Hudson's Bay Company History

Address:
401 Bay Street, Suite 500
Toronto, Ontario M5H 2Y4
Canada

Telephone: (416) 861-6112
Fax: (416) 861-4720

Website:
Public Company
Incorporated: 1670 as the Governor and Company of Adventurers of England trading into Hudson's Bay
Employees: 61,500
Sales: C $6.45 billion (US $4.45 billion) (1997)
Stock Exchanges: Montreal Toronto
Ticker Symbol: HBC
SICs: 5311 Department Stores; 5621 Women's Clothing Stores; 5641 Children's & Infants' Wear Stores

Company Perspectives:

The Company aims to develop its human and material resources and capitalize on its experience in merchandising to anticipate and satisfy the needs of customers for the goods and services they seek at fair prices, and thereby earn a satisfactory return for its shareholders.

Company History:

Canada's number one department store retailer, Hudson's Bay Company, is also Canada's oldest corporation. On May 2, 1670, King Charles II granted 18 investors a charter incorporating them as the Governor and Company of Adventurers of England trading into Hudson's Bay. In its first century the company traded with the North American Indians, established forts on Hudson Bay, and successfully fought with U.S. and Canadian competitors to build its fur trade. By the late 1990s, in a coast-to-coast operation accounting for nearly eight percent of Canadian retail sales (excluding food and automobiles) and about 37 percent of department store sales, the company owned and managed about 540 stores in three main retail formats: the Bay fashion department stores, about 100 strong and typically 140,000 to 180,000 square feet in size; Zellers, Canada's leading discount department store, with more than 340 units that average 77,500 square feet; and Fields, a chain in western Canada of more than 100 small clothing stores.

The Early Years

The development of the company is tied to the growth of Canada and settlement of its western region. Those who were important to the development of the company also were important politically and historically to the economic and political growth of the New World. The list of well-known people associated with the company is long and includes Peter Skene Ogden, Solomon Juneau, Henry Kelsey, James Knight, Samuel Hearne, Peter Pond, Alexander Mackenzie, Sir George Simpson, Sir James Douglas, John McLoughlin, and others. The chartering of the company on May 2, 1670, with Prince Rupert--a cousin of Charles II&mdash the company's first governor, followed the successful fur trading voyage of the ketch Nonsuch that brought back beaver pelts for the English market, used by felters and hatters to make the beaver hats that were fashionable at the time.

The Adventurers' charter of 1670 gave it 1.49 million square miles of virgin territory, or nearly 40 percent of today's Canadian provinces, including what would become Ontario, Quebec north of the Laurentian watershed and west of the Labrador boundary, Manitoba, the better part of Saskatchewan, southern Alberta, and much of the Northwest Territories. The group's rights to the lucrative fur trade did not go uncontested, and it was not until 20 years later that the company made its first inland expedition. Henry Kelsey, an apprentice who joined the company in 1677 and who later became a company governor, made the first journey into the prairie in 1690, learning the Cree language and adapting to Indian life. He wished to encourage peace among the Indian tribes so that they could bring beaver pelts to the forts without being attacked. Three forts on James Bay--Rupert's House, Moose, and Albany in the east--and a fourth, York Factory, on the west coast of Hudson Bay were the sites of battles for nearly 30 years between the French and English contesting the territory and the right to conduct trade. The Treaty of Ryswick in 1697 brought peace, but by then the company was near ruin. Most of the company's first century of business was devoted to establishing forts and territorial rights and making peace with the Indians and the French merchants who wanted to be a part of the fur trade in the New World.

