This webcast guest has been seeing and doing things differently since childhood – and this may be the key to his success.
We were joined by Richard Baker, Governor, CEO, and executive chairman of Hudson’s Bay Company, a holding and investment company of distinct North American retail.
He and Willy covered everything from his early entrepreneurial endeavors, building his portfolio of businesses, the impact company culture has on success, and his retail outlook for 2023.
Willy Walker: Good afternoon and welcome to another Walker Webcast. It's my great pleasure to have Richard Baker joining me today. Let me do a quick intro on Richard and then we'll dive into our conversation.
Richard Baker, Governor, Executive Chairman and CEO of Hudson Bay Company (HBC) is an experienced entrepreneur, business executive and visionary in the retail and real estate industries. HBC is a holding and investment company of distinct North American retail and real estate operating businesses, including Hudson's Bay, Saks Fifth Avenue, Saks OFF 5th and HBC properties and investments. Mr. Baker is also chairman of Retail Opportunity Investment Corporation (ROIC) and owner of National Realty and Development Corporation (NRDC) He's a graduate of Cornell University and has served on many boards at Cornell.
Richard, it is a real pleasure to have you with me today. Let me back up for a moment here. So, you grew up in Greenwich, Connecticut, and you went to Brunswick, then you went to Cornell. All that sounds, if you will, kind of a pretty standard upbringing for a successful banker consultant in the real estate profession who grew up in the New York suburbs, but by your own admission, you weren't your typical Brunswick boy. You set up your own catering business in high school, and you pride yourself on being creative and almost artistic in how you live your professional and personal lives. Where did that independent streak come from and what adult supported you in that journey?
Richard Baker: Well, you know, I guess we're all born with what we're born with. You know, this whole concept that we can guide our kids and guide the young people that we mentor. We can, but they're all born with what they're born with. And I was never a great student. My passion and my pleasure were being an entrepreneur and thinking about how to make money and how to do things differently. And I kind of walked around my whole life just seeing differently than other people see. When I look at a building or I look at a business or I spend time with someone, I kind of see things differently, I guess, then other people do. And sort of early on in my life, I thought there was maybe something wrong with me because our whole system is based on educating young people to be the same as everyone else. So, one plus one is always two. George Washington is always the first president. Mixing red and yellow will always get you orange. And so, thinking when you come out of 20 years plus of that kind of training, imagining that thinking differently than everyone else is a good thing, takes a little bit of time, and it took a little bit of time for me as well.
Willy Walker: But I guess, too that, all of those are facts like, you know, George Washington was the first president of the United States will always be the first president of the United States. But you seem to not disregard the facts but take a different path. So that entrepreneurial spirit, I mean, setting up your own catering company in high school, what was it that said to you “Hey, that'd be a great idea.” I mean, there's some entrepreneurial spark that comes. My eldest son likes tuning cars. Where was it that you got that spark to say, hey, I either like food or I want to go make money, or there's an opportunity here that I see isn't being met?
Richard Baker: I think for me, we all need to feel good about ourselves. And I wasn't a great athlete or anything, so I wasn't all excited to go to soccer practice. And I wasn't a great student. So that wasn't a place where my ego and I could excel. But I was good at organizing people and I was good at getting ideas executed and I was good at turning a dollar. So, I did what came naturally to me and what I felt good doing.
I grew up in a real estate family. So, you know, on weekends, my father would drive me to a shopping center that he was developing and walk the construction job or go visit a piece of property he was going to buy, and we'd wear hard hats and whatever.
Willy Walker: Doesn't sound like that really turned you on. I mean, so that wasn't terribly attractive to you, is that right?
Richard Baker: No, I enjoyed that. I always enjoyed the real estate business, and I still do. And but by the time I graduated Cornell, I was ten years older than my peers in understanding the real estate business. As you've interviewed many people in the real estate business, it's very much a tribal, traditional kind of business where the lessons of the past are handed down from one generation to the next. So that was definitely part of my upbringing. Also, I talk about the operating businesses that we run are being run through a real estate brain. Real estate people think differently about risk, reward and process and operating company people think very differently. So, one of the operating companies I had a long career in real estate, but when I got into operating, owning, and running operating companies, everything we look at and do is through the lens of how a real estate guy would think.
