Upscale U.S. retailer Nordstrom Inc. has taken a cautious approach to its launch in Canada, even at times overstocking its single store – in Calgary – to ensure it doesn't disappoint customers.
"We probably, because of our sensitivity, were a little guilty internally of maybe even having too much inventory," Blake Nordstrom, president of Nordstrom, said in an interview this week. "That's put a little pressure on the margins. We'd rather err that way."
Nordstrom is treading carefully in Canada, opening its second store on Friday – in Ottawa – another one in the fall in Vancouver and six in all by 2017. Industry watchers have roundly praised the offerings and look of the Calgary outlet, which opened in September, but the go-slow strategy has its costs: The Seattle-based company predicts tens of millions of dollars in annual operating losses before it can scale up to earn profits.
Nordstrom executives are "taking their time in order to make sure they get it right," said Dorothy Lakner, managing director and retail analyst at Topeka Capital Markets in New York. Nordstrom is testing the waters in smaller markets and the efforts seem to be paying off in drawing customers, she said.
Mr. Nordstrom said the Calgary store's sales per square foot – an important measure of retail productivity – exceed the U.S. chain's average of $372 (U.S.) for its regular stores in 2013, although he didn't provide specific figures.
After delaying the launch here of its discount Rack stores, which generated $553 sales per square foot in 2013, the retailer will introduce them in Canada beginning in the fall of 2017, he said. It eventually plans 15 or more Rack outlets.
The stakes are high. In 2014, Nordstrom posted an operating loss of $32-million for its Canadian startup and, this year, it expects the loss to almost double to $60-million, chief financial officer Mike Koppel said recently.
It anticipates another $60-million of operating losses in 2016 before the red ink starts to recede in 2017. But executives haven't yet said when the Canadian division will be in the black. "It's a sizable commitment to open these stores," Mr. Nordstrom said.
The retailer has taken the opposite route that U.S. discounter Target Corp. followed in entering this country, the latter having racked up an after-tax loss of more than $4-billion last year. It is now preparing to shut all 133 of its stores. Target opened most of its outlets here quickly in 2013 and suffered from supply chain snags, which led to empty shelves. Shoppers often complained prices were too high.
Comparing the two chains is "apples and oranges and inappropriate," Mr. Nordstrom said. "There are huge differences. They opened over 100 stores at once. That's quite a difficult feat. We opened one. We're focused on one store at a time, six stores in total. We're doing our best to open those properly."
Nordstrom's Ottawa store will cater to its downtown shoppers with more space for men's wear, a shoeshine booth and an outdoor patio for its restaurant, he said. Men's clothing sales, which are strong in its Calgary store, probably benefit from a relatively wide range of prices, including some more accessible ones, he said.
And now that it has more confidence in its supply chain, it doesn't plan to overstock the Ottawa store, spokeswoman Brooke White said. It keeps extra inventory of many basics, such as socks and underwear, at its third-party distribution centre, she said.
Nordstrom is expanding in Ottawa just as Holt Renfrew & Co., Canada's dominant luxury retailer, closes its store there. But at the same time, the U.S. retailer faces a more crowded market as Holt Renfrew invests in its other locations, including a new men's store, while Saks Fifth Avenue, now owned by Hudson's Bay Co., will open its first stores in Canada starting next year.
There has been talk that the tony U.S. Bloomingdale's is looking at a Toronto site for a Canadian launch in 2018. Spokeswoman Anne Keating, however, said it is "always exploring opportunities for Bloomingdale's. There is no plan to open in Toronto."