Early-1800s: Competition with North West Company

One of the Hudson's Bay Company's fiercest early competitors was North West Company, established in 1779 by a Scottish-Canadian group of nine traders that moved into the Canadian interior around 1780 and claimed to be the rightful successor to the early French traders who had opened up the land. North West Company had two types of shareholders: the eastern partners, merchants in Montreal and Quebec who supplied the venture capital, and the "wintering" partners, who became responsible for exploratory and sales operations. By 1800 North West became a serious competitor, forcing Hudson's Bay Company to become increasingly more adventurous, pushing the trade boundaries westward from the Hudson Bay, in fear of losing trade with the western Indians. Each company drove the other toward new expeditions, so that by the turn of the century, they each had men trading on the upper Missouri River.

North West's Alexander Mackenzie, who later was knighted, was the most famous fur trader of his day. Mackenzie pushed the trade boundaries farther westward. Several of his trade expeditions were historical achievements: in 1789 he covered 1,600 miles and back in 102 days, and in 1793 he crossed the Rocky Mountains to reach the Pacific Ocean.

Other companies also envied the apparent monopoly of Hudson's Bay Company. U.S. traders wanted a share in the fur trade following the Lewis and Clark expedition of 1804 to 1806. In 1808 Pierre Chouteau, William Clark, and five others established the Missouri Fur Company, and in New York John Jacob Astor, the leading fur dealer in the United States, started the American Fur Company, capitalized at US $300,000, of which he owned all but a few shares.

Peter Skene Ogden, who worked for a time for the American Fur Company, moved to Quebec after being appointed judge of the Admiralty Court in 1788. Ogden wanted to be among the first white men to see the great wilderness. After living in Quebec for six years with his wife and children, he was sent by North West Company into the interior of North America to clerk at the company's post in what is today Saskatchewan Province. Ogden wintered on the prairies for the first time in September 1810, where he met Samuel Black, a Scotsman and also a clerk, who would become a lifelong friend. The two men made a sport of harassing Hudson's Bay men. Among the tales cited by Gloria Cline, author of Peter Skene Ogden and the Hudson's Bay Company, was that of the harassment of Peter Fidler of Hudson's Bay Company. Fidler departed in three boats with 16 men for Churchill Factory on Hudson Bay, an important post, and Ogden, with two canoes full of Canadians, taunted the British traders for six days by keeping just ahead of them "to get everything from Indians that may be on the road, as they can go much faster than us," according to Fidler. Ogden was a much valued employee of North West and was promoted as a result of his antics with Black.

Along with Ogden, the North West Company entrusted its goal of westward expansion to David Thompson. In 1807 Thompson had crossed the Rockies and reached the headwaters of the Columbia. In 1809 he again crossed the Rockies and established an outpost in what is now northern Idaho; from there he proceeded into Montana. Directly ahead of Thompson's trading party was the first far-western expedition of John Jacob Astor's Pacific Fur Company, the west coast subsidiary of American Fur Company. Although a U.S. company, it was managed by three Canadians, former Nor'westers&mdash--ployees of North West. The War of 1812 altered hopes for Astor's company, and the following year Pacific Fur Company sold all of its interests in the region to North West Company.

During the fall of 1818, Ogden took charge of David Thompson's old post, near what is now Spokane, Washington. The following year Ogden returned east. In 1821 the two companies merged under the name of the Hudson's Bay Company after the Nor'westers learned that their company was in poor financial condition. Ogden was excluded from the merger by the company because he had fought so fiercely, although he continued for the new firm as an explorer and trapper.

Gold Rush Difficulties

The next phase of the company's growth was shaped by the 1849 gold fever that caused a great rush westward; almost 40,000 '49ers came west that year. Hudson's Bay Company suffered as a result. Demand made the cost of basic goods skyrocket. Lumber rose from $16 to $65 per thousand feet; unskilled labor received $5 to $10 a day; sailors were paid $150 a month. The steady flow of gold, however, created a favorable balance of trade. With settlement, though, came new tax laws. In 1850 the Treasury Department prohibited trade between Fort Victoria and the English Vancouver Island and Fort Nisqually on the U.S. Puget Sound. This hurt Hudson's Bay Company considerably because it legally tied up all vessels for custom inspection, which took them 350 miles off course, subjected them to twice crossing the hazardous Columbia sandbar, and made them pay heavy piloting fees at the customhouse port. To add to Ogden's troubles in the western outposts of the company, the gold fever created labor difficulties, with many crewmen deserting to seek the possibility of finding gold. After several years of health problems, Ogden returned east for 18 months. Upon returning to his post in the western provinces, the strenuous trip and his advancing age took their toll; Ogden died in 1854.

