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Shoppers enter Bloomingdale's at the Mall of America on Wednesday, Jan. 4, 2012 in Bloomington, Minn.Carlos Gonzalez/The Associated Press

Hudson's Bay Co. is in talks with New York-based Bloomingdale's to bring the luxury department store to Canada.

The move to provide space to Bloomingdale's as a "store within a store" would represent a pre-emptive strike on the part of HBC chief executive officer Richard Baker, who is aiming to grab a bigger piece of the high-end fashion retail market before other foreign players arrive, industry sources said.

U.S. upscale department store chain Nordstrom Inc. is speaking to landlords in Canada to find space for its first stores in this country. But attractive retail space is at a premium and a bevy of merchants are chasing a limited number of choice locations, putting pressure on incumbents such as the Bay to move quickly to raise their profile and fight off rising competition.

"It's the Bay's way to fight fire with fire," said Jeffrey Berkowitz, president of Aurora Realty Consultants, which advises retailers on picking real estate space. "It's part defensive, and it's part offensive. Nobody wants to be the one left behind."

Mr. Baker, who would not comment, has already had a hand in reshaping the Canadian retail landscape since acquiring HBC in July of 2008. In a landmark $1.8-billion deal last year, the CEO sold most of the company's discount Zellers store leases to U.S. rival Target Corp. The purveyor of cheap chic will open its first stores in Canada starting early next year, raising the stakes for a wide range of domestic retailers.

At the same time, the U.S. real estate magnate is racing to improve the ailing Bay under the leadership of seasoned merchant Bonnie Brooks, and the efforts are starting to pay off. She's added an array of higher-end lines to the Bay, dropped poor sellers and introduced affordably fashionable TopShop boutiques in a licensing agreement with its British parent.

Now sources say Mr. Baker is in discussions to seal a similar deal with Bloomingdale's, which is owned by Macy's Inc. While the Bay has moved more upscale, it's not generally as pricey as Bloomingdale's, which is closer to Nordstrom in its price positioning. HBC's U.S. department-store chain Lord & Taylor also doesn't have as expensive an offering as Bloomingdale's.

Bloomingdale's, which doesn't break out its results, has outperformed its parent's namesake stores, holding on to its well-off customers with contemporary and stylish lines, said Mark Cohen, marketing professor at the Columbia Business School in New York and a former chief executive at Sears Canada Inc.

He said the Bay, along with Sears, Canadian Tire Corp. and others, is feeling the heat to fortify itself against anticipated stresses from the arrival of both Target and Nordstrom, if the latter comes here.

"I think Bloomingdale's would be a welcome brand in Canada in select markets," Prof. Cohen said.

The Bay is contemplating putting Bloomingdale's shops within its Toronto store on Bloor Street West as well as inside one store apiece in Vancouver and Calgary, the sources said. Bloomingdale's could begin rolling out in-store boutiques in Canada as early as the fall, they said.

The move would help Mr. Baker to fill space productively at his massive downtown Bay stores, Prof. Cohen said. "He's got way too much space."

Bloomingdale's, which launched an e-commerce site in Canada last year, has benefited from a pattern of high-end North American retailers faring better than their mid-priced counterparts as affluent shoppers recovered faster from the recession than others, said Ian Thomas of retail specialist Thomas Consultants in Vancouver.

"Canadians are wealthier and healthier now on a per-capita basis than Americans," he said. "Canadians have a greater appetite now for luxury goods."

And foreign retailers have an appetite for Canada. Its shopping malls outperform their U.S. counterparts by almost 50 per cent in sales per square foot, Colliers International reported last week. While the average mall performance in the U.S. in 2011 was just above $400 (U.S.) per square foot, Canadian malls generated an average of almost $600, it found.

Nordstrom executives have said they're looking for store locations in Canada but finding it tough to find them. The company is believed to be in negotiations with mall owner Cadillac Fairview over three outlets whose leases it recently bought back from Sears in Vancouver, Calgary and Ottawa.

About Bloomingdale's

Owner: Macy's Inc.

Founded: 1872.

Products: Upscale clothing, fashion accessories, home furnishings.

Locations: 41 stores, four outlets in the United States. One outlet in Dubai.

Going global: E-commerce program launched last June ships to 91 countries.

Main competitors: Nordstrom, Saks Fifth Avenue.