Canada’s landscape for retail apparel and accessories is dramatically shifting. In 2015, major announcements from US favorites Nordstrom’s and Saks Fifth Avenue were made, describing an intended ‘slow and easy’ expansion into the Canadian market. However, Citigroup downgraded Nordstrom’s stock (JWN) at the beginning of 2016, highlighting significant concerns on the viability of Canada’s place in the retailer’s growth strategy. This comes at an interesting time, given the expansion for Nordstrom’s and Saks, as well as the domestic expansion for Simons slotted for 2016.
Over the years, many U.S. retailers have flagged Canada is a possible growth strategy, given the similarity in demand and fashion cycles when compared to saturated U.S. markets. However, very few have been able to execute on a profitable scale, with the most poignant example coming from Target Canada’s hasty departure in early 2015. Target’s downfall represented the struggles of a lift-and-land mentality, where too often U.S. companies homogenize the North American market, and chase traditional forms of growth.
The brands are relying on aligning themselves with Canadian shopping staple locations, focusing on Toronto, Vancouver and Ottawa as a starting point. Nordstrom’s has already set up shop in Ottawa, Calgary, and Vancouver, and is currently planning to open doors in Toronto’s Eaton Centre, Yorkdale, and Sherway Gardens in coming months. Simons is currently in the process of opening a new location in Mississauga’s Square One, and Saks is pursuing openings at the Eaton Centre and Sherway Gardens as well.
The openings in 2016 will see a necessary refresh in the retail landscape after a dismal fourth quarter, due to untimely warm weather. Inventory has been stockpiled across all retailers, with winter gear planned for November and December sales, stalling. This had led to aisles overflowing with winter coats marked aggressively marked down, eating away at the retailer’s comfortable margins on apparel. Confusion amongst consumers has set in, with premium stores being forced to promo products down to mid-market price points, competing with traditional players like Sears in Canada, and JC Penney in the US.
Nordstrom’s has seen financial trouble come from increased sales at Nordstrom Rack locations, the brands discount-store sister that has seen increased traction both online and in-store. Although increased sales is usually a good thing, these sales comes from customers who could have potentially shopped at the Nordstrom’s primary and more expensive stores, thus losing out on potential dollars from the customer. This cannibalization effect reflects the increased savvy of millennial consumers, who leverage barrier-free comparison-shopping online from the comforts of their couch.
Simons, the eastern Canada brand that has nation-wide dreams is another interesting player in this big-box version of Game of Thrones. The home-field advantage afforded to Simons should allow them to further their expansion past 2016, given that the support services required, like transportation and inventory control, are already in place in other provinces. CEO Peter Simons was quoted in 2014 saying, “We’re unique. I don’t do cosmetics. I don’t do hard goods and washers and dryers. I’m not a department store. I’m a large-scale specialty retailer.” How special the brand truly is remains to be tested, but with a strong emphasis on soft lines, Simons may have the focus to lead from behind and avoid distractions.
Saks also has an interesting hand to play in 2016. Partnering with HBC, Saks has plans to open two locations in the GTA, with an additional “Off 5th” location being opened in the ‘burbs to service the need for discount luxury products. With the 1-2 punch of the high-end traditional retailer, and the inventory-agile discount channel, Saks definitely has the right groundwork in place to succeed, but much like their counter-parts, time will tell. In order to rise to the top, the three retailers in question need to achieve the following 3 key tasks in order to avoid another Target-like disaster.
Right Product. Canadian consumers want brands and products that usually only available across the border in Buffalo. Providing refreshed looks with new names will quench the Canadian market’s thirst for uniquely American products.
Right Place. A major area where Target fell short was having the right product on shelves. Retailers will need to execute with their supply chain in order to have the right product in the right place, to avoid stock-outs and a bad first impression.
Right Price. Retailers should be wary of heavily discounting products too early, as it will lead to confused consumers. First impressions are everything, and for immigrant brands like Nordstrom and Saks, market position is key in communicating value. The three brands in question should carefully identify their competition, in order to avoid deep discounting and price wars with existing players like Sears and HBC.
By: Amit Kalra