HBC to run the stores under the Hudson’s Bay and Saks Off 5th brand names, which are new to Europe, rather than use the brand name Galeria Inno.

“That signals to the customers that they can expect a new concept,” Mr. Quiz said.

The Netherlands are also a good test for further growth in Europe.

“Should the expansion of Galeria Kaufhof in the Netherlands prove to be a success, it could be a starting signal for other smaller markets in Europe, such as Scandinavia,” said Joachim Stumpf of BBE Retail Consulting in Munich.

The German domestic market is characterized by large-scale retail formats such as furniture department stores and specialist stores with huge amounts of floor space.

“These structures are not to be found in most of the smaller European countries and the potential is there for the department store segment,” Mr. Stumpf said.

Kaufhof, which chalked up sales of €3.3 billion in 2014, has once again left its German competitor, Karstadt, standing in the shadows.

“That’s another tough blow for Karstadt,” retail expert Mr. Funder said. The company no longer has the option to grow outside Germany, he added. The Karstadt strategy seems to be maintaining the status quo.

“Whether that is the key to success seems to be questionable, given the continually changing markets,” Mr. Funder said.

That’s because despite all the expansion, Germany remains the critical market.

“Both Galeria Kaufhof and Karstadt must still prove here that they are really able to stop the death of department stores and the loss of market share,” retail consultant Mr. Stumpf said.

 

Florian Kolf leads a team of reporters covering the retail, consumer goods, luxury and fashion markets. To contact the author: kolf@handelsblatt.com

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