Hey, Charles.

Hi, David.

How are you?

Very good. End of the week.

End of the week.

Who’s never happy at the end of the week? It is actually literally the end of the week. A real end of the week. But yeah, no, it was busy week on the road.

Yes.

So I’m looking forward to, you know, the weekend. For me, it’s going to start in about 30 minutes. No, I have more meetings later today. But anyway, let’s talk. So what, this is behind the headlines, and I think there’s a pretty juicy story. That is a story about retail. Right. But obviously there are lots of interesting supply chain ramifications. So what is it?

Well, so the article, I don’t. The title, whatever, is about the Hudson Bay company acquiring Neiman Marcus, another department store competitors, but that specializes in high end or luxury items. So this has been speculated for a while now. It’s official, but also part of that. Well, so HBC, the largest or oldest company in Canada, actually the oldest chartered.

Company in the world, still operating well, yeah.

Well, thank you. That is actually very important.

And it’s important. Okay, keep going. And then. Cause I think there’s an element of this that you haven’t said yet.

Okay.

That’s interesting itself.

Okay. So there’s this acquisition that is. So Hudson HBC is integrating this latest acquisition to another group they’ve created to match it with their other luxury assets outside of Canada, which is Sacs Fifth Avenue. And I forget, no, Saks 5th.

5Th Avenue.

And now it’s under called Saks Global, and is also basically kind of dissociating HBC or making it as a standalone for its stores and online retail in Canada. Not matching it or merging it with all the other types of operations.

Yeah. So years ago, I think they caused, I know Wendy’s and Tim Hortons have done this. There is this, this maneuver, financial maneuver, where an american company uses a canadian company to buy an american company and it has some sort of favorable tax outcome. So Saks Fifth avenue actually kind of reverse purchased the Hudson’s Bay Company, but it was. The Hudson’s Bay Company is the lead company and Wendy’s, the fast food chain and Tim Hortons have done the same thing. This has been done routinely for whatever reasons. We’re not.

Yeah.

We don’t even aware of the Wall street. It’s, we’re, our work is also done. We’re simple people who do work many, many miles away from Wall street where the warehouses go. But it is one interesting thing. I remember that it’s a legendary retail mogul who engineered that whole purchase. And as I had mentioned just a second ago, the Hudson’s Bay Company is the oldest chartered company still operating in the world today. And there is no chairman of the board of the Hudson’s Bay Company. The real title of the person in charge of the Hudson’s Bay Company is the governor of the Hudson’s Bay. And this guy thought that was the coolest thing. And just, you know, one of the little perks of engineering this, this retail merger was he would then assume the title of governor of the, of the Hudson’s Bay.

Really?

Yeah.

Okay.

Anyway, so, yes, you were saying? So the bayou, through its subsidiary Saks Fifth Avenue, is merging with Neiman Marcus. It’s a $2.65 billion deal. And interestingly enough, there are two strange players who are investing in this.

Amazon and Salesforce.

Very interesting.

Yeah.

Right. And I thought maybe, let’s just talk about the bay itself because there’s a lot, there was other interesting news about the bayou today, but all three, Saks, Neiman Marcus and the bay, these are struggling. Retailers and department stores generally are struggling. People don’t. Whether it’s high end or the bay, which is more, call it middle of the road, these people are not attracting customers like you would think or that they did in the old days. You know, if you look at the bay stores, they’re actually, you know, generally pretty terrible these days.

Well, haven’t evolved. Right. It’s the same as when we were, you go to the bay today, it looks the same as when we.

I go to the bay. You know, it’s there. I’ve got one close to me. It’s walking distance. So you know, I go, it’s worse than from a retail. I mean, the escalators don’t work very often. You’re climbing up and down escalators. And so there was a story this week that the bay across Canada shut stores down for one day in order to do repairs, air conditioning, lighting, escalators. And this kind of shocked the observers of the retail industry, because most of these things are the kind of things that you would repair without closing your stores because you need the sales. But the bay made a calculation that actually operating the stores while these repairs would be more money losing, then closing the stores, having no one work that day, and making the repairs happen.

Yeah, it tells a lot.