Equal in importance to the growth of the company was Sir George Simpson, who served as administrator of the company for 40 years following the merger with North West. John McLoughlin, called the Father of Oregon, governed the district under Simpson with wide powers. Sir James Douglas assisted McLoughlin; he later became Governor of the Crown Colonies of Vancouver and British Columbia.

When the westward settlement reached St. Paul, the British government tried to break the Hudson's Bay Company monopoly by charging it with poor administration. A select committee of the House of the Commons investigated the charges, and with Sir George Simpson as one of the principal witnesses, the charges were dismissed. The company's territory and the North-west Territories became part of the Canadian Confederation through the British North America Act of 1867. The government of Canada transferred to itself the company's chartered territory, Rupertsland, in 1870, in return for farm lands in the prairie provinces, which were sold to settlers over the following 85 years.

Early 20th Century Diversification, Including Retail

Demand for general merchandise increased, and shops were established on the outskirts of the forts. In 1912 a major remodeling and reconstruction of retail trade shops was interrupted by World War I. Following the war, the company diversified, incorporating elements of oil exploration in Alberta, revitalizing its Fur Trade Department, and venturing into the oil business as a favored partner of Hudson's Bay Oil and Gas. After the 1929 stock market crash and Great Depression, the fur department revitalized itself, improving working conditions, and in some areas acted as an agent for Inuit Indian carvings.

Early in the 20th century the company made retail stores its first priority, building downtown department stores (known as the Bay) in each of the major cities of western Canada, moving east through acquisitions, and expanding into the suburbs of major Canadian cities beginning in the 1960s. Hudson's Bay Company acquired Markborough Properties, a real estate company, in 1973; Zellers, a chain of discount department stores, in 1978; and Simpsons, a group of Toronto-area department stores, the following year. Kenneth R. Thomson, representing the family of the late Lord Thomson of Fleet, acquired a 75 percent controlling interest in the company in 1979.

Restructured in the 1980s

In the 1970s the company's governor was Donald McGiverin and George Kosich was chief operating officer. In that decade and into the 1980s, sales and oil prices slipped, while debt from acquisitions piled up. By 1985 the company owed C $2.5 billion and with feeble operating profits wiped out by C $250 million in interest payments, the company suffered its fourth consecutive yearly loss. In response, management shed assets, including the Bay's 179 northernmost stores, some of which could be traced back to the fur trading days of Ogden. The company also divested its fur auction houses, thus cutting its last tie to its fur trading roots. In a strong attempt to survive, Thomson shook up top management, eventually appointing George Kosich, a career merchandiser, president. Thomson revamped retail operations. The combined market share of the three department store chains rose to 33 percent from 29 percent in two years.

Kosich refocused Simpsons to the upscale market and the Bay toward the middle- to lower-priced market. In repositioning the Bay, Kosich put the 300-year-old Canadian giant up against its closest U.S. counterpart, Sears. In 1985 the Bay had ten percent of the market and Sears had 27 percent. Employing an intensive advertising campaign--C $75 million--the Bay produced a bold and aggressive image before Canadians. In the first half of 1986, sales rose 13.2 percent over that of 1985. Operating profit rose to C $31 million in 1985 and to C $83 million on C $1.8 billion in total sales in 1986. Sears was feeling the results, reporting a barely three percent rise in 1986 and a downturn for the following several years. Zellers was positioned to appeal to the budget shopper as a "junior" department store. Club Z, a frequent-buyer program that allowed customers to accumulate points for prizes, boasted three million members. Hudson's Bay Company reversed a formidable debt picture in 1987 by shedding nonstrategic assets such as its wholesale division and getting out of the oil and gas business. In 1990 it spun off its real estate subsidiary, Markborough Properties, as a separate public company. Shareholders received one share of Markborough for each share they held of Hudson's Bay, with the Thomson family retaining a majority interest in Markborough. Also in 1990, the company bought 51 Towers Department Stores and merged them with Zellers.