Willy Walker: So, I want to get to opco/propco in a moment. But when you went to Cornell, you went to the hotel management school and I've heard you say that we're all in the hospitality business, whether you're actually having someone stay at your hotel and trying to generate RevPAR (revenue generated per available room) or whether you're trying to, we'll go back to the example of my son tuning cars. If you have a car tuning shop, you're still in the hospitality industry, if you will, or the service industry. Talk for a moment about what the salient lessons you learned having studied hospitality at Cornell, that's helped guide your career?
Richard Baker: So as a youngster, when I was 12 or 13, I was cooking, and I would cook for my family, and I cook for my friends. And because I'm a pleaser, I like to make people happy. And still, when I travel with big groups or whatever, I'm the one moving the food around. I'm the one ordering, I'm the one organizing the food, travel, transportation. And so being a pleaser is a core hospitality trait. Where it really came out and blossomed in my head was when I graduated from Cornell and I went into the real estate business and my father said, “Here's a little office for you. Go do anything you want. Don't sign your name to anything. Don't spend any money.” Back in those days and still today, New York City or city real estate developers, they're very tough and difficult because generally speaking, they don't do repeat customer business. They have this one corner, and this one drugstore only wants to be on that corner and they'll probably never do another deal with that one drugstore again. Certainly back 30 years ago, when there weren't chains of everything, everybody was three of these and ten of those. And so real estate people were really difficult. And the absolute epitome of not hospitality, very difficult people, still are, some of the big names in New York and places like that. When I graduated from the hotel school, we had some broken-down shopping centers that had their tenancy, the anchors had expired and what have you. And I went to this nice company that had no stores east of the Mississippi called Wal-Mart, and they were just starting to expand east. And I was 21 years old, very service oriented. How can I help you? How can I take care of you? And I went back to my father and my uncles and said, “I have this deal for a Wal-Mart. Here's their lease and let's do it.” My uncles and my father were like, “Oh, forget their lease, let's use our lease. And we're never going to give them that clause and tell them no.” I go back to my uncles and my father, I'm like, “Who cares? The shopping center is empty. You have it on your books for nothing. It paid back the mortgage. It's just, what do you care? Let me play with these guys and see if I can make a Wal-Mart deal. And we'll do it all their way for once.” They said, “You're right. Who cares? Do whatever you want.” So, I went back, signed their seven-page lease for a 120,000 square foot building and I developed this relationship with Wal-Mart where crazy, but we were, like, nice to them. And we made sure that the paint was right. And not just respect, but it was done right. And we created a relationship. I ended up having a relationship with Sam and his son Rob. And we built 40 Wal-Mart shopping centers, all of which we still own today. And it was because I did things their way, not my way. I was willing to walk in their shoes and understand their perspective. And for me, I brought hospitality in my world to real estate at a time where, I promise you, in 1989, there wasn't a lot of hospitality in the real estate business.
Willy Walker: So, most people who developed 40 Wal-Mart anchored shopping malls would put their feet up on the table and say, man, that was great work. I hopped on; I got in there early. I made a relationship with now the largest retailer in the United States, saw that coming and boy, aren’t the rents come off of that great. And I also know that you use very, very little equity capital as you built up that incredible retail portfolio of Wal-Mart anchored shopping centers. But your wife, Lisa, I believe, had a big hand in saying to you, you've always dreamed of playing on the OpCo side, not just the PropCo side. What was it that Lisa either had heard you ruminating about or encouraged you to do that got you to say, it's time to move out of being just a property owner and becoming an operating company runner, CEO or executive?