It says a lot about the kind of stress that the bay itself, as a retailer is under. And I did read some speculation. They were saying that perhaps, at least from the retailer side of this deal, the Neiman markets and Sachs deal is more about the real estate, because all of these companies actually do control prime real estate. Prime real estate. The bay that I live near is heart of downtown Montreal. It’s a storied building. It is. I don’t know how old, but it would be easily over 100 years old. Feels it that way when you walk through it. But no, it’s beautiful on the outside. Great bones, as people would say. And so there’s, you know, you pick every major city, it’s going to have Asaks and Neiman Marcus, or a bay that really is controlling terrific real estate. I was in Dallas two months ago, three months ago, and happened to just be like, right near the Neiman Marcus in downtown Dallas. And I went through it and it’s a very beautiful building. It’s, again, one of those storied buildings in Dallas, which is where Neiman Marcus comes from. Can I make one comment, though?

Of course, one of the reasons I think some of these, at least at the luxury end department stores fail is the folks who have the money to buy luxury clothing have bellies and bodies like mine, you know, and even if David looks skinny, I mean, we’re old men and we’re the ones with money, but why is it all slim fit? Why is it always sized, you know, so that only a 20 year old could wear that clothing?

Look, I don’t have that issue. I cannot, I don’t have any answer to provide.

Well, I would say if they ever, if they ever added one x to the, to their sizes, you know, they would, they would lift sales on men’s clothing quite a bit anyway. So that’s on the base side but let’s talk about the Amazon side of things. So this is interesting.

Yeah. So on the Amazon now, Amazon is getting more and more pressured by competitors such as Timu or Shane. Am I pronouncing this?

I don’t know. I’ve seen the name, my daughter.

I haven’t mentioned it.

I don’t know anything. Right. So it’s Sheen or it’s shine.

Yeah, it has.

Naturally it would look like shine to me.

Okay. The eye is capital.

I noticed that, too. Which I find weird.

Anyway. So these online retailers or she in maybe?

Like, she’s in maybe that’s what the name comes from. We should have asked, but yeah, these are, these are these two upstart online retail clothing retailers.

Yeah.

And they are shipping directly, directly to China, to consumers in the United States and Canada and everywhere else in the world. And that gives them enormous ability to price things very low.

Yeah. Don’t have to invest in much infrastructure here in any of their markets.

And none of your labor is going to be, you know, tier one labor costs. And it’s really interesting. So you give up that rapid. Especially remember during COVID where every, every customer that we dealt with when it came to ecommerce, the only thing that mattered was the speed of delivery. Right. If you could do next day, then it became same day. If you same day it had the next 60 minutes. Now it’s like it’s, people are working on teleportation machines just to, you know, just to get you something quickly. But, but this is the opposite of that. Right? Eleven, nine to eleven days lead times. If you’re going to air freight, it even, it takes forever. But in exchange for that time that lag, you get a much lower cost. And Amazon is kind of pursuing two strategies there. They’re trying to do the same thing and build a low cost apparel strategy. That means your prime membership is useless because you’re not going to get this quickly, but you will get the savings is the idea. And what I think is interesting about that, a lot of folks in supply chain quietly have been taking advantage of de minimis rules.

So, you know, every country has a certain allowance that their citizens or their permanent residents can purchase foreign goods without paying taxes, duties or import tariffs. And the US has a particularly, I mean, as Canadians, we know that our government, you know, we all live, we all live close to a shopping mall in the states, but it’s, you got to spend 48 hours before you get a real nice limit amount. You can’t just drive down to Plattsburgh, come back and come back with more than. I don’t even know. Dollar 20.

Oh, I thought it was more. I thought it was $200.

Under 24 hours.

I thought it was 200. And then it goes to 800.

It does. I thought it had to be 24 hours. And then you get your two.

Oh, yeah, yeah, you’re right. 24 to 48.

And then morning, one full night stay. Right.

To get those stays, get it one hotel night to pay and then 48.

Hours to get $800. But for e commerce, it works the same way. So for shipping into America, you have this $800 duty free. So as long as the customer is making a purchase on your website for less than $800, you can ship it pretty much from anywhere, which gives us the ability to set up e commerce platforms in Mexico, which is happening, as we know, all across the border, particularly in Tijuana, where there are tons of. Of third party logistics facilities that are just providing e commerce to get the.

Inbound and to strive.

But we also know of customers who are starting to think about using that logic here in Canada as well. In other words, because of our restrictive duty allowances, it’s not attractive to ship internationally into Canada from hour. From us as a consumer.

Consumer. Yeah.