In January 1991 Hudson's Bay Company permanently left the Canadian fur trade, an estimated C $350 million market, when it stopped selling fur coats at the Bay stores; the Bay's share of the fur trade had degenerated to a paltry C $7 million by 1990. The company also had been targeted by increasingly vocal antifur groups. Early in 1991 the company sold three million new common shares, with net proceeds of C $72.5 million. It also repurchased slightly more than two million Series A preferred shares for C $42.5 million. Company officials said these transactions would result in a stronger financial position. Because of declines in interest rates in the early 1990s, the Series A shares, with an eight percent dividend, had become more expensive to service than debt. Later in 1991 the company eliminated its Simpsons division, when it sold eight Simpsons stores to Sears Canada Inc. and converted the remaining six stores into the Bay units. Late 1991 also saw the Bay announce a three-year plan to double its purchasing of U.S. brands, a program that aimed at decreasing the number of Canadians seeking bargains in U.S. stores (because of a strong Canadian dollar) and that developed from the passage of the U.S.-Canada free-trade agreement in 1989.

Wal-Mart Challenge in the 1990s

In 1992 Thomson reduced his interest in Hudson's Bay Company to 25 percent through a secondary stock offering; five years later this stake was reduced further through another secondary offering to zero. Meantime, in 1993 Hudson's Bay Company acquired 25 former Woodward's locations in British Columbia and Alberta, converting the sites to company formats. The company also acquired Linmark Westman International Limited, a buying firm in the Far East, that same year.

On the heels of strong 1993 results of C $5.44 billion (US $3.9 billion) and net earnings of C $148 million (US $108 million), Hudson's Bay Company was caught somewhat offguard when U.S. discounting giant Wal-Mart Stores Inc. entered the Canadian market for the first time in early 1994 through the purchase of 122 stores from Woolworth Corporation's Canadian subsidiary. A price war quickly developed between the new Wal-Mart stores in Canada and the Zellers chain. In a little more than three years, Wal-Mart gained 45 percent of the discount market in Canada, surpassing Zellers, whose market share fell from more than 50 percent to 41 percent. Worse yet, the price war had cut severely into Zellers's and, consequently, Hudson's Bay Company's profits. Net earnings at Zellers fell from a peak of C $256 million in 1993 to C $73 million in 1997, while overall net earnings (after interest and taxes) for the company fell to just $54 million in 1997. Compounding the company's difficulties were reduced earnings at the Bay, which reflected a general downturn in the department store sector.

In responding to the Wal-Mart challenge, the company began to increase the size of its Zellers units, which had averaged 75,000 square feet in comparison with the 120,000-square-foot Wal-Marts. New Zellers that were built now ranged from 90,000 to 125,000 square feet. The company also began to renovate older units. In mid-1997 Hudson's Bay Company hired a new president and CEO, William R. Fields, who had most recently been chairman of Blockbuster Video but was, more important, a 25-year veteran of Wal-Mart. (Kosich initially retired but within days was hired by T. Eaton Company Ltd., a chief rival of Hudson's Bay Company, as president of the Eaton's department store chain. The hiring resulted in Hudson's Bay Company suing Eaton's for stealing other company executives and accusing Kosich of breach of fiduciary duty for joining Eaton's while still employed by Hudson's Bay Company. The suit was settled quickly without terms being disclosed.)

