Hudson's Bay kicks off e1bn investment programme in Kaufhof

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Following the takeover by Canadian retailer Hudson's Bay Company (HBC) of German high street department store chain Kaufhof last year, the Canadian group has announced a major investment programme for its German stores, starting immediately.

HBC's investment commitment is likely to see fundamental changes taking place across the moribund German department store sector, which has seen its market share steadily eroded over the past two decades.

HBC's CEO Jerry Storch gave a long interview to German business daily Handelsblatt outlining his vision for the future. He plans at least €1bn of extensive refurbishments for the stores, including a build-out of factory outlet centres in downtown stores, and a ramp-up of the chain's online business.

Storch said, "It's a big investment because we are convinced that Germany is a great market and department stores have a great future here. Department stores have been under-investing for a long time, leading to older stores and older customers."

The refurbishments will be started immediately in 10 high-profile stores, including in Frankfurt, Stuttgart and Düsseldorf. Customers are likely to see big new offerings across footwear, beauty products and accessories departments, including the arrival of several new international fashion labels.

The Toronto-based HBC, which operates Hudson's Bay department stores in Canada and the Lord & Taylor and Saks chains in the US along with a range of other labels, bought Kaufhof from German retail group Metro for €2.8 billion last year. It plans to open five Saks Off Fifth designer store-in-stores in Germany in 2017, with up to 40 more to follow. Storch said, "We believe the outlet business is just starting to develop in Germany," adding that many of its competitors were mainly "focused on mass markets."

The Kaufhof acquisition included the operational department store business in Germany and Galeria Inno in Belgium, as well as the underlying real estate portfolio.

Kaufhof runs 103 department stores and 16 SportsArena stores, many of which are trophy real estate properties in Germany's biggest cities. Storch said that HBC would also open a new department store in Luxembourg in 2018, as it was expanding further in Europe: "Apart from the German-speaking regions, we think the Benelux countries are interesting for us."

In November last year HBC sold a $533m stake in its HBS Global Properties subsidiary, a €4.5bn joint venture with top US retail REIT Simon Property Group which includes more than 40 of its Kaufhof stores, to a consortium including Quebec pension fund manager Ivanhoe Cambridge, the New York-based Madison International Realty and another US pension fund. Madison has now topped up its share of the fund by another $50m, to add to the $150m it invested last year.