August 11, 2015 11:24 am
Updated: August 11, 2015 11:37 am

Here’s how Nordstrom is avoiding a Target-style collapse in Canada

U.S. high-end retailer Nordstrom decided earlier this year to delay the launch of its discount Racks chain in Canada.

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They might be very different stores in many ways, but upscale retailer Nordstrom likely watched Target’s historic collapse in Canada carefully, picking up some valuable lessons for its own plans here.

In a new note this week, analysts at BMO Capital Markets suggested Nordstrom continues to proceed cautiously with its Canadian ambitions, ensuring it doesn’t blow the bank or overextend itself by opening too many locations too soon that are making too little in the way of sales.

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“Nordstrom’s strategy in Canada is to open one store at a time,” the analysts said.

Nordstrom believes it can begin turning a profit as soon as this year, and eventually generate $1 billion in sales in Canada.

Target Canada, recall, launched dozens of stores simultaneously in the spring of 2013, scaling up to more than 120 department stores within months. It filed for bankruptcy protection in January amid billions in financial losses.

Slow rollout

Next month, Nordstrom plans to open a new 230,000 square-foot store spanning three levels at Vancouver’s Pacific Centre. The flagship will be just the third location opened to date since the Seattle-based retailer announced plans in 2012 to make a push into Canada.

A 140,000 square-foot location was opened last September in Calgary’s Chinook Centre while a second store was opened in Ottawa’s Rideau Centre in March.

MORE: U.S. luxury retailers flocking north, but will Canadians spend?

Two more stores are slated to open in 2016, both in Toronto. A 213,000-square foot location is planned for the Eaton Centre downtown, while a second, 188,000 square-foot store will open in Yorkdale Shopping Centre next year as well.

The retailer also put off plans to open its Racks discount banner in Canada this year, saying it will wait until 2017 to begin the roll out of the chain, which sells lower-priced designer merchandise as well as clearance items from Nordstrom stores.

In all, nine full-line stores are planned for Canada and 12 to 15 Racks locations, BMO’s analysts suggested.

Consistency

Perhaps most importantly, Nordstrom isn’t altering its in-store approach for its Canadian customers, the BMO analysts said, replicating the kind of merchandising mix, customer service and pricing found in U.S. stores.

“The Calgary store is set with the same merchandise offering/mix as in the U.S. – i.e. not Nordstrom Light – and importantly with consistent pricing,” the BMO analysts wrote in their research note.

Target was blasted by customers and industry experts for failing to deliver the kind of store experience Canadians had seen in U.S. locations, while prices were perceived to be higher than what the retailer was charging south of the border.

“[Nordstrom] management expects the stores to be profitable in year one,” the BMO analysts said.

WATCH: Nordstrom announced in February plans to hire 1,000 employees for the retailer’s Canadian flagship in Vancouver.

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