Why do big American retailers fail in Canada?

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Jordan Heath-Rawlings It doesn’t seem to matter if your customers are bargain hunting. The target venture into Canada was dead on arrival. The big US retailer announced today it is shuttering. Its Canadian stores, 133 of them, and throwing in the towel and throwing 17,000 people out. Or if they’re chasing the designer, dream highend American retailer. Nordstrom is closing up shop here in Canada. Shuttering 13 stores across the country, including six locations in the gta. If you are an American retail chain coming to Canada, basically you better be Walmart or you are going broke eight years after target’s failed. Canadian experiment. Nordstrom is packing up and going home. Having never turned a profit in Canada during its nine years in operation now. Nordstrom is generally a very profitable retailer. Target is Target. It makes billions of dollars every year. In the United States, but neither of them could hack it in Canada. Why is that? Is it them or is it us? Is it the retail climate in general? Why does Walmart succeed here when everybody else fails? I am Jordan Heath-Rawlings. This is the big story. Gary Newbury is an award-winning retail supply chain expert. He’s the strategic advisor and delivery executive with retail aid. He focuses on rapid transformation of disrupted retail supply chains, and last mile performance. Hello, Gary.

Gary Newbury Hi. How you doing?

Jordan Heath-Rawlings I’m doing very well. I wanna start by asking, were you surprised when you heard a couple of weeks ago that Nordstrom was closing, leaving Canada? I, I would’ve been if I hadn’t got the inside track. I, I was given the head, heads up that something was about to emerge, but with these kind of rumours, they, they sometimes don’t materialize.

Gary Newbury So I was, pleasantly surprised from the fact that the, the feed of that, that that, uh, information actually turned out to be true. But nonetheless, quite disappointed in some ways. The, uh, you know, Nordstrom made that, uh, declaration.

Jordan Heath-Rawlings Well, how long has the company been in Canada and, you know, how have they done since they arrived here?

Gary Newbury What do we know about, you know, their success or non. Well, um, Nordstrom saw Canada as a, a great new market for probably about 2011 internally, and they started to disclose their intention in 2012. They’ve been around here for 10, 11 years and they’ve never actually made any money in Canada.

Jordan Heath-Rawlings How, how can that happen?

Gary Newbury Never made any money. It, it’s shocking really, that a company can, uh, last that long. But it’s, it’s because I think the whole range of factors as they were developing their plan to come to, you know, internally, uh, how we were thinking about Canada. Back at that stage, uh, the Canadian dollar and the US dollar were at parity, but may have made the business case much more easier to absorb. Right, of course, uh, a few years later that that actually slipped back to its normal pattern of, you know, about, uh, one Canadian dollar. About 70 cents of us. And that changes a whole dynamic about how much products cost, uh, when they’re, when they’re brought into Canada.

Jordan Heath-Rawlings Mm-hmm.

Gary Newbury The other one was if, if we think about the Nordstrom business, the US part of it, where it’s, where it’s managed from, uh, they’ve had a number of leadership challenges over, over that same period that, uh, different family members have been kind of jockeying for position and also they had a sort of go private and then, back public going on, behind the scenes as well. So I think that they were a distracted management team or leadership team during the last decade. And therefore, Canada, if it wasn’t making too much money, if it was making a small loss, maybe in the overall scale of things compared to some of the issues, they may have been facing south of the border, uh, was really.

Jordan Heath-Rawlings Why should we be spending too much time on that?

Gary Newbury I’m sure that the management team are working on it. We’re gonna turn the corner. It’s gonna be fine. Don’t worry. Let’s focus on what we’ve got, uh, right in front of our noses.

Jordan Heath-Rawlings Hmm.

Gary Newbury Uh, another aspect would be that people from Canada used to cross the border and go and shop at Nordstrom, were absolutely overwhelmed by, uh, what they saw on the, the service level, the, the, the brands on the shelf as such, you know, people talking to people in store. Where are you from? Canada.

Jordan Heath-Rawlings We love this story.

Gary Newbury You know, please come to Canada. Much the same as people were saying about Target. So, they saw Target moving and they took that perhaps as a good signal that they ought to move as well. You know, it is an open market. Let, let’s go and they certainly, they established themselves here with opening in 2014.

Jordan Heath-Rawlings They would’ve seen Target struggling pretty quickly and then closings shop, right?

Gary Newbury But that wasn’t enough of a signal for them to, if something as well run as Target in a similar format, but much more modern is struggled in this territory, what makes us think that we are going to survive there?

Jordan Heath-Rawlings Mm-hmm.

Gary Newbury So Robin asking themselves that question, they just carried on scale in their propositions, so they open up more stores and having three of these very high end stores focused in Toronto was probably the root cause of why over the last 10 years they haven’t actually moved a needle on profitability.

Jordan Heath-Rawlings Why don’t those stores work here? The way they do work across the border though?

Jordan Heath-Rawlings Because that’s my main question and, and I knew a lot of people less so maybe for Nordstrom, but a lot of people, uh, for Target. Incredibly excited to see these stores come here, um, because they used to border hop and shop there. So let’s tackle that first, maybe like what doesn’t translate?

Gary Newbury Yeah, I, um, I’ve never shopped the US Nordstrom store, but people I’ve spoken to who have, has suggested that they, they brought. A cut down version of Nordstrom to Canada. So people who had been across the border and, and seen all these, uh, great brands, uh, being presented when they came to, you know, visit Yorkdale or the Eaton Center, for instance. But it’s a, something missing here. Hmm. Come into the Canadian store. I wouldn’t have the full range of brands that are available south of a border. And I think for people who Nordstrom across the border regularly. They would’ve seen that fairly quickly and said,

Jordan Heath-Rawlings Hmm, interesting.