Under Fields's leadership Hudson's Bay Company became much more aggressive in its pursuit of a turnaround. The most dramatic early example of this came in February 1998 when the company bought Kmart Canada Co. for C $240 million (US $167.7 million). The deal eliminated the number three discount retailer from the Canadian market and, in addition, leapfrogged Zellers back ahead of Wal-Mart. Over the next several months, Hudson's Bay Company closed 40 of the 112 Kmart stores it had gained and converted 59 of the units to Zellers stores. Two Kmart stores and one Zellers were changed into Bay units, and 11 Kmart stores and one Zellers were selected to be converted into new specialty retail formats. This new specialty initiative was launched in June 1998 when the first Bed, Bath and More store opened in Newmarket, Ontario; the new chain was the first Canadian-based home category killer. Yet another development in the first few months of the Fields regime was the beginning of the conversion of the Fields chain into small general merchandise discount stores for the mass market, modeled somewhat after the U.S.-based Family Dollar chain. CEO Fields also launched efforts to improve the traditionally poor customer service at the Zellers chain and to make technology upgrades at both Zellers and the Bay aimed at improving inventory control. Finally, Fields made significant changes to the company's management team. And in a move to pare noncore operations, the Linmark Westman subsidiary was divested in mid-1998. This whirlwind of activity in Fields's first year indicated that Hudson's Bay Company had entered into a new era of trailblazing.

Principal Subsidiaries: Hudson's Bay Company Acceptance Ltd.; Zellers Inc.

Principal Divisions: The Bay; Fields Stores.

Further Reading:

  • Burns, John F., "Fur Industry Shrinking with No End in Sight," New York Times, February 26, 1991, p. D1.
  • Cline, Gloria G., Peter Skene Ogden and the Hudson's Bay Company, Norman, Okla.: University of Oklahoma Press, 1974.
  • Fox, Jim, "Fields Getting Hudson's Bay Ready for Battle," Discount Store News, June 23, 1997, pp. 3.
  • Gough, Barry, "Lords of the Northern Forest," History Today, September 1991, pp. 49.
  • Greenberg, Larry M., "Besieged Hudson's Bay Co. Starts To Blaze New Trails," Wall Street Journal, February 13, 1998, pp. B1, B2.
  • ------, "Hudson's Bay Faces Challenge from Southern Rival," Wall Street Journal, May 24, 1996, p. B4.
  • ------, "Hudson's Bay To Buy Kmart Stores in Canada To Strengthen Position," Wall Street Journal, February 9, 1998, p. B2.
  • Innis, Harold, The Fur Trade in Canada, Toronto: University of Toronto Press, 1967.
  • Matthews, Jan, and Boyd, Greg, "The March of a Retail Martinet," Canadian Business, December 1990, pp. 32.
  • Newman, Peter C., "The Beaver and the Bay," Canadian Geographic, August/September 1989, pp. 56.
  • ------, Company of Adventurers (3 vols.), Markham, Ontario, and New York: Viking, 1985-91.
  • ------, Empire of the Bay: An Illustrated History of the Hudson's Bay Company, edited by John Geiger, Markham, Ontario, and New York: Viking, 1989.
  • Newman, Peter C., and Fleming, Kevin, "Three Centuries of the Hudson's Bay Company: Canada's Fur-Trading Empire," National Geographic, August 1987, pp. 192.
  • Ray, Auther J., and Freeman, Donald B., Give Us Good Measure: An Economic Analysis of Relations Between the Indians and the Hudson's Bay Company Before 1763, Toronto: University of Toronto Press, 1978.
  • Rich, Edwin Ernest, ed., Minutes of the Hudson's Bay Company, 1671-1674, London, Ontario: Hudson's Bay Record Society Publications, 1942.
  • Scally, Robert, "Hudson's Bay To Buy Kmart Canada, Retool Zellers, and Unveil New Chains," Discount Store News, February 23, 1998, pp. 1, 40.
  • Seckler, Valerie, "Fields's Playbook for Zellers," WWD, September 10, 1997, p. 22.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.

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