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Capitalising on Canada’s Fashion Moment

‘The Great White North’ has never felt more culturally relevant and luxury retailers have taken note. But how real — and big — is the opportunity?
Nordstrom's new store at the Yorkdale Shopping Center, Toronto | Source: Courtesy
By
  • Lauren Sherman

TORONTO, Canada — They say the mall is dead. And yet, the Yorkdale Shopping Centre, a sky-lit behemoth located about 20 minutes by metro from downtown Toronto, is thriving. Generating $1,610 in sales per square foot in 2015, it is one of the most productive malls in North America. In Canada, it's the most profitable mall of all, according to commercial real estate firm Avison Young.

It helps to explain why Nordstrom — which opened a three-level, 199,000-square-foot store at Yorkdale in October — sees 'The Great White North' as a billion-dollar growth opportunity. So do many other international retailers, including Saks Fifth Avenue, which is owned by the Toronto-headquartered Hudson's Bay Company (HBC).

Indeed, after years of being ignored by the global retail community, Canada, which reported an annual GDP of about $1.6 trillion in 2015, has seen a shift — or at least a shift in perception — in its global positioning.

“It’s perhaps something less attributable to Canada, than to the current shift in contemporary cultural values beyond Canada,” notes Talia Dorsey, director of retail strategy at Ssense, a Montreal-based luxury retailer best known for its robust e-commerce business. “These are aligning, resonating and, in turn, fostering recognition for many of the essential facets that have defined Canada for a long time — creativity, sense of humour, progressive values — even though the rest of the world might just not have known it.”

Much of that has to do with the 2015 election of Liberal party leader Justin Trudeau, which shone a light on the country as an immigration-friendly, ethnically diverse and hip alternative to the United States, which is currently embroiled in deeply-rooted race and class wars playing out, on a global stage, through the prism of the divisive 2016 presidential race.

“For a long time, Canada felt like a poor relation to the US,” says Jeanne Beker, the former host of Fashion Television based out of Toronto, who now writes a column for The Globe and Mail newspaper and sells her own apparel collection, Edit by Jeanne Beker, at Hudson’s Bay department store. “We didn’t have the hip stuff here. It was like living next door to a rich kid. There was a lack of confidence, let’s say. But that has changed a lot.”

Canadians don't want a Canadian version of Nordstrom, a 'Nordstrom Lite'. If you're going to do it, you've got to bring your full experience.

To be sure, as Canada’s cultural capital has swelled, international interest from luxury retailers has swelled along with it. Holt Renfrew — controlled by the Selfridges Group, an entity backed by Canada’s billionaire Weston family — has long been called the “Barneys of Canada.” It was, for many years, the only option for Canadian shoppers seeking high-fashion, operating in a virtual monopoly on the luxury market.

That, for some of the world's biggest department stores, indicates an opportunity. "Canada has always been on our radar as a market that we'd like to go to, but we wanted to wait until we were a little more mature in the US," explains Jamie Nordstrom, president of Nordstrom stores who is also masterminding the retailer's big push into New York City in 2019. "Canada is the obvious next place to go."

Since 2013, Nordstrom has opened five full-price stores in Canada — first in Calgary, Ottawa and Vancouver, then two in Toronto — with another in Toronto slated for the fall of 2017. Additionally, there are plans for 15 to 20 off-price Nordstrom Rack stores, set to start rolling out in the spring of 2018. According to the company, which does not break out sales for individual stores, the 2015 opening of its Pacific Centre store in Vancouver was the most successful store opening in the history of the company. Across the board, its Canadian stores have exceeded topline expectations.

So it's little wonder that Nordstrom was eager to stake out a presence in Canada's most productive mall. The store, designed in partnership with architecture firm Callison in the company's Instagram-friendly style, features 12 designer shop-in-shops including Dries Van Noten and Valentino; an outpost of creative projects vice president Olivia Kim's "Space" concept; a private shopping suite; a full-service restaurant; and, perhaps most impressively, 16,000 square feet of windows, which not only lend plenty of natural light to the sales floor, but to the stockroom as well.

On October 19, two days before the store opened to the public, Nordstrom hosted a charity gala to christen the space, which has a bright, poppy feel, complete with geometric chandeliers, wood-panelled ceilings and generous use of colour. The retailer charged attendees $150 each and welcomed about 1,700 people, many of whom traveled in packs, posting group selfies in front of the step-and-repeat.

Nordstrom also flecked the room with personalities, including Fresh Prince of Bel Air star DJ Jazzy Jeff and Brother Vellies designer (and Toronto native) Aurora James. However, the evening’s real star turned out to be the store’s central escalator, which was barricaded off every hour or so to host to a runway show. Models strode up the moving stairs, entrancing the crowd as one new look appeared after another for three flights.

