Two years after the spectacular flameout of Target Canada, why would another U.S. based department store merchant, Nordstrom Inc., take a chance on the often perilous Canadian market?
Seattle-based Nordstrom, which opened its first GTA store Friday at the Toronto Eaton Centre and opens a second store at Yorkdale Shopping Centre next month, is also an upscale merchant chancing a Canadian market that did not support discounter Target.
At a time when Canadian household debt is at near-record levels, the Target Canada post-mortem of analysts that Canadian consumers are skin-flinted would seem to augur poorly for Nordstrom. The same applies to Lowe’s, the U.S. hardware and home furnishings chain, and the venerable Quebec department store chain La Maison Simons, also rolling the dice on Canadian expansions.
But that hasty Target Canada post-mortem was wrong.
A Target struggling with unprecedented problems in its home market failed to do its homework on Canada. It offered prosaic goods available cheaper at Walmart Canada, and was chronically out of stock because of a dysfunctional distribution system. And it over-reached in its first non-U.S. market, starting out with 124 Canadian stores. That included haphazardly retrofitted former Zellers outlets in rundown malls, or hidden behind abandoned warehouses.
So far, Nordstrom has plans for just six Canadian stores, in Calgary, Vancouver, Toronto and Ottawa. Two years passed between the opening of Nordstrom’s first Canadian store, in Calgary, and the GTA store openings this month. Another year will pass before the 2017 opening of a third GTA store, at Sherway Gardens (another MVP mall).
“We have a healthy dose of humility,” co-president Erik Nordstrom told Toronto Star business reporter Francine Kopun ahead of the firm’s Calgary opening. “We will look to respond to customer comments right off the bat.”
In fact, Target’s loss of its entire investment in Canada, some $2.6 billion, said little about Canadian consumers, and a great deal about a Target coping badly with the first major reversals in its then 49-year history.
Those setbacks included Target’s unwise shift away from the “cheap chic” offerings that had made it a viable competitor to Wal-Mart. The firm was also hit with one of the biggest security breaches in history when data on millions of its customers was hacked.
To be sure, some retailers in Canada have stumbled, including Danier Leather, Le Château and Nine West. But upscale merchants Cartier, Hermès, Tiffany & Co. and Saks Fifth Avenue have done just fine.
Nordstrom’s traditional full-size stores, which still account for the bulk of company sales, are a drag on profits. They are caught in the same malaise afflicting the whole department-store sector.
Specialty stores long ago began eroding department stores’ share of major product categories. And more recently, online shopping is also taking its toll. Amazon’s offerings are ever expanding. And “web-first” specialty online merchants are ubiquitous.
Traditional retailers, from pharmacies to car dealerships, also have to contend with “showrooming.” That trend has consumers deciding on their purchase at a conventional store, but then buying the item elsewhere after doing an online price comparison.
But Nordstrom has more staying power than its peers.
Sales are booming at its more than 150 U.S. discount Nordstrom Rack stores, one of which is planned for the GTA’s Vaughan Mills shopping centre in 2018.
Nordstrom has built one of the most formidable e-commerce infrastructures in retailing, from state-of-the-art distribution centres to specialized shopping apps. Today Nordstrom derives an astonishing 21 per cent of its revenue from digital sales, at a time when mediocrity marks the online presence of most conventional retailers.
The combination of Nordstrom’s enviable locations and its prowess in e-commerce has made Nordstrom the first choice for web-first merchants seeking a bricks-and-mortar presence to increase their visibility.
As it happens, Nordstrom will bring to Canada something that even a successful Target Canada would not have, namely a treasure-house of quality and trendy brands, in addition to its lavishly appointed bricks-and-mortar emporia. The Nordstrom that opened Friday at the Toronto Eaton Centre boasts a cocktail lounge, espresso bar and children’s playhouse – amenities aimed at keeping customers in the store longer.
If Target Canada is a case history of multi-dimensional failure, a Nordstrom that brings its first-in-class online savvy to Canada will force incumbent Canadian retailers to raise their game. It will be a free lesson on how to stay relevant in a volatile retailing world.
BUSINESS, TORONTO STAR, DAVID OLIVE, SEPTEMBER 16, 2016 (Edited Version)
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