Exclusive Interview with Richard Baker

By Jack Kapp

Richard Baker ’88 is the owner, governor, and chief executive officer of the Hudson’s Bay Company, the world’s oldest trading company, which owns department stores Lord & Taylor and Saks Fifth Avenue in the United States as well as Hudson’s Bay and Home Outfitters in Canada. Baker grew up in Greenwich, Connecticut and graduated from Cornell’s School of Hotel Administration.

After graduation, Baker began his career in real estate, working with his father in their family business, National Reality & Development Corporation. In 2006 Baker led the take over of Lord & Taylor from Macy’s for $1.2 billon, and in 2008 the business’s investment arm bought the Hudson’s Bay Company. Baker currently sits on the Advisory Board of Cornell’s School of Hotel Administration and the Baker Program in Real Estate. What are some of your fondest memories from your undergraduate tenure at Cornell? Richard Baker: What I liked the most about Cornell was two things. The student body at Cornell was very specific and entrepreneurial. Whether it was the Hotel, Architecture, or ILR School, most of the people that came to Cornell had a very specific goal or mindset, and they knew they wanted to go and were very serious people. That was what I enjoyed. I enjoyed spending time with people my age, my peers, who knew exactly what they wanted to do and were very motivated to achieve their goals. I also enjoyed Cornell because they brought a lot of people on campus from the real world. You got to hear a lot of people’s stories, how accomplished they were and what they accomplished, whether they were artists or business people. Those are the real aspects of Cornell that I enjoyed most.

What is your day-to-day life as CEO?

RB: I spend two to three days a week on average traveling where I either get on a plane flying to Canada or somewhere in North America, Europe, or Asia. When I travel, I do it with different associates, team members, or partners from different locations. I think it is very important to get out and visit our different stores and visit our associates and experience exactly what our team is doing. When I am in New York, I help to get the kids off to school in the morning, and then I leave my house at seven o’clock. I drive to New York City, which can take an hour and half to two hours a day. Then I schedule phone calls during that drive. Once I get to the City, I have meetings all day with vendors, partners, or associates about different aspects of the business. Then, I get back into the car and head back home to Connecticut to be with my family.

As CEO of the oldest commercial corporation in North America, do you ever find it difficult to drive innovation and steer strategy in an evolving retail industry while trying to uphold the historical integrity and founding principles of the company? Jumping off that question, what is your philosophy on change?

RB: It’s a good question—I think our history is very important and related to our future. The Hudson Bay Company was started in 1670 by King Charles II who signed a charter giving his cousin Rupert 1/12 of the Earth’s surface—all of the land and trains to the Hudson Bay. Rupert began a business where he sent people to what is now known as Canada, then known as Rupert’s Land, right at the edge of the Hudson Bay. He would send people in, in order to bring beaver pelts out of North America and bring them back to Europe because, of course, beaver pelts were used for top hats of that period. The original people that came from the Hudson’s Bay Company would stay for two years and live in this foreign land, if you can imagine in the late 1600s and early 1700s, and they would do their work in Canada. You had to be a real adventurer and willing to take risks in order to do that. On the shore of the Hudson Bay, they built a huge trading post—a big white building, you can go online and see it.

In order to understand the history and spirit of our company, my son Jack and I traveled across Canada and flew from Winnipeg north on a plane, and then we got on a helicopter—because that’s the only way to get there. We helicoptered to the very shore of the Hudson Bay where, still intact, was the large, beautiful Hudson Bay building, called the York Factory. That facility continued to operate until the 1950s, when the Canadian Parks Association took control of the property. We landed there, got a tour of the building, and visited the cemetery where many, many Hudson Bay original associates are now resting. We also visited with the Cree Indian nation leaders, who were the nation people who worked with the Hudson Bay Company throughout all those years.

When I think about the dedication and the risk that was needed in the early days of the Hudson’s Bay Company, it really helps me think about the kind of dedication and the kind of risk-taking that we’re prepared to do in 2014. The world might move a whole lot faster today than it did back then, but it’s still the kind of ability to take risks prudently that helps drive businesses to success today like it did back then.

What has been the most important strategic decision made by the company since you purchased Hudson’s Bay Company in 2008?

RB: I think it was very important for us, when we bought the company for $1.3 billion dollars, that two years later we had sold off our least profitable and least important division, Zellers, which was the Kmart of Canada. We sold that business to Target for $1.85 billion, which was extremely relevant because it brought in a lot of cash to pay off our debt and it got us out of a business in which we couldn’t possibly be successful over the long term.

Can you also walk us through the decision to bring Hudson’s Bay Company public in 2012?