Richard Baker: We were building a million square feet a year in 2005 and we had a big organization, million square feet in and out, but it was getting a little scary. Like I wasn't sure we could keep up this pace. The environmental laws, people weren't loving Wal-Mart at that moment, and I was concerned about the future and all these people that I had working. We lived in Greenwich, Connecticut, which is home to all these private early days in 2005, lots of little private equity firms and hedge funds. We call them “little” today, but they were “big” for that moment. They were all $200 million kind of funds, what have you. And a lot of them were our friends. And we'd go out to dinner with friends of our kids and whatever. And in the car, on the way home, my wife would always say, “You're as smart as Harry. Why does he have a $200 million private equity firm and you're building strip shopping centers?” So, you know, every successful person needs a partner that kicks in the tush every now and then. So, I had a deal I was working on, which was I wanted to buy Toys "R" Us. I had a team; we were working on it. And I went to my father, and I said, “Let's buy Toys "R" Us.” It was $3 billion or what have you and PropCo, OpCo, the whole thing. And he said, “What, are you crazy? Why would we? We're shopping center people. We don't do anything different than shopping centers.” So, I said, “All right, whatever.” So, I go home, and I tell my wife, Lisa, what my father said, she says, ‘Forget that. Go to one of our friends and buy Toys "R" Us with a partner. You don't need to do it with your father if it doesn't interest him.” So, I went back the next day and I said to my father, “You know what? No worries about Toys "R" Us, I'm going to partner with one of my friends.” And, oh, my father didn't like that idea at all. He's like, “Well, why don't you go talk to our friends Bill Mack and Lee Neibart, who have a company at that time called Apollo Real Estate, which was partners with the regular Apollo. And anyway, we created a new entity called NRDC Equity Partners. We got outbid for Toys "R" Us and the very smart and talented Bain and Vornado and others bought it. And we went on to, of course, buy Lord & Taylor, but that's how it really kind of got going.
Willy Walker: So, talk about the Lord & Taylor acquisition because you bought it for $1.2B. Interestingly, the three banks that financed it for you, not one of them is still in business. I guess you could potentially say that CIT became…
Richard Baker: Reorganized.
Willy Walker: Reorganized. So there. But I haven't done the math on it. 99.9%. No, no, not quite that.
Richard Baker: 97%.
Willy Walker: 97% loan to cost loan, came up with $25 million of equity capital to go buy Lord & Taylor in 2006. Obviously, hindsight's 2020 vision, Richard, in the sense that 2006 was sort of a) the heyday for lending. So, you couldn't, you know, do that earlier or do that later. You couldn't have actually bought it. So, there was something really opportune about accessing the debt markets at that point. But given that we had the GFC coming right around the corner, once you had it, did you all of a sudden, two or three years later say, what did we do in 2006 as far as buying Lord & Taylor?
Richard Baker: So, a couple of comments. One, you got to be in the game. So, people who make deals and people who accomplish great things, they're constantly trying, they're constantly working on things, and they're constantly not being successful. Couldn't get that deal done. We tried. Couldn't get that deal done. We tried. Maybe small failures after small failures. And but every now and then they get it right and they have a big win. And no one is smart enough to understand that this is the beginning of and the end of this cycle and that cycle. But if you're always hanging out by the hoop and playing the game, then you'll make your share of baskets. And so, we just got lucky.
First of all, my family's philosophy was we're in the infinite return business and we're not investors, we're value creators, we're developers. So, we create value with intellectual leverage, not with liquidity, not with using our money. When we bought Lord & Taylor, we basically got a purchase agreement subject to the due diligence, which was basically a free option, no different than when we buy a piece of land for a shopping center. We got the financing done because of course, as you said, it was 2006 and we made the very difficult decision. Bill Mack and Lee Neibart, my father and I to write a check for $25 million. That was a lot of money for us then and what have you to buy that business. So of course, we had a very nice run with that business. And then the financial crisis hit, and we kept maneuvering. So, we pivot, and we maneuver. And in that case, we made some modifications to our debts. We rethought about how to operate the business. And we worked our way through that period of time. Then we bought the Hudson's Bay Company and merged that together. And so, we are sort of quick pace, real time operators that take advantage of good situations and are able to, as capably as possible, maneuver through difficult periods.
