Saks Parent HBC Raises $340M Through ‘Real Estate Monetizations’
HBC has used its property savvy to secure another $340 million in cash that can be used to bolster its retail operations — and chief executive officer Richard Baker is also using the sale as an opportunity to underscore his company’s real estate backbone.
“HBC is a holding company,” Baker told WWD in what turned into a Sunday explainer on his business empire. “Our largest business is our real estate business. Everyone seems to have forgotten that I was a real estate guy, still am, and that HBC is primarily a real estate company. We own $7 billion worth of real estate.
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“We regularly monetize, on a pre-organized campaign, our real estate assets,” he said. “We have a large team that works on approvals and leasing and selling and what have you.”
The company owns or controls — outright or with joint venture partners — roughly 42 million square feet of gross leasable area in North America.
“We’re a rich company that owns a real estate company that uses the cash flow that comes out of the real estate in order to nourish and grow our businesses,” Baker said, noting HBC has been investing in its digital luxury business.
“Saks.com is going to be the most important, biggest, strongest luxury digital retailer in the whole world,” Baker claimed. “As everyone else ran out of money and fell into the ground, saks.com picked up the business because we invested in our business.”
The new money coming into HBC now came from sales over the last week of real estate in Canada and the U.S., although Baker said the contracts included agreements that prevented him from identifying the specific properties.
HBC sells $300 million to $500 million in real estate each year, raising money that strengthens its balance sheet, but does not count toward its earnings before interest, taxes, depreciation and amortization.
“We do that year in, year out — that’s what HBC is,” Baker said.
That offers a lot of cushion for the firm’s operating divisions, which include the Saks Fifth Avenue, Saks Off 5th and Hudson’s Bay brick-and-mortar businesses. Separately, HBC is also majority owner of those brands’ e-commerce businesses.
And while HBC has its real estate portfolio, the retail businesses are much more subject to the back and forth of the consumer.
“We have been very good predictors of the economy, right through the pandemic and we made a specific decision at the beginning of our fiscal 2023 year that this was going to be a slow year,” Baker said.
That certainly turned out to be true, with retailers across the spectrum reporting weakness as consumers digest all the moving parts in the economy, from higher interest rates to still-significant inflation.
“We proactively lowered our inventory, which means we ordered less,” he said. The company has also cut some brands.
That has reverberated through the market with smaller vendors griping about Saks, although the businesses of larger vendors are said to have continued uninterrupted.
There have also been other rumblings that have dogged the business in the generally shaky retail environment.
The Instagram account Estée Laundry posted last week that Estée Lauder Cos. Inc. has issued a directive that Saks is on credit hold for all Lauder brands, which include Tom Ford Beauty, Jo Malone, Bobbi Brown, MAC, La Mer and more. Some sources backed that up, while others said there was a passing credit dispute and that the beauty giant is still shipping Saks as usual.
There was plenty of Lauder product available on saks.com over the weekend. And it’s common for rumors to circulate or for vendors to gripe when times are tough.
Baker clearly sees himself as floating above the fray, with his retail businesses backed by his company’s real estate holdings and big plans ahead, particularly for saks.com.
Those plans could get even bigger. Although Baker declined to comment on it in the interview, he has been said to be once again courting Saks’ longtime rival Neiman Marcus, although it is still unclear if the retail stars align for a luxury retail takeover.
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