RB: By 2012 we had reorganized the business, having sold Zellers and having put Lord and Taylor underneath the Hudson’s Bay Company. We had always felt that the Hudson’s Bay Company was an iconic Canadian company and that it should be listed on the Canadian Stock exchange and owned by Canadians as much as possible. So, at that time, we decided to take the company public again on the Toronto stock exchange. While we still own a large majority of the company, Canadians have an opportunity to own and share in the success of their most iconic company.

What drove you to push for the recent acquisition of Saks Fifth Avenue, and how do you see it affecting your bottom line over the next few years?

RB: Saks Fifth Avenue was a perfect match for the Hudson’s Bay Company. We worked on buying Saks for five years before making the transaction. The first reason it was a perfect fit was by combining the two companies we were able to reap a hundred million dollars a year plus savings due to synergies between the companies. Two, because of our infrastructure in Canada we were able to roll out Saks Fifth Avenue stores in Canada. Three, Saks had a very successful and well-organized online business. What we were able to do was to capitalize on that asset and we have now reorganized the business so that all of our online businesses work together logistically – all underneath the Saks Fifth Avenue digital leadership. Additionally, Saks has a sale business called Saks Off Fifth. This online business we believe has tremendous growth opportunity and that’s a big driver for our growth going forward. Lastly, Saks gets us really into the luxury business, and in a big-profile way. Saks Fifth Avenue is, arguably, one of the great distributors of luxury products in the United States and maybe someday internationally. The last thing was because of Saks’ tremendous real estate portfolio. We believe the value of real estate of Saks was worth more than we paid the entire company, so when you add all of those reasons together it was a very appealing opportunity for the Hudson Bay Company.

What lessons did you learn from the disappointment of your Linens ‘n Things deal?

RB: Life is about being able to deal with and overcome failure and then to being able to go on to do something else. Everyday all of us fail in different aspects of what we do, and successful people are able to overcome the disappointment of failure in order to accomplish their goals and be successful the next day. I spent a lot of time talking to my team about how important it is to fail because if you never fail, you are not pushing the envelope hard enough; you are not trying hard enough. Great learning comes from failure; it is something we embrace and work through.

What trends do you foresee/have you seen that will help shape the future of the retail industry? How do you see the future of online retail and mobile commerce?

RB: I think online retail and brick and mortar retail are evolving very rapidly. What I believe is happening is that the winning formula is something that we call Omni channel. Omni channel is being able to service your customer anyway that he/she wants to be serviced. So, if a customer wants to buy products from us on their mobile device, on their computer, in a store, we have to be available to provide that capability. You can now shop any of our brands in that way but additionally, you can go to our store and if we don’t have something in stock or the right size and color that you want, we can ship it to you and have it to you in 2 or 3 days. This Omni channel version of retail gives large branded companies like Saks, Lord & Taylor, or Hudson Bay, the opportunity to be as successful or more successful at selling their products than an Amazon or an eBay.

Customers still enjoy the entertainment and excitement of visiting a well-edited and well-operated retail store. Our analysis shows that customers are more likely to buy online from a retailer that they trust and a retailer that has a brick and mortar presence in the neighborhood or the vicinity in which they spend time. I think now there is a lot of change going on now and a lot of change ahead of us. I do think that the combination of online and brick and mortar make a very useful solution for people’s shopping needs.

Through the lens of an active alumnus, how have you seen the university – particularly the real estate and business curricula offered – evolve over the past few decades?

RB: Let’s talk about how important I feel my School of Hotel Administration education was to me even though I never went into the hotel business. The reason is, at SHA, they are teaching you about a concept called hospitality. And hospitality means taking care of your customers. All of us in business have customers whether you are an attorney, a dentist, a retailer, or computer software designer. You have customers, and your responsibility is to take care of your customers, treat them the way they want to be treated, service them the way they need to be serviced. If you go through SHA and learn nothing else – real estate, accounting, marketing, operations – but you learn how important it is to take care of other people, to make other people happy, to take care of your customers, I think you have learned a whole lot.

And, I think, while the curriculum has changed over the years, the basics are still true, which is at SHA you are learning the business school type basic curriculum, and in SHA’s case, it is through the lens of being in the hospitality business. While I think this education obviously applies to the hospitality industry, I think that everything you learn in SHA is applicable towards other business ventures as well.

Do you have any advice for students interested in entering the real estate or retail industries?

RB: My personal recommendation is that you should get as much experience as possible in smaller firms or places where you will have exposure to transactions so that you can learn the day-to-day nuances of the real estate business. The real estate business is a very inefficient business that gives you the opportunity to potentially be very successful because not everyone understands what every building or what every space is worth at any given time. Unlike someone who is in the business of trading, buying, and selling stocks, everybody always knows the price of Google stock on any given day, a piece of real estate or a space inside of a building can change in an inefficient manner, which means that certain people can create profit at any given time.