The Toronto Star’s David Olive nails it! HBC could go south under the erratic leadership and financial gyrations of Richard Baker. Buying dinosaurs (Lord & Taylor, Saks, Germany’s Galeria Kaufhof) is the road to ruin—not riches!

If you are going to buy or invest in retail real estate, be clear why you are doing it. Is it for the land value (ex-store, e.g., HBC), or to secure a strategic and tactical position (e.g., Eataly across from Holt Renfew), or to nail down a profit-generating location (e.g., Loblaw’s Prime REIT). Confusion always arises when companies are purchased for land value when they are unprofitable. So how do you “pencil-out” the real worth of the retail company (e.g., Sears)? This is always confusing when analyzing department stores. The ridiculously low rents they pay today (and still don’t make a profit) will not be what they might pay tomorrow. But who knows what it will be? And the rationale that “the shopping traffic generated from leasing/selling the top floors for offices, which will create lots of extra sales and save the (dying) store below”—is fantasizing!

Avoid investing in corpses that are walking around to save funeral expenses!

 

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