A sneak peek inside the relaunch of Zellers, and what the resurrected discount chain means for Hudson’s Bay

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There is a small frisson of excitement inside this Hudson’s Bay store, as though there has been a celebrity sighting. “He’s here!” says Zellers creative lead Henrietta Poon, her face brightening.

“He” is an inanimate bear costume, its oversized head fixed with an immutable cartoon smile, sitting on a shelf in a back room: Zeddy the mascot. This fuzzy suit, one of roughly 10 remaining, is on loan from a children’s charity to which Zeddy was donated just over a decade ago, as Hudson’s Bay Co. was shutting down the discount Zellers chain.

Just how and when Zeddy will come back has, like the company’s plans for the store itself, been largely under wraps since HBC announced last August that it would resurrect Zellers as “shop in shops” inside its department stores. For now, this location in a Bay store in Mississauga is hidden from shoppers behind a long row of thick black curtains.

Behind them, housewares, furniture, kids’ toys and clothing, pet supplies and apparel are displayed on white metal shelves under familiar red-and-white signage. A $99 storage bench is displayed alongside $15 sage and moss scented candles; the kitchen area stocks blush-pink toasters, dish sets and acacia serving boards; and the children’s section displays toys, tiny outfits and sippy cups. The majority of the products are designed in-house under Zellers’s new private label, Anko, though the store will also sell some name-brand products, such as from Disney DIS-N and Mattel MAT-Q.

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The nearly 8,000-square-foot space will be one of the first Zellers to open later this month, with 25 shops initially planned across the country – and possibly more, if the strategy proves successful.

HBC is hoping the Zellers reboot will draw in curious customers who might not otherwise visit Bay stores, not to mention price-sensitive Canadians looking for relief amid inflation. But the discount retail sector in Canada is extremely crowded, with Dollarama Inc. DOL-T, Walmart Canada, and e-commerce giant Amazon AMZN-Q making it nearly impossible to compete on price alone; Ikea and TJX Co.’s TJX-N HomeSense and Winners already offering up housewares at accessible price points; and the likes of H&M, Zara and Loblaw Cos. Ltd.’s Joe Fresh helping saturate the market for cheap-chic clothing.

And recent retail failures in Canada underscore the difficulty of competing in the sector. Nordstrom Inc. last week said it’s shutting its Canadian stores after launching in 2014 and failing to turn a profit. Bed Bath & Beyond Inc. last month also announced its Canadian stores will close. Target Corp., which launched in Canada by buying Zellers’s store leases, exited the country in 2015 after just two years and booked a US$5.4-billion loss.

HBC remains undaunted. “Obviously we have the footprint to open up more Zellers shop-in-shops, but I wouldn’t even discount that we could possibly open Zellers standalones,” says Hudson’s Bay president Sophia Hwang-Judiesch, who joined the company in September. “Nothing is off the table with Zellers.”

That footprint comprises 84 Bay locations across the country, many of them sprawling spaces built on an old department store model. The company has repurposed some of that space as restaurants or offices and has launched other shop-in-shops, such as with outdoor retailer MEC.

During his days at Canadian Tire CTC-A-T, Mark Foote recalls having a healthy competitive respect for Zellers. But by the mid-2000s, “it was a pretty broken brand,” he says. By the time Mr. Foote came on board in 2008 to lead what was intended to be a turnaround, Zellers had overbuilt – stores were too big, filled with too many product categories, and generally looked “dishevelled,” he says.

Still, his team was confident Zellers could be resurrected. A pilot project in Winnipeg cut down on underperforming inventory, and even added groceries to the mix. “It was doing great,” recalls Mr. Foote, now retired. But not $1.8-billion-great. That was the price HBC fetched in the 2011 deal to sell 189 store leases to Target. The deal was worth more than Richard Baker’s NRDC Equity Partners had paid to acquire all of HBC just a few years earlier, and so Mr. Foote’s job shifted, from reviving Zellers to shutting it down. But the idea of moving Zellers into the department stores was always there.

“We did a bunch of drawings about how to take entire floors of Bay stores and turn them into Zellers,” Mr. Foote says. If you put the Zellers stores in places in the Bay that are reasonably prominent, and if you have a good assortment of products, he says, “that drives a bit of traffic, and it’s an underused asset, that makes some sense.”

Since Hudson’s Bay went private in 2020, it has closed down four locations, with two more planned for this summer in Alberta. Ms. Hwang-Judiesch says those were mostly owing to rising rents, or customers migrating to other Bay locations.

“During the pandemic, it was very easy for customers to sit in their pyjamas and not leave their house to shop. We now need to figure out how to create an experience in stores, where there’s a reason why they want to leave.”

It may help that Zellers, remembered for its “lowest price is the law” slogan, is relaunching just as shoppers are feeling the pinch. But it also means more competition for tighter wallets. According to research firm The NPD Group, 78 per cent of the 1,009 Canadians it surveyed in January said they planned to cut back on product purchases because of inflation.

“We’ve seen things soften dramatically in 2022 and early 2023,” said Tamara Szames, Canada retail industry adviser with NPD. “As retail compresses, there is more competition for each of these retailers to get their fair share.”

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HBC is navigating a delicate balance, trying to capitalize on nostalgia for the Zellers brand while also setting expectations that things will be different this time around.

For example, the company has communicated that there is no room for Zellers diners in 8,000- to 10,000-square-foot spaces. (HBC is testing out food trucks, however, with some menu items from the old restaurant.)

They are also hoping to bring back Zeddy, but in a way that involves Campfire Circle, the charity that “adopted” the mascot and still uses him (under the name Barry) to encourage children at its camps who are going through cancer treatment. The charity will continue to use the bear, and the company is in talks on how to involve it in Zeddy’s comeback story.

Some of the change, they hope, will be positive – particularly the design of products such as the wooden children’s toys, scented oil diffusers and heavy enamelled cookware. “It’s incredible styling,” Ms. Hwang-Judiesch says. “We’re saying ‘value’ versus ‘discount.’ I think there’s a lot of white space in the market for that.”

Zellers will also have an e-commerce strategy. The site will have the same threshold for free delivery as TheBay.com ($69, or $39 for those shopping with the store-branded Mastercard), with a harmonized checkout that allows visitors to shop across both stores in one order. That could set Zellers apart from discounters with little to no e-commerce presence, such as Dollarama and HomeSense, and those that charge more for delivery, such as Ikea.

But as brick-and-mortar continues to drive the bulk of Hudson’s Bay sales, luring people to stores is a priority. Nostalgia will not be enough to build the brand on its own, but Ms. Hwang-Judiesch’s goal is to draw in curious customers, in the hopes that they browse not only at Zellers but in the rest of the store as well.

“We know that Zellers is going to drive higher productivity within the space. That’s part of the reason why we made the decision,” she says. “We do think that there’s going to be a halo effect.”