Has Zellers Goose Finally Been Cooked?

Reports are circulating that the US real estate magnate that owns Hudson’s Bay Trading Co., is in talks with several US chains to unload its Zellers properties.

This chain has been the focus of more rumors and speculation over the past decade than any other Canadian chain.

It definitely comes as no surprise that Zellers is on the block as its 280 stores sit on some very valuable properties across Canada, making them one of the most valuable assets of HBC.

In fact, HBC has already offloaded its other truly valuable asset – its credit card operations, to Capital One. The deal closed earlier this week.

The Zellers stores are the next obvious step.

HBC has not really made a concerted effort to turn around the Zellers retail operations. The previous owner of HBC, Jerry Zucker did make some operational and esthetic changes to Zellers, but progress stopped when the company was sold to the US investment firm NRDC Equity Partners in 2006.

The reality is, Zellers has lost its ability to compete with Walmart, Loblaw, Costco and other retailers. Traffic is king in retail and you can run naked through most Zellers stores singing Christmas carols in July and get away with it.

On the other hand, HBC definitely see’s value in The Bay where they have put solid management talent and significant capital investments behind bringing this classical brand of Canadian retail back to life.

Their focus on The Bay makes sense as NRDC also owns the Lord & Taylor and Fortunoff department store chains in the US and appear to also be investing behind their future.

The situation has a lot of parallels with Walmart’s entry into Canada, through the purchase of former Woolco properties. Although Zellers has its share of undesirable properties – if 80% of the stores were suitable to a retailer like Target that would give them an automatic presence of approximately 225 stores.

Announcements could be made in the very near future. It is shaping up to be a game-changing year in Canadian retail!

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