Willy Walker: Richard, am I right that the premise for buying Hudson Bay was the thought that the Canadian market needed a middle to upscale retail kind of service offering that Saks had that you were going to take essentially the Saks operating platform and push it into Hudson Bay. Is that correct on why you went into Hudson Bay in 2008?
Richard Baker: No, we had owned Lord & Taylor.
Willy Walker: I'm sorry, I meant Lord & Taylor, not Saks. My bad. I'm sorry. Taking Lord & Taylor and pushing it into the Hudson Bay footprint.
Richard Baker: It's a couple of things. First of all, it's a bit of a story about fresh eyes. So, when I went to visit and spent a tremendous amount of time in Canada, they had 288 Zellers stores and they had tremendous department store buildings in Vancouver, Toronto, and Montreal, and they had tremendous assets coming from my East Coast U.S. perspective. Remember in the East Coast, we saw all of our real estate in the East Coast go from the days of Nichols, Neisner’s, Zehrs, Ames, Caldors, Bradlees, Pathmark, A&P, and they transitioned into Wal-Mart, Target, Lowe's, Home Depot. So, they went from no credit to credit. And my bet was that there was an opportunity in Canada for a very no credit retail landscape to turn into a credit landscape. And that was the bet. And I believe the real estate in Canada was worth, you know, $5 billion. I was right. $5 billion and we were buying the entire company for 1.2 billion Canadian. And the Canadians laughed at me, they thought this was the stupidest thing ever. And because there had been some other department store businesses in Canada that went out of business, and no one ever figured out what to do with the real estate. So, they thought these multilevel department store businesses had no value. And so, we were the absolute right buyer because we knew how to run a department store and we were comfortable taking on the risk associated with running a Hudson's Bay department store business because we ran Lord & Taylor. Also, we were very capable in creating monetization moments for the real estate portfolio, which we did. And the Hudson Bay Company has been a tremendous investment for us. And there's a lot more runway ahead of us.
Willy Walker: Hudson Bay was founded in 1670 and is the oldest continuous business operating in North America. That's really cool. Is there any value to that, Richard?
Richard Baker: Sure. So, first of all, great companies have culture. Great companies have DNA. The culture and DNA of Hudson's Bay was very similar to my family and to my history. The Hudson Bay Company was a company built by adventurers, people who had the courage to get in a very small boat and go from Scotland or England or Europe at the time and go across the world in a little wood boat to the Hudson's Bay and do a sign up for a two year assignment to trade beaver pelts with the First Nations people. And what did that entail? And that kind of risk taking, courageous DNA has been living inside of Hudson's Bay, reproducing and existing for 352 years. That DNA is how we run our business today. We are thoughtful adventurers who take understandable, quantifiable risks. We maneuver and we do things no one else in the world does. I mean, whether it was going to Germany to buy the largest department store chain in Germany or selling off our Zellers business to Target or buying Saks Fifth Avenue, we have a very adventurous, entrepreneurial spirit at HBC, which comes from our 352 years of history.
Willy Walker: Talk for a moment about, you just mentioned that being in the real estate business, you know, the typical particularly East Coast real estate developer. This is my corner. Get a tenant. Work with that tenant for a period of time. Swap that tenant out for somebody else. On I go. Not very service oriented and then also not I mean, obviously there are very scaled real estate platforms that are operating companies, but nothing to the degree of HBC, which now has 49,000 employees in it. Talk about your own leadership as you went from running a scaled real estate platform, but really being known for the dirt, if you will, more than the operations in the service to then going in and becoming the leader and the CEO of a very, very large-scale services organization in both Lord & Taylor into Hudson Bay.
