U.S.-based Kohl's is scouting out locations in Canada in a preliminary look at bringing its mid-priced department stores to this country, industry sources say.
In an era of challenged department stores, Kohl's draws customers with low-cost stylish private labels and exclusive mid-priced designer lines from the likes of Vera Wang.
U.S. retailers, grappling with economically fragile consumers at home, are increasingly turning to Canada for more fertile ground. Some of them, including Kohl's, had counted on adding new stores in states such as California, Florida and Arizona but those markets were ravaged in the recession. Now clothier J. Crew, discounter Target Corp. and lingerie retailer Victoria's Secret are among U.S. merchants preparing to take the leap across the border.
Still, the retailers wrestle with the costs of a foray into Canada, including new warehouses, vast distances between cities and bilingual labelling. And they have to find appropriate sites.
"It's not always an easy market to enter," said Wendy Evans of retail specialist Evans & Co. Consultants in Toronto.
Kohl's spokeswoman Vicki Shamion said late Wednesday that the retailer reviews sites in communities nationwide on an ongoing basis, and hasn't announced plans to open a new store in Canada. "We do not comment on real estate speculation."
Ms. Evans said the challenges of coming to Canada haven't stopped Kohl's - of Menomonee Falls, Wis. - from exploring this market. Canadian retailers have fared better in the downturn than their U.S. counterparts. And they face fewer competitors: Canada has roughly 14 square feet of shopping centre space per capita, compared with about 23 in the United States, according to the International Council of Shopping Centres.
"Why wouldn't Kohl's want to be up there?" asked retail analyst John Collory at Briggs-Ficks Securities LLC in Milwaukee, Wis.
Canadian real estate specialists say that Kohl's is getting a feel of the Canadian landscape.
"They are going to come but it could easily be another couple of years," said Edward Sonshine, chief executive officer of RioCan Real Estate Investment Trust, whose open-air suburban "power centre" shopping centres would be prime spots for Kohl's. "It's still very early days."
Kohl's has grown by attracting younger customers with exclusive and private labels, including names such as Dana Buchman and Sonoma. As well, it bulks up on lower-priced lines of well known brands, such as Chaps from Polo Ralph Lauren.
Sales of private and exclusive brands, which make up almost half of Kohl's sales, grew by double-digit percentages in the first quarter of this year. "The strength in these brands is responsible for the continued market share gains," said retail analyst Wayne Hood at BMO Capital Markets in Atlanta, Ga.
Kohl's also led the way in revamping stores to appeal to women, including enlarged fitting rooms, the addition of three-way mirrors and less clutter in the aisles.
With more than 1,000 stores in 49 U.S. states, the company beat analysts' first-quarter profit estimates with a healthy sales gain of 7.4 per cent at outlets open a year or more. Private labels contributed to better margins; they tend to carry lower marketing and other costs.
But finding the right Canadian real estate can be tricky for American retailers, Mr. Hood said. Existing retailers have strong relationships with their landlords, and breaking into prominent spaces is a challenge - although less so in a weaker economy.
For many U.S. retailers, expanding into Canada is a test for further international expansion. Millard Drexler, chief executive officer of J. Crew, confirmed earlier this year that the company sees the potential for 10 to 15 stores in Canada. Still he's moving slowly on the file, envisioning potential pitfalls.
Limited Brands Inc. is moving faster in adding Victoria's Secret and Pink lingerie stores to its current La Senza outlets here. As well, it plans to double its Bath & Body Works stores in Canada by year's end.
If Kohl's gives the nod to entering Canada, the retailer would probably map out a significant expansion, Mr. Collory predicted. "It won't be just one store," he said. "They'll want multiple locations."
No. of stores as of May 1: 1,067 in 49 U.S. states
Kohl's sales in 2009: $17.2-billion (U.S.)
Profit in 2009: $991-million
Kohl's private and exclusive labels:
2004: 25 per cent of sales
2010: 47 per cent of sales
Examples of exclusive brands:
LC Lauren Conrad, Simply Vera Vera Wang, Dana Buchman
At Kohl's outlets open a year or more: Up 7.4 per cent
At Target outlets open a year or more: Up 2.8 per cent
At Sears Canada outlets open a year or more: Down 2 per cent