But setting up shop in Canada is not a simple cut-and-paste job. The market has its own idiosyncrasies, retail landscape and consumer preferences. “The main difference between the US and Canada is our channel distribution in the retail landscape,” says NPD retail analyst Tamara Szames. “In Canada, 50 percent of our annual revenue comes from specialty stores, compared to only 25 percent in the US.”

Canadians are staying in Canada. Meanwhile, international visitors consider Canada a bargain. Everything is on sale.

Saks Fifth Avenue’s plan is not dissimilar. In February 2016, the retailer opened its first Canadian store in downtown Toronto, with plans for up to seven full-price stores across the country, as well as up to 25 Saks Off 5th discount stores. As in the US, off-price retail will be the major driver of revenue. But it’s the marquee store openings — and the glitzy galas — that are attracting the most attention and shining a spotlight on Canada as the country enjoys a political and cultural moment.

“It’s just right-sizing the market,” reasons Nicholas Mellamphy, a fashion retail consultant who was instrumental in elevating the Room at the Bay — Hudson’s Bay’s upscale fashion corridor — as its creative director, then buying director, for seven years. “Five years ago, you would have found one high-fashion department store… and Ssense.”

While US retailers like Target have famously failed to capture the attention of Canadian consumers and had to retreat from the market altogether, both Nordstrom and HBC believe that they have a good shot at making it work in the Great White North.

“Hudson’s Bay has a long history in Canada going back to 1670,” says HBC chief executive Gerald (Jerry) Storch. “We believe there is plenty of room... A few extra Nordstroms aren’t going to saturate the marketplace.”

Nordstrom, for its part, believes its proximity to Canada is a competitive advantage. “Seattle is really just down the road from Vancouver, so we had a lot of Canadian cardholders,” Nordstrom says. “For decades, our salespeople organised bus trips for Vancouver customers to come to Seattle and shop.”

But the company also worked to ensure that they didn’t make the same mistakes as their predecessors. “We’ve talked to a lot of US companies that have gone to Canada. We’ve heard from them what worked and what didn’t,” he continues. “The one thing that we heard consistently is that Canadians don’t want a Canadian version of Nordstrom, a ‘Nordstrom Lite’. If you’re going to do it, you’ve got to bring your full experience. That’s been one of our guiding principles.”

To be sure, international expansion is a near-guaranteed way to boost the top line, and Canada, many have assumed, is a safe first step for American retailers that already count their border-hopping northern counterparts as their second-largest group of customers — especially given the diversity of the customer base. While Montreal’s luxury shopper has long eschewed status symbols, Vancouver’s large and wealthy Chinese population — which has changed the face of the city and in particular, its real estate scene — tends to be more conspicuous. In Toronto, Canada’s commercial capital, tastes better align with those in New York.

More recently, however, a weak Canadian dollar, hurt by low oil prices, has bolstered the argument for Canadian expansion — and not just in Calgary, whose multi-millionaires have been particularly affected by the ongoing oil slump.

In the first 10 months of 2015, there was a 21.2 percent decrease in the number of Canadians returning from the US on same-day trips, while there was a 9.3 percent increase in overnight trips made by US residents into Canada, according to Statistics Canada, the country’s national statistical agency.

What’s more, according to the US government’s International Trade Commission, the number of Canadian tourists visiting the US in 2015 decreased to 21 million people, an eight percent decline on the year previous. That number is set to drop another one percent in 2016.

“Canadians are still our largest group of international visitors, but it has shifted significantly,” Storch says. “It’s not very economic, dollar for dollar, so Canadians are staying in Canada. Meanwhile, international visitors consider Canada a bargain. Everything is on sale.”

But these retailers will find themselves in a fierce battle for business in what is, overall, a flat and relatively small market. Canada only generates $20 billion a year in apparel sales, and that number has held steady — not grown — for the past three years, according to market research firm NPD. That’s just 9 percent of the size of the US apparel market. There are also fewer rich people living in Canada than there used to be. In 2015, 320,800 high net worth individuals — or those with more than $1 million in liquid financial assets — were living in the country, a 3.2 percent drop from 2014.

Where the possibilities lie, according to Szames, is in disrupting already packed channels dominated by just a few stalwarts. “We’re so saturated by one or two retailers within that channel,” she says. “All of the sudden we have new players with large buying power to disrupt and gain share.”

It seems the battle for Canada has only just begun.

Disclosure: Lauren Sherman travelled to Toronto as a guest of Nordstrom.

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