'You can't take nostalgia to the bank': The challenge with the Zellers reboot

·4 min read
HBC has opened a Zellers-themed pop-up store in one of its Hudson's Bay locations.
The Zellers brand will be relaunched by HBC early next year. (Yahoo Finance Canada)

Nostalgia may bring customers in the door, but Hudson's Bay Co. will have its work cut out for it with the launch of Zellers in the highly competitive discount space.

HBC announced on Wednesday that it will launch the discount chain in early 2023 with a new e-commerce website as well as brick-and-mortar locations within the department store. The retailer says the Zellers launch "will deliver a digital-first shopping journey that taps into the nostalgia of the brand Canadians know and love, while introducing a refreshed identity and a unique and exciting product assortment for families at everyday value."

While more shoppers are turning to discount retailers amid soaring inflation, Zellers is going to face steep competition in the market, as it did before it closed most of its stores in 2013.

Mark Satov, a business strategy expert and president of Satov Consultants, says there isn't much downside for the Bay with the Zellers launch, as it will help the company fill some of the existing space within its department stores "that are too big anyways." Satov, who worked on Zellers' strategy before the company was sold to Target in 2011, says the brand will allow the Bay to gain traction at the lower-end of the market, given Zellers is an already recognizable brand.

But the challenge for the discount chain will be competing in the lower-end of the market against established retailers, including Walmart and Dollarama.

"The question is, is there a place in the market for them?" Satov said.

"If you're in the discount world, people are going to come to you for the lowest price. And if you're not going to be lower than Walmart, lower than Costco, lower than Amazon, people aren't going to go there, especially during a recession."

You can't take nostalgia to the bank"Bruce Winder, retail analyst

Retail analyst Bruce Winder says the brand could be a niche player in the retail industry, but that he doesn't expect it will be a "material factor" in the discount space, unless HBC puts significant capital behind it.

"Even then, it would be massively risky. I don't see it working... You can't take nostalgia to the bank," Winder said.

"Everyone's going to check it out once for nostalgic purposes. But how will they convert customers? Are they going to be cheaper than everyone? Are they going to have better designs than everyone? What's the unique selling proposition here? I'm not sure there is one."

HBC first opened a Zellers pop-up within its Hudson's Bay store in the Burlington Centre mall last year. The shop featured a range of goods, from toys to housewares to Canada-themed clothing. The retailer says the new Zellers launch will include housewares and home décor, furniture, small appliances, toys, and pet accessories, as well as the introduction of a design-led, value-driven private brand.

David Soberman, a marketing professor at the University of Toronto's Rotman School of Management, says the online site will be key to the success of the Zellers brand for HBC.

"The major change from when Zellers was a more robust competitor 10 years ago is the shift in the marketplace towards e-commerce," he said.

"So there's a lot of interest in reaching that consumer... but it's hard for me to think of how a Zellers portal could suddenly attract people away from Amazon, if that's the customer they are trying to target."

The Zellers launch also comes amid an ongoing lawsuit over a Quebec family's use of the brand. HBC has accused the Moniz family of trademark infringement, depreciation of goodwill and so-called passing off – the deceptive marketing or misrepresentation of goods.

Winder says he believes the lawsuit played a factor in HBC's decision to launch the Zellers brand.

"This is definitely a way to demonstrate to the courts that they are serious about the brand," he said.

Zellers is a storied Canadian brand that met its demise not long after it was taken over by Target. The company was founded by Walter P. Zeller in 1931. HBC first took over the Zellers brand in 1978 in an attempt to reach a broader range of customers.

In 2011, HBC reached an agreement to sell the leases of its 189 Zellers stores to Target for $1.8 billion. The remaining locations controlled by HBC were shut down in 2013, with the exception of two stores in Etobicoke and Ottawa that were not closed until early 2020.

With files from The Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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