What's Behind HBC's WeWork Deal? Millennials

Working to bring young people back to stores

Author: Andria Cheng

October 24, 2017

Hudson's Bay Co. announced Tuesday it is selling Lord & Taylor's flagship New York building to WeWork, as well as leasing other select stores’ space to the gig economy workspace provider. 

However, the deal is not just about real estate or HBC getting cash to cut its debt.

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Many department stores and other brick-and-mortar retailers have been stymied in their attempts to drive in-store traffic, especially from younger shoppers. The partnership with WeWork is intended to remedy that problem.

WeWork is “filled with young people and activities and an attractive demographic,” Richard Baker, HBC’s executive chairman and interim CEO, said at WWD's Apparel & Retail CEO Summit in New York on Tuesday. “We’ll drive the millennials to those doors. We have 450 locations around the world, and we think there’s a lot of opportunity to go from four [WeWork locations] to a lot more.”

Baker said the deal came about after meeting with Adam Neumann, WeWork's CEO and co-founder. “We spent a lot time talking about the future of retail and millennial behavior. One of the conclusions: The key to retail is to make it an exciting place.”

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And this sentiment is indeed crucial, as malls, clothing retailers and department stores in the US continue to shutter their stores or file for bankruptcy protections. The industry is dealing not only with increased consumer spending online, but also shoppers shifting their budgets to experiences over material things. 

As an outcome, retailers and malls are inking traditionally unlikely partnerships. For example, malls are featuring spaces that drive more foot traffic, such as gyms, movie theaters, restaurants and grocery stores.

Toronto-based HBC, which owns Saks Fifth Avenue and Germany’s Galeria Kaufhof, has opened food halls, restaurants and catering services inside some of its stores; it has also featured popular in-store concepts including Topshop and Sephora, Baker said.

Other department stores aren’t sitting still either. One notable recent example is Kohl’s striking a deal to take Amazon returns in some of its stores. Nordstrom, meanwhile, has opened a 3,000 square-foot test store in Los Angeles, a sliver of its regular store size, where it provides services including personal stylists, online orders for pick-up, and even tailoring and alterations, regardless of whether the clothing is made at Nordstrom.

“It’s a pilot," said Pete Nordstrom, co-president of the upscale department store chain, at a separate presentation at WWD's summit. "So far so good. It’s important we continue to try new things.” 

Baker declined to comment about another reported unlikely partnership: Walmart.com featuring a dedicated space on its site for Lord & Taylor. 

On Tuesday, Baker also echoed other retail executives in emphasizing the focus on data. “We look at data as a huge oil field sitting just below the surface,” he said.