Richard Baker: It was shocking. So, because as to your point, I was a deal guy. I made deals, I leased space to tenants. I had a team that built out the buildings. I was a deal guy, relatively small number of people. And I quickly figured out that the only way, when we bought Lord & Taylor had 10,000 employees, how do you communicate? How do you drive a culture with 10,000 people? And all of us who are students of business and what have you. We read all the books and we hear about leadership and culture and whatever other kind of words. But it's real. So, when you find yourself and you wake up one day in that chair, the only way to function is to create a culture at your company, to nourish an existing culture or to replace a bad culture. We've done it all because we bought and assimilated a lot of companies, and the only way to be a successful large organization is to have a culture where people understand the big plan. We often see bad things that happen in bad culture companies. And it's not surprising. I can tell the culture of a company. I can call the CEO of any company and tell you in 10 minutes before I even meet or talk to the CEO what the culture of the company is. If his assistant is nasty or short or acts in a particular way, you know, that's the way the boss is. And if that's the way the boss is, it's all the way down the organization. And if you call the assistant and she's super, doesn't know who you are, but treats you very nicely and is courteous and hospitable, then, you know the DNA of that company. It's all about culture and being a leader to drive the culture. And there's no other way of doing it. It's impossible to run these big businesses without having the right philosophy and the right culture.
Willy Walker: On the leadership role at HBC, you have the title “Governor.” I thought at least in the States you sort of have to run a state to get that title. What's the governor title? I'm assuming it's a Canadian title is, it's like CEO, Board member and Chairman? I've never seen the governor title before.
Richard Baker: It's very unusual. So, in Canada, King Charles II in 1670 signed a charter giving all the lands that drain into the Hudson's Bay to the Hudson's Bay Company, which its first governor and owner was Rupert, the cousin of King Charles II. Any company in Canada that was started by charter by the king of England, the leader of that company is known as the governor. There’re only two companies left. I am the 39th governor of the Hudson's Bay Company. And that's a Canadian thing, if you will.
Willy Walker: That is super cool. I mean, that does play to the value of the history. That's really fascinating.
So, 2013, Richard, you go, and you buy Saks. It had 2.5B in sales at the time. Talk for a moment about the Saks acquisition, having bought Lord & Taylor and then Hudson Bay and bringing it all together and seeing what was working or not working in those first two platforms. And what made you go to Saks?
Richard Baker: Yep, so we had become very energized at that point at basically the opco/propco concept. And when we underwrote and analyzed the value of Saks to us, they had a portfolio of real estate that was worth a lot more, materially more, than we were able to purchase it. So, at that point, we were already pulling these companies apart and having operating companies and brick and mortar companies. So, for us, Saks was a great brand. It was the number two luxury franchise in the United States. It was Neiman's and Bergdorf's. There was Saks and there was Barneys. And in the month in 2013 that we bought it, our sales were $2.5 billion. The platform we bought, and Neiman Marcus was $6 billion at that moment.
Willy Walker: Had TPG bought Neiman Marcus by then?
Richard Baker: TPG had sold Neiman Marcus to CPP and Aries. Over the next seven or eight years, the two companies did their thing. By 2020 or whatever it was during the pandemic, Neiman Marcus sold for $6 billion. The entire capital structure in Neiman Marcus was wiped out and they went bankrupt. And $6 billion was lost during the pandemic. They then reorganized. In a year like this, they'll end up the year that whole franchise at something like $4.8 billion in sales, down from their original $6 billion. Saks, which we bought and had a $2.5 billion franchise. At the end of this year, we'll have a $6.4 billion business. So, we went from $2.5 billion to $6.4 billion, and Neiman's went from $6 billion to $4.6 or 4.7 billion, whatever it'll be. So, we're very proud. And of course, Barneys is gone, and so we're very proud of the success and the growth that we accomplished at Saks. And then, of course, not only did we split it to a propco/opco, but then in the beginning, in March of 2021, we split the digital business out from the brick-and-mortar operating business. So now we have a propco/opco/digco, and now we have three separate businesses.
Willy Walker: You were thinking about taking that digital platform on Saks public this past spring, I'm assuming because of what the markets have done. You held back on doing that but splitting them up and taking one to be public and holding on to the actual, if you will, old school bricks and mortar retail. What was the thinking behind that? Just valuation or there was something you could do in a public format with the digital platform that you can't do in private.
