Nordstrom bets on a slow, cautious entry into Canada
Marina Strauss, The Globe and Mail
Published Monday, Aug. 18 2014, 5:06 PM EDT, Last updated Monday, Aug. 18 2014, 5:51 PM EDT
For Karen McKibbin, getting it right is more important than doing it fast in her latest assignment at upscale U.S. chain Nordstrom Inc.
The president of Nordstrom’s Canadian division has been gearing up for two years for the launch of its first store here on Sept. 19 in Calgary’s Chinook Centre. She watched another U.S. retail giant – discounter Target Corp. – stumble in rapidly introducing its first 124 outlets in this country in 2013 amid customer complaints of empty shelves and overhigh prices.
Nordstrom is taking a decidedly different approach from Target, opening its first six stores gradually over 2 1/2 years, she said.
“We are going to stub our toe – we are not going to get everything perfect,” she said in a telephone interview from Calgary, where she has been spending three or four days a week commuting from Nordstrom’s Seattle headquarters. “You can expect us to make changes and respond in real time. We are certainly not resting on our laurels.”
A lot is riding on Ms. McKibbin making a positive first impression with Nordstrom in affluent Calgary. As Target works to make up lost ground, Nordstrom is investing in a slow, deliberate rollout, betting that its first foray outside its home country will pay off in giving customers reasons to return amid rising competition in the luxury field.
Nordstrom posted $14-million (U.S.) of operating losses last year in Canada and expects $35-million in 2014, chief financial officer Mike Koppel has said. The red ink will flow for “several years” before the division contributes to the retailer’s bottom line, he has warned. Eventually, the company anticipates it can generate $1-billion of annual sales in up to 10 department stores and as many as 20 of its Rack discount outlets.
(Target, for its part, had expected to be in the black in the final quarter of its first year in Canada, but instead it reported an operating loss of almost $1-billion last year and analysts anticipate more red ink in 2014.)
But Nordstrom, which is a relatively strong performer south of the border, will face an increasingly crowded luxury market in Canada. Dominant player Holt Renfrew & Co. and men’s wear specialist Harry Rosen Inc. are expanding their stores, while U.S. rival Saks Inc., which was bought by Toronto-based Hudson’s Bay Co. in 2013, is preparing to launch its first stores in this country next year. HBC is making progress in polishing its existing operations here.
“Nordstrom is going to have to be adaptable because things will evolve in Canada,” said Milton Pedraza, chief executive officer of researcher the Luxury Institute in New York, which has worked with each of Nordstrom, Holts and Saks. “But I think Nordstrom will be a solid competitor.”
In the Institute’s annual survey of luxury retailers’ customer service and store experience, Nordstrom ranked No. 1 this year after coming in second in 2013 and first the previous year.
In Canada, Nordstrom has already shown its cautious approach by delaying the launch of its Rack stores here from a planned 2015 roll out because of the unexpected complexity of building its new systems. Nordstrom also will hold back for now on introducing a separate domestic e-commerce site, said Ms. McKibbin, a veteran of Nordstrom.
“We definitely feel there’s an opportunity for us to serve the customer online and that’s definitely still part of our strategy,” she said. “Although when we’ll be able to offer that to the customer is left to be determined.” Nordstrom allows consumers here to cross-border shop from its U.S. site although steep duty, tax and shipping fees raise the tab about 10 to 20 per cent, a spokeswoman said.
Its next store opens in Ottawa in March, 2015 and, in Vancouver, six months later. “I’m feeling cautiously optimistic about opening our first store," Ms. McKibbin said. "The cadence is going to allow us the opportunity to open the doors to our first store and really get to work about making the adjustments, things that customers are telling us they want, and then applying that to our next store."
As a sign of Ms. McKibbin’s cautious strategy, her team ordered “a little bit more product than we normally would for an opening, just to ensure that we don’t disappoint customers when they give us that first opportunity to serve them,” she said.
One of her team’s challenges was figuring out the supply chain, a matter that caused Target headaches in its three third-party distribution centres, where goods got backlogged.
Like Target, Nordstrom is using an outside warehousing firm, a departure for both retailers in their practice of running their own U.S. distribution centres. “This is a big change for us,” she said. Already the warehouse has received about half of the Calgary store’s inventory and, so far, the systems have run smoothly, she said.
Another key challenge was setting up a merchandise buying system for Canada, because the one in the U.S. couldn’t handle foreign-exchange currency and other matters. The retailer invested in an entirely new system, resulting in it now having two different ones, which is “not ideal,” she said.
But the silver lining for Nordstrom is that it plans to eventually switch to the Canadian version for the whole company because it is nimbler, she said. “We were going to need a change sooner or later.” For example, the new system is faster in signalling when the retailer needs to replenish shelves, which is particularly important for popular items such as cosmetics, lingerie, men’s shirts and shoes.
The Calgary store emulates Nordstrom’s latest-generation design with tiled floors instead of carpets that typically define the size of each department – with tiled aisles in between – removing the stores’ flexibility to shrink or expand each section to respond to local demand, she said. The Calgary store has more natural light than its typical U.S. counterpart, with more windows and a skylight over the escalators. Like other Nordstrom stores, it has a full restaurant serving alcoholic drinks, a way to keep shoppers in the store longer.
It has chosen veteran Nordstrom managers to head each of its Calgary and Ottawa stores, and five “ex-pat” Nordstrom veterans as top managers in Calgary; other managers are Canadians and the company recently sent them for training to its Bellevue, Wash., store for nine weeks.
Pricing is a sensitive matter that touched off an outcry in past years, when U.S. chains such as J.Crew arrived in Canada with higher prices than those south of the border. Some Nordstrom prices will be higher here than those in the U.S. because of taxes, duties and currency conversions, she said. But the retailer will be competitive – and match prices – with domestic rivals, she said.
Walter Loeb, president of retail consultancy Loeb Associates in New York and a former HBC director, said Nordstrom may get away with higher prices in well-off Calgary but feel more pressure in other parts of Canada to provide U.S. price parity.
And while Nordstrom does not follow Canadian retailers’ habit of counting on frequent discounting to lure customers, the U.S. retailer offers a popular loyalty program that rewards customers for shopping at its stores, Mr. Loeb said. It’s known for training its sales people to provide attentive customer service, with leeway to make decisions on the spot. “Nordstrom would be a total failure if they can’t get that across,” Mr. Loeb said. “They certainly are going to work like crazy to get the thing off to the right start after the failure of Target.”
Ms. McKibbin’s research suggests Canadians are ready for Nordstrom: They tend to shop less frequently than Americans but spend more on every trip, she said. “They appreciate a quality experience and we’re hoping that bodes well for us,” she said.
“We won’t get it all right,” she added. “We’ve worked really hard in ensuring we have the proper people and the proper tools in place to ensure that we don’t disappoint customers when they visit us, that we have product they’re looking for in our store.”
Follow Marina Strauss on Twitter: @MarinaStrauss
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