‘Ottawa’ Target Fiasco Looms Large as Nordstrom Challenges Hudson’s Bay with New Flagship Store in Toronto
TORONTO — The faceoff begins Friday.
At the north end of the Toronto Eaton Centre, a sprawling downtown mall, Nordstrom will open its first store in Canada’s largest city. At its south end, an iconic redbrick building houses the newly renovated flagship store of Canada’s department store giant, the Hudson’s Bay Co., and the first Canadian outlet of its subsidiary, Saks Fifth Avenue.
In the United States, department stores are retrenching. Macy’s, the country’s largest, recently announced that it was closing 100 stores.
But not so in Canada. Instead, the industry is expanding.
Hudson’s Bay, founded in 1670 as a fur trader, is spending US$1 billion to renovate many of its 90 stores across the country. With the Eaton Centre location, Nordstrom will have four Canadian stores, and two more are planned. The luxury department store Holt Renfrew has paid US$300 million to remake its nine outlets. And La Maison Simons is extending its reach across much of the country, after 175 years of operating only in Quebec.
Several factors are driving the plans. Far fewer department stores compete for shoppers in Canada than in the United States on a per capita basis. High shipping costs have limited the growth of online shopping in Canada relative to the U.S. And, for U.S. retailers, Canada offers an opportunity to grow in a stable and seemingly similar market.
Christopher Katsarov/ National PostCanadian shoppers — who are generally considered more frugal than their counterparts across the border — have even been shopping in sizable numbers at Nordstrom’s Seattle location.
“We’re certainly aware of what other retailers have done”
But lingering over all of the excitement is the foul odour left by the fiasco of Target, which tried the last aggressive retail expansion effort in Canada.
Plagued by a logistics system that left shelves empty and a perception that its stores were significantly more expensive than those in the United States, Target put its Canadian subsidiary in bankruptcy early last year, less than two years after entering the country. Target closed all of its 133 Canadian stores, posted a US$5.4 billion write-down and set off litigation.
“Canada is a good place, everybody wants to do business here,” said Peter Simons, the president and chief executive of La Maison Simons, which is owned by his family. “I’m proud that people see it as a stable and interesting place to be.”
But Simons acknowledged that, as Target showed, the surge of interest in the Canadian market is not always for the good.
“There will be some spilt milk,” he said. “It looks like an easy place to do business. When people who don’t know what they’re doing come into the market, it spurs things on, but it can also have a destabilizing effect.”
Most the current store openings and renovations stem from decisions made before Target’s failure. Canada emerged relatively unscathed from the 2008 financial crisis, and its major commodities industries, particularly Alberta’s oilsands, were on a roll. That combination made moving into the country look too good to pass up.
It certainly caught the eye of Nordstrom, which, like other traditional U.S. department stores, has struggled to attract customers. The company has closed more than a half-dozen locations in the United States since 2011, as shoppers have increasingly turned to online shopping and to discount stores like T.J. Maxx.
Canadian shoppers — who are generally considered more frugal than their counterparts across the border — have even been shopping in sizable numbers at Nordstrom’s Seattle location.
“Canada seems like the natural first stepping-off point to go international,” Jamie Nordstrom, the president of Nordstrom stores, said. “We’re certainly aware of what other retailers have done, and we try to be students of how different people have approached that.”
Although Nordstrom and Target announced their expansions into Canada at roughly the same time, their approaches differed sharply. While Target rushed to open hundreds of stores in slightly more than a year, Nordstrom is spreading the opening of its six full-line stores over three years. (It also plans to open four Nordstrom Rack discount stores, but not until 2018.)
“I think there are examples out there where a retailer would open 100 stores on one day in a new region or a new country,” Nordstrom said. “Every one of our stores is a big investment for us, and we open them one at a time.”
The six Nordstrom stores are, or will be, in some of Canada’s most prestigious shopping malls. And in several cases, including the Eaton Centre store and those in Ottawa, Ontario and Vancouver, British Columbia, the buildings were last occupied by Sears Canada. That company is in free fall and sold the prime leases as part of a so-far-unsuccessful turnaround plan.
The new 220,000-square-foot Toronto store is much like the U.S. versions. It includes four bars, a concierge service and a wide array of cosmetics, designer fashions and the company’s signature shoe departments.
But some things are different.
Christopher Katsarov/National PostCanadian packaging laws require both French and English, and wholesaling arrangements mean that Nordstrom cannot simply supply its new stores from warehouses in the United States.
Canadian packaging laws require both French and English, and wholesaling arrangements mean that Nordstrom cannot simply supply its new stores from warehouses in the United States.
Some of its prominent and popular product lines are locked up by Canadian retailers. The most notable absence is Britain’s Topshop and Topman, brands that have achieved that most elusive of feats: luring younger shoppers into department stores.
Shoppers can find those brands just down the mall at a Hudson’s Bay store on Queen Street, which has been transformed, setting up an interesting duel between the big stores.
When Richard A. Baker took control of Hudson’s Bay in 2008, there was concern in Canada that he was interested only in its real estate. Baker, who is based in New York, owns National Realty & Development Corp., a large privately held developer, with his father, Robert Baker.
He certainly has executed several real estate deals. Two years ago, for example, he sold the giant Queen Street store to the owner of the Eaton Centre, making Hudson’s Bay a tenant. But he has also followed through on promises to invest and improve the company.
Baker said that when he acquired the company, the 1-million-square-foot Queen Street location had annual sales of about US$100 million. Today, he said, it generates about three times that amount. (Including Lord & Taylor, Saks and its European chains, Hudson’s Bay posted a profit of $387 million, or US$279 million, on sales of $11.25 billion last year.)
“It’s a new Hudson’s Bay, and the customers love it,” he said.
Just four subway stops north of Queen Street, though, shows the limits of those ambitions — and perhaps an opening for competitors. There, another Hudson’s Bay store provides a trip back to the company’s bad old days.
Ceiling tiles are blackened with age. Burned-out or flickering light fixtures create dark zones, while escalators clatter and groan. Floor tiles are broken, carpets stained. And while the store’s employees are as friendly and helpful as their Queen Street counterparts, they are far less numerous. So are shoppers.
Perhaps most embarrassing is that the store is on Bloor Street. Just to its west is Toronto’s “mink mile,” the most expensive retail space in Canada. Like the new Nordstrom and Saks stores, Holt Renfrew’s two stores there are filled with artwork, a dizzying array of customer services and products with often-dizzying prices.
Some of Nordstrom’s popular product lines are locked up by Canadian retailers. Shoppers can find those brands just down the mall at the Hudson’s Bay store
Simons, the lower-key mainstay of the Canadian retail industry, is pursuing a less aggressive strategy. The company has spurned downtown Toronto. Its only outpost is in Square One, a high-end mall in neighbouring Mississauga, Ontario, which also houses a new Holts store and a Hudson’s Bay outlet.
Simons said he welcomed the additional competition in Canada. But he added that he was not concerned that he would be crushed by their larger size and financial resources.
“We’ve been in business for 175 years,” he said. “We’re the oldest, privately held family company in Canada. I would think that gives us some understanding of the market.”