Richard Baker: I would say it differently. So, when I had the real estate, the operating company and the digital businesses all locked up in one entity, the world expects you to make EBITDA dollars and you get a multiple based on EBITDA dollars. Except we live in a world where I have to compete with real estate companies, I have to compete with brick-and-mortar operating companies. And most importantly, I have to compete successfully with other standalone digital companies. And I wasn't able to properly finance and fund three separate businesses, having them all be one. So, by splitting them up into three separate companies, I was able to properly invest in the digital business the way a competitor that was digitally only could invest. And in the brick-and-mortar operating company, I could better show the EBITDA and better invest in that business. And of course, the real estate is a different way of evaluating and understanding the value there. So, my goal is always to run best in class businesses. What we're learning is splitting apart these businesses into three separate companies, which of course we did again with SaksOFF5th.com, Saks OFF 5th operating business and their real estate. And again, we did it in Canada, where we have three separate entities in Canada.
Willy Walker: So, let me let me try and pull this apart a little bit, Richard, if I can, only because I'm fascinated about what you're doing as it relates to, if you will, point of sale, digital versus bricks and mortar. Before I put the example, I want to dive into at this moment on the table, because we'll get to this in a moment. But your StreetWorks Development group, which built, for instance, Bethesda Row, that many people who've been to Bethesda, Maryland know is just incredible, back when you built it a very new concept as it relates to retail.
So I want to hold that out there for a moment as I ask you this: If I go to Chevy Chase, Maryland, there's a Neiman Marcus right at the D.C. Maryland line, and there's a Saks Fifth Avenue down the street a little bit on the right hand side – and both big box, I think the Neiman Marcus is now closed. And my question to you would be: In that format, here's Chevy Chase, Maryland, an incredibly affluent high-end neighborhood, suburb of Washington, D.C., which was the retail center of suburban Maryland. And you've got these two big boxes there of Neimans and Saks. Can you make those work in today's retail world, or do you have to go and transition to both what you did at Bethesda Row? And then we'll go to what you're doing with Saks out in Beverly Hills. But I just want to stick with Chevy Chase for a moment because I look at those two buildings and just wonder whether that format is a thing of the past or whether you can actually revitalize them and make money out of them.
Richard Baker: Okay. So, every day I'm asked, what do you think of the discount world or the grocery world or the mid-tier retail or department stores or specialty stores, vertical, online only brick and mortar? There are winners and there are losers. So, every single category any of us could imagine, there are certain people who do a better job than other people. And there's people that are going to do great and go a long way, and there are people who are just not going to be successful. So, we don't believe any of that conversation that there's no brick and mortar going forward, and that people don't like department stores or mid-tier or high end.
I can give you an example. In every single category of expertly operated and very profitable businesses in every category. We wake up every day in order to deliver our customer our spectacular product, treat our associates with respect and teach them how to be entrepreneurs, nourish them and to be great partners with our vendors or anyone that we're partners with. And that's what we think about every day and that's what we have done. Use Saks, for example, nonstop since 2013 when we bought Saks. That is how our sales have gone from $2.5 billion to $6.4 billion by just doing that, consistent management team. We haven't changed and flipped and flopped. Consistent business plan. That's our recipe and that's our philosophy. And I'm very bullish on all the different things that we're working. And sometimes, businesses don't work in our portfolio anymore. We sold off Lord & Taylor prior to the pandemic, the operating business, and we sold off Zellers to Target in Canada and we will edit the garden, but we make long term commitments to the businesses we own. Also, we're not a private equity firm. We're not fixing, selling and duct taping or whatever. We're not a public company. We're just long-term entrepreneurs and owners that want to deliver a great product to our customers and do the right thing every day. And I think we show that that is a good road map for success.
