Luxury shoppers in Canada, for years ignored by upscale American chains, are finally getting some respect.
Nordstrom Inc. (JWN), the largest U.S. luxury department-store chain, plans to open six Canadian stores this year through 2017. Saks Fifth Avenue, still run from New York even after its takeover by Canada’s Hudson’s Bay Co. (HBC) last year, plans to add as many as seven stores, with two set to open in Toronto in 2016.
These top U.S. purveyors of pricey clothing and accessories, while mindful of Target Corp.’s (TGT) recent stumble expanding north, are noticing wealthy Canadians are increasingly emulating their more profligate American counterparts. The changing consumer habits and sudden availability of prime retail real estate are now spurring Saks and Nordstrom to bring their attentive customer service and gourmet dining halls into a market long dominated by two major homegrown chains: Holt Renfrew and Harry Rosen.
“We believe there’s a lack of exciting opportunities for the luxury shopper to do their spending,” Hudson’s Bay Chief Executive Officer Richard Baker, 48, said in a phone interview from New York. “We’ll not only capture a large percentage of the existing luxury market, but we’re also going to capture a growth that’s happening in Canada and the business that’s presently leaving Canada to shop in the U.S.”
Canadians who wanted the newest high-end fashion have largely had to make do with the luxury mainstays of Holt Renfrew and men’s shop Harry Rosen. Both chains, with deep roots in the country and well-established store bases, had for years scared off potential challengers. Holt Renfrew, owned by Toronto’s George Weston Ltd. (WN), started as a Quebec City hat shop in 1837 and now has nine locations across the country. Closely held Harry Rosen, founded in Toronto in 1954, has 16 stores.
The American chains sensed an opportunity to gain a foothold in the years following the recession as soaring housing prices and an improving stock market boosted Canadians’ wealth. Store closings at Sears Canada Inc. (SCC) more recently made prime retail space available. Five of Nordstrom’s six planned Canadian stores will be in vacated Sears Canada spaces, Brooke White, a Nordstrom spokeswoman, said in an interview.
The country’s luxury shoppers also have changed. Before the recession, wealthy Canadians were seen as more reserved than their U.S. counterparts, Antony Karabus, CEO and president of Hilco Retail Consulting, said in a phone interview from Toronto. Now, years of stock market gains and rising home values are helping them realize they’re richer than they thought -- and they’re willing to spend on premium brands, he said.
The Standard & Poor’s/Toronto Stock Exchange Composite Index is up 11 percent this year, compared with the 3.3 percent gain in the Standard & Poor’s 500 Index. Canadian home prices as measured by the Teranet-National Bank Home Price Index (TNBHICP) have increased 32 percent in the five years through May. That compares with a 21 percent gain in the S&P/Case-Shiller Composite-20 Home Price Index.
Moving into Canada won’t be easy.
For one, their rivals aren’t taking the incursion lying down. Harry Rosen started a $100 million expansion and began remodeling almost every store when it found out Nordstrom and Saks were coming to Canada, Chairman and CEO Larry Rosen said in a phone interview.
“We’re being almost un-Canadian in our aggressiveness,” said Rosen, 58. “We’re making sure that our expansions are finished before the new guys come.”
Nordstrom and Saks also may be at a disadvantage right out of the gate because their Canadian rivals hold exclusive rights for some of the most desirable brands, Karabus said.
“Competition makes everyone better, and we have never taken competition lightly,” Mark Derbyshire, president of Holt Renfrew, said in an e-mailed statement. “We’re investing in the relationships we’ve built over 177 years –- staying close to our customers and partners.”
They also may be surprised by discerning Canadian shoppers. Just ask Target. The discount retailer went from zero to more than 120 stores in Canada last year, betting that consumers who’d already crossed the border to shop at its U.S. locations would welcome it with open arms. Yet the expansion resulted in mounting losses after Canadian shoppers didn’t find the bargains they were expecting and took their business elsewhere.
Target, based in Minneapolis, said earlier this week that Canadian sales still were trailing its expectations. The luxury chains have taken note and are vowing to proceed with caution.
Hudson’s Bay’s Baker said the company would never undertake such a rapid expansion, while Nordstrom’s White said the retailer is preparing for higher costs because of international duties and taxes.
“The lessons that everybody needs to pick off from Target’s experience is don’t rest on your laurels that you’re Saks or Nordstrom and everybody’s going to come running to your store,” George Minakakis, CEO of consulting firm Inception Retail Group in Toronto, said in a phone interview.
Nordstrom is banking on its renowned customer service -- think no time-limit on returns and salespeople who’ll spend hours helping customers pick out the perfect wardrobe -- to draw these shoppers.
While the company usually hires department managers from within for new stores, that wasn’t an option in Calgary, the first Canadian store, so Calgarian store managers participated in a nine-week training immersion program in Seattle, White said.
“They worked side-by-side with a mentor, co-worker, manager in one of our local stores,” White said in an interview from Seattle, where the company is based.
Saks, which already has stores in five countries, is turning to its international playbook for its first two Canadian stores, which will feature luxury food halls like the one at the Harrods department store in London, Baker said.
“What you’re going to find in Saks Canada is maybe a little bit more the international, European take,” he said.
If he’s right, Canadian shoppers will also find at Saks luxury they’re willing to get behind.
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