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The Globe and Mail

Sears closing of top locations opens door for U.S. rival

Sears Canada's head office building in Toronto is seen in this file photo.

Tim Fraser/tim fraser The Globe and Mail

Sears Canada Inc.'s decision to jettison three of its top store locations opens the way for upscale U.S. department-store rival Nordstrom Inc. to make its long-awaited entry into Canada.

On Friday, struggling Sears confirmed that it will close three stores – in Vancouver's Pacific Centre, Calgary's Chinook Centre and Ottawa's Rideau Centre – selling the coveted leases back to landlord Cadillac Fairview Corp. for $170-million. Cadillac, which has prime mall locations including the Toronto Eaton Centre, has been in talks with Nordstrom about picking up sites, industry sources said.

The advent of Nordstrom expanding into Canada would shake up the rapidly changing retail market even further, as a growing array of savvy foreign players set up shop here, stealing business from incumbents. By early 2013, U.S. discounter Target Corp. will start rolling out up to 135 stores in this country.

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Nordstrom executives have said they've been actively looking for store space in Canada over the past year, but their roadblock has been finding suitable real estate. They have particularly indicated that they'd like to set up a first store in Vancouver, which is just hours from its head office in Seattle.

"Nordstrom coming to Canada will substantially change the marketplace," said John Marino, president of Marino Locations Ltd., a retail real estate consultant.

Nordstrom's arrival would raise the ante for an array of Canadian players, including department stores Holt Renfrew, the Bay and men's clothier Harry Rosen. The U.S. retailer already has a significant following of Canadian customers, who head to Nordstrom stores, or its e-commerce site, for its stylish fashion offerings and, in its physical stores, attentive customer service.

For example, Nordstrom's mainstream stores have no time nor other restrictions on purchase returns. In the seventies when it opened a store in Fairbanks, Alaska, it refunded a woman for a tire she came in to return, even though the retailer doesn't sell tires. "We want customers to walk away happy," spokesman Colin Johnson said on Friday in re-telling the story, noting that the store that had occupied the space previously had sold tires.

The focus on the customer has helped the retailer generate healthy results in the economic recovery. Last year, same-store sales – a key measure in retail – rose 7.2 per cent while in February, those sale gained 10.2 per cent, topping expectations for a 5.6-per-cent increase. At Sears Canada, in contrast, same-store sales dropped 7.5 per cent in 2011.

Nordstrom told some landlord representatives recently that it wanted at least one prime store location to begin with in Canada. But it told others that it needed to generate at least $200-million in annual sales to make the Canadian operation profitable – which some industry insiders believed would mean at least three stores in Canada.

The retailer also is in talks with landlords of Toronto's Yorkdale Shopping Mall and the West Edmonton Mall, among other top centres in the country, sources said.

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Anthony Casalanguida, general manager of Yorkdale, said many in the industry believe that Vancouver will be among Nordstrom's first stores in Canada.

"Their strategy is steady and slow," he said. "They don't necessarily rush into anything. They'd be very comfortable in terms of having their first store in their backyard [in Vancouver.]They may be using that as a test market for what the rest of Canada would be like."

He would not comment on Nordstrom's interest in Yorkdale but added: "We would love to have Nordstrom in the market." An executive at Triple Five, which owns the West Edmonton Mall, would not comment.

Sears currently pays as little as $1 a square foot at key locations such as Vancouver's Pacific Centre, industry sources said. It pays such a small amount in rent because it is a so-called anchor tenant, which in theory is such a big draw that it attracts a wide customer base to the entire mall.

But Cadillac Fairview and other landlords are anxious to get back Sears store leases so that they can generate more money from alternative tenants, such as Nordstrom or office operators, sources said.

A spokeswoman for Cadillac would not comment. "We're always looking for opportunities to update the merchandising mix at our shopping centres, to create a fresh and enticing shopping environment for our customers, and this agreement with Sears is a reflection of that."

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Sears has been struggling to turn around its flagging operations, letting go staff, slashing prices and re-focusing its merchandising. But until now, it stayed away from closing stores, as its U.S. parent has done.

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