Willy Walker: So, on that, just to push on that a little bit, Lord & Taylor, you sold their flagship store in New York to WeWork at an incredible valuation and hats off to you for doing so. And yet the Saks store that you have on Fifth Avenue, I was just there this past week. What you've done to keep that store relevant is unbelievable. Including having Elton John come and play a concert there. There are more people today, Richard, looking at your store every night than are looking at the tree in Rockefeller Center. They literally look across the street for the show that happens in your store rather than looking down at the tree. And it's really quite something when you've created a real, just an event that happens every single night there on Fifth Avenue. And by the way, I don't know how you got the city of New York to shut down Fifth Avenue on Sundays, but you've turned it into a walking mall, which is really quite something. But so, talk for a moment there, though. I mean, you clearly and Saks have a great brand that's got a lot of vibrancy to it. In Lord & Taylor, you made the decision that the real estate was worth more than the operating company. You sold the real estate for a whole lot, and then you turned around and sold the operating company of Lord & Taylor for a smaller sum. But you still sold it off. Why was one working and the other one not?
Richard Baker: Because, again, we live in a world where there's winners and losers. And the economic model around the Saks Fifth Avenue business, whether it's digital, brick and mortar or the real estate portfolio, it's a big winner with lots of opportunity, growth and market share ahead of it. Lord & Taylor stuck between Macy's and Nordstrom, and all the issues that they had were not a long-term hold for us.
Willy Walker: And so in selling the Lord & Taylor flagship store to WeWork, you took a real look at co-working flexible office space what have you and you're now a very significant investor in Convene and you have Aries as a partner in there, what makes you feel if you will that there's a real opportunity for that shared workspace model today that didn't quite work out for WeWork?
Richard Baker: Okay. First of all, Convene is really 90% meeting space business. So, it's only like 10% shared workspace, which is totally different. So, what's happening is we've spent a lot of time thinking about and developing our premise for the future of work starting before the pandemic and the future of work, as we know, less people in the office in some companies, more meetings, more regional meetings, more get togethers. So, we're bullish and we invested in a big way in Convene in order to take advantage of the opportunity for companies who want to do offsite meetings. So, we think there's a lot of growth ahead of us at Convene at regional and suburban and major market meeting opportunities.
Willy Walker: Fascinating. And so as you think about that, as it relates to Convene and bringing people together on the office side, you're also taking your second flagship store at Saks out in Beverly Hills and you're converting it from being one flagship store to actually being more of, back to that, what we were talking about previously of what you did in Bethesda Row of sort of having more of a walking area. Richard, I was really happy and surprised that the architect of my home in Sun Valley, Idaho, Manuel Ratzinger, is actually working with you on that design and development of what you're going to do there. Talk for a moment about what you're doing there to transition from a traditional retail setting to, if you will, a more forward-looking retail setting that is mixed use?
Richard Baker: Yeah. So, what we did was we're moving the men's stores in one building. The women's store is next door. We're moving the women's store into the former Barneys space, which is under construction, and will be opened, you know, later in 2023. And it will be a beautiful women's store, a beautiful men's store that left two parking lots and the old department store. And we have a beautiful plan to try to invest a tremendous sum of money in a project that's going to have overnight rooms, going to have a club, private or public. I don't know. It's going to have all kinds of markets. It's going to have luxury maker, entrepreneurial space, and restaurants and food and beverage and food outlets, all kinds of different things. And we're working with the community to design something that they like, and it's going to be great for the Saks brand, is going to be great for the community, and we're very excited about it.
Willy Walker: It's innovative and exciting, something that's been a hallmark of your career.
Two final things. First, one is mental health. I know you and your wife Lisa are very focused on it, but it's also not just a personal interest, but it's something that you put inside of Hudson Bay. You have a chief mental health officer, which to be honest with you, I don't know of another company that has a chief mental health officer. Talk for a moment about that, because it seems to be a part of… Lots of people talk about wellness. They talk about, you know, going to a yoga class, smoking cessation, taking care of yourself physically. But the mental health side is such an important component, particularly post-pandemic in the challenges that many, many employees are dealing with, getting either back to the office, being online, being able to be an engaged member of their work community. How helpful has it been to have a chief mental health officer and have had such a sort of defining characteristic of the Hudson Bay companies that you really focus on that part of it?