So if you are going to be forced to put an e commerce facility, say you’re a retailer, a consumer goods brand, put an e commerce facility in the greater Toronto area or up here in Montreal, you start asking yourself, why wouldn’t I put my entire US and Canada demand through that facility, enjoy the economies of scale and take advantage of the de minimis allowances that the us government provides. Now, Canada, of course, is not a low cost jurisdiction. However, there is a currency exchange benefit. I mean, we could debate whether that currency exchange benefit is one that you want to bank on over a ten year period, but certainly labor costs will be 25% cheaper, let’s say, all the time. Almost all the time. And then, well, this is not true of Toronto, but let’s say if you’re in Montreal, if you look at industrial space in Montreal or say Cornwall, or one of those population centers that are not large but have enough workforce and have land very, very inexpensive to build on, with a community that has all sorts of incentives, not necessarily financial incentives in the direct way that we see in the states, but incentives meaning make it fairly easy for you to come and get a building up and running in that community.

It’s a very attractive, it’s a very appealing strategy and that is something we are seeing a lot. I don’t know if you have anything you want to say about that?

No, not at all.

But that, of course, all of that. How does that tie into Amazon’s investment in Saks Fifth Avenue and Neiman Marcus?

Well, talking about Amazon that has struggled ultimately to capture this luxury market, I forget the, the name of the company that was acquired in order to try to this, but it has not been successful.

Right. Well, they set up this thing called the luxury retail store in 2020 and a lot of brands have not signed on to selling through that. I can understand that.

Well, as a luxury brand, it may appear it would diminish the value or the perceived value of your goods to go through Amazon.

I think it does, yeah.

Because Amazon being this, I don’t associate.

Amazon with anything but toilet, toilet paper and toothbrushes. And so that’s how I see it. Yeah.

So maybe through this they are looking to learn about luxury retail and how well, because also when we’re talking about HBC and other luxury retailers, they are also struggling to do online business, do e commerce properly. Yeah, Amazon has obviously the online, the retailers know luxury and that’s where this alliance may be a great learning experience for both parties, feeding off each other’s experiences.

Yeah. Well, it’s certainly true that if you’re, because the scale of things, if you’re Neiman Marcus and you’ve got an online operation, a fulfillment center, you don’t have the operational expertise to put anything like that together properly. Good chance that you’ll fail at that. And funnily enough, failing in this sense will mean overspending. They will have convinced themselves that because they’re selling luxury goods, things are luxurious material handling solutions. No one care. No one cares. But, and I could see that they, you know, the, the benefit of just folding those operations into Amazon operations, which is a completely blind to the consumer, if blind in the sense of it doesn’t diminish the perception of Neiman Marcus or Saks Fifth Avenue. No, that their online operations are running through Amazon facilities.

It’s not, you’re not buying through Amazon, right. You’re just using their, their logistic services.

And, and really, if anything, that will just vastly improve the customer experience.

Yeah.

Crazy.

What about Salesforce, though? It doesn’t mention too much about it.

And I really, I have no idea. I don’t know what I mean. Look, Salesforce is in the CRM world.

There’s a lot of data there, there’s.

A lot of excellent data to be had. There’s a lot of expertise to provide these retailers in terms of managing online customer relationships, not just transactionally but actually engaging them as people who participate in your business and your brand and all that kind of jazz. But it’s harder for me, and I’m sure for you to really understand that because it’s not our bailiwick. We’re really more thinking through that. The operation, the really interesting issues that this article and this situation have created in terms of, you know, a, like the almost the difficulty for retailers to build out their own online operation that succeeds and just willingly, well, not willing, but giving it up to Amazon. And when you think about how many of the smaller retailers that we work and have really lovely operations, I can think of some here in Montreal, some very, very prominent national retailers, canadian retailers whose online operations are terrific. And the key difference, I would suggest, is they didn’t stumble into an overly expensive, financially choking solution. Yeah.

Which is very risky. Until you actually build some volume to sustain those investments, it can be very risky. Yeah.

Yeah. So have we done it?

I think so.

I think we’ve talked about this issue.

Yeah.

I mean, it’s a fun story. I hope everyone. Here it is. Right. We had it, showed it. I hope everyone goes and reads it and we’ll see.

Yeah, we’ll see where it goes.

Of luxury brick and mortar luxury department stores. Do you think that they’re all in trouble? I don’t think Holton Renfrew’s in trouble. Renfrew?

No, I don’t think they’re in trouble.

But I will say it would be nice if they just added a few extra sizes. If they want people with money to buy, maybe.

Well, as we know the audience of this podcast, I’m sure you’re going to reach one or two.

Oh, I’m so sorry. That’s my alarm. Time to go. That tells me I have to pay my parking.

That’s pretty good. Yeah.