Richard Baker: Well, so okay, about six or seven years ago and for a period before that, we have all these companies, we have all these associates. We have a lot of leverage in the community. And we were thinking about our team here at HBC, my wife Lisa and I, we all were thinking and planning. How could we have the biggest impact on our community? Our associates, our customers, the people in the communities that we spend a lot of time in. What could we do to be helpful and make a significant contribution? What we came up with was mental health and how do we make people more aware of not only the problems of mental health, but what the solutions are? At that time, it was not a thing that people talked about. We've spent and other people have spent a lot of time and energy educating the world about what to do when someone in your family suffers from depression or anxiety or has an addiction. And so, we have kind of very focused and very thoughtfully, teams of all of our companies have spent a lot of time engaging in mental health and raising money and participating in the community on that topic. Our associates are very proud and very engaged in this effort. And it's something that exists in every family. There's not one family in all the people that all of us here right now know that doesn't have some mental health issues in their family or that they have to deal with, whether it's a child or a cousin or a parent. We're putting together the tool kit in order to help people. We've connected with all kinds of different people in order to get smarter. We're trying and we're playing with different scenarios of how to provide more guidance to our associates and more guidance to our community on this topic. So, I would say it's a work in progress. We feel good about what we've accomplished, but we think there's a lot more we can do ahead of us.
Willy Walker: Pretty evident, Richard, that you have been exceedingly successful at both creating value at certain brands and getting rid of other brands such as Nautica, for instance, is one of the brands that you shut down and said that one doesn't have any more value for us.
Richard Baker: The great brand just wasn't the right brand for us at that time.
Willy Walker: As you look forward to 2023, a lot of people are trying to do planning in a higher interest rate environment, the threat of a recession in 2023. As for your outlook not just specifically to you in Hudson's Bay, but more generally on retail, what's your outlook for ‘23 and ‘24? Are you still quite bullish on retail done right? And if so, any kind of guidance as it relates to the areas where you see some opportunity without giving us your playbook, which I'm assuming you don't really want to give away on this webcast.
Richard Baker: So, look, consumer demand. So, this is December 2022, consumer demand continues to hold up. And especially for our luxury businesses. The consumers have jobs, they have money to spend. They might want to buy more on sale. They might not want to be, as, you know, full priced as maybe they were last year. But obviously, we're long term bullish on retail and luxury and special experiences and special products. Our job is to continue to figure out how to manage our assets, our marketing, and our data in a way that continues to gain market share. We think we have a great long-term opportunity to pick up market share, which we will. Next year, because that real estate brain is thinking, we're going to bring down the risk a little bit and make sure that we're more conservative going into 2023 because who knows? And we have to make a lot of these buying decisions early in the year. So, 2023 will be a good year to be as conservative as possible. But I'm feeling good and I'm very optimistic about the future of our businesses. And look, I'm bullish on the United States and I'm bullish on what the opportunities are here.
Willy Walker: Fantastic. Final question. They called Sir Elton John's visit to sing that song a surprise visit. Had that been in the works for a long time, or did he get done with this North American tour and all of a sudden things kind of align? And he showed up to sing that song.
Richard Baker: He had this itch to come visit his favorite store in North America, and that was Saks Fifth Avenue. And he said, “Will you close Fifth Avenue down for me so I can come and do something special.” We figured out how to get it done. And it was a spectacular evening. And we really appreciate what he did. And we're really happy that we were able to contribute $1,000,000 to the good works that he does. And it was a win-win-win for everybody, a win for New York, win for Saks, and a win for the foundation. So, it was a great night.
Willy Walker: I really have to tell you, from having been there for a week right around your store, it has become the site and it's quite something that people take a quick look at the Christmas tree and then sit there and wait for the music to start up in the light show to go. So many congratulations to you and your team on creating quite a scene. To anybody who's going to New York for the holidays. Do not miss it because it's really worth watching.
Richard, a real pleasure. Thank you for spending the time with me. Congrats on all you have built in, all you have done and all you give back. And to our loyal listeners on the Walker Webcast, thanks for joining us today. We'll be back next week with another. Thank you, Richard, very much.
Richard Baker: Thank you, Willy. I enjoyed the time.
Willy Walker: Take care. Bye bye.