Gary Newbury This is not men’s nordstrom. I, I, I would’ve expected to have been delivered there.

Jordan Heath-Rawlings We’ve talked about Nordstrom and Target. Are there other US retailers that have come to Canada and, and either succeeded or failed? I, I’m trying to get a sense of what the other competitors in this market look. There have been some great stories of, uh, businesses, uh, coming to Canada, making a good impact on, on the Canadian psyche, getting into their consideration set, uh, and a drawing loyalty, for instance, uh, Walmart, right? They have been embedded deeply into the Canadian psyche.

Gary Newbury We go to Walmart to, you know, good quality stuff. Pretty well priced. Uh, Home Depot always there. When you’ve got a breakdown in your home, they’re there. It’s on the shelf. Reasonable price. okay. service, I could say may need to improve in a certain number of areas, but generally speaking, it’s there, it’s available, it’s convenient. McKesson fruit, its, I mean, it’s acquired businesses in, in, in Canada at Rexel, and I think pharma. It lows to an extent until very recently. And Costco, right. You know, one of our top retailers, you know, people in, in surveys when they think about.

Jordan Heath-Rawlings Who are our best retailers?

Gary Newbury If they shop there, they’d probably likely say Costco. So their American chains have come, you know, predominantly ones that have come to Canada and had a success story alongside. Those are an equal number of. American brands that have slipped like Sears, Sears, Canada, we’ve obviously had Target come in very short stay here, and then effectively, uh, packed up their bags and, and went back south of the border where Bath Bed and beyond, which is a, a sort of very recent thing where bad management south of a border is influenced the way that the Canadian business has been looked at, uh, and is. About to be jettison as part of their, uh, collapse, uh, Lowe’s, as I say, uh, earlier, great brand. I really liked Lowe’s. They always had a good experience at Lowe’s, but the dynamics of Canada and the acquisition of Rona. Probably overpriced, have made the overall cost base of a Lowe’s business. Something the American, uh, head office decided, uh, do you know what, if we can find somebody to, to take off our hands, we can focus our efforts into the us um, US domestic business.

Jordan Heath-Rawlings When you look at all of that, what do the brands that fail here tend to have in common?

Gary Newbury If, yeah, I, I, I think generally it, it would be the idea that something which can work south of a border can be exported here as a sort of, how I say, a corporate model. Like we’re just gonna buy stores and just put out proposition into those. Let’s not bother with homework. It works south of the border. It’s gonna work here, so don’t worry. A and then they start to bump into, companies tend to bump into some of our nuances, like, uh, having, uh, bilingual packaging, we tend to use metric rather than imperial. Mm-hmm. , our geography doesn’t play well versus, uh, the US. The US is quite dense, although there’s lots of places where there’s lots of white space, nowhere near as much white space as we have in Canada. So the, the transportation cost and, uh, there’s a peculiarity for every product that comes into Canada commercially has to be a. Attached to a business number. So somebody has to, if it be, buy it in Canada as opposed to send it to Canada for, for resale. Mm-hmm. And then we have on top of that, although we’re very diverse, as a contrary in terms of different nationalities and stuff, there are clusters of nationalities in different parts. And so you can’t actually look at Canada and. It’s all diverse, it’s all the same, you know, because of that. And therefore this will work in all markets. Right? And, uh, I think, you know, anybody looking at an nordstrom debacle will see people saying, think like Toronto’s not the same as Vancouver, is not the same as Halifax, is not the same as Calgary. And, retailers who come from outside into Canada really need to do a lot of homework and be clear. And secondly, find some way of working with people inside Canada to perhaps trial a concept rather than just go for a full bore. We’re gonna open up 10, 15 stores to start with, ate it with our, with our proposition, and just get on with it and see what happens. I think that’s quite brash as, as, as a, as a strategy. How much of Nordstrom’s collapse here and maybe targets two, uh, was less to do with the difference between America and Canada and more just to do that. Large retailers are all struggling up here, like especially stuff like the Bay is gone, obviously Zellers is gone now and we’re back as a tiny gimmick. Uh, you mentioned Sears.

Jordan Heath-Rawlings How much of it is that store is not what people need anymore?

Gary Newbury Well, I, I’m not convinced of that because there was a lot of argument as we went into a pandemic. The, the broad number of e-commerce as a percentage of total sales was in the order of about 3%. It was bobbling around that level for, for many years.

Jordan Heath-Rawlings We went into a pandemic, and that dynamic, the way it was calculated, sort of started to rise to 15% because as, as, as you may remember, many store. Became non-essential and they were closed. Nearly way they could continue to have a revenue stream was to to trade on e-commerce. On on, on their websites and their apps. But as we emerged out of restrictions, certainly here in Ontario, people just rushed back to the stores. That led to a com, almost a complete collapse of the e-commerce. Well, certainly that bubble, and it went back to its natural rate of progression. So we’re, we’re talking about say 5%. Now, you know, three years it’s grown by, you know, it’s grown by two percentage points. Even people found websites, people added apps to their phones. It hasn’t actually really fundamentally shifted people’s behaviour.

Jordan Heath-Rawlings Interesting.

Gary Newbury I think what we find are bigger factors right now are the cost of living crisis, uh, interest rates and, you know, uncertainty about what the economic future of us might be. And, and if we, if we are close to retirement age, you know, what will our pension look like and what’s our health conditions as well. You know, so many things are now influencing consumers. Uh, which will have an influence on their behaviors and how they shop and how frequently they shop, and how much they buy when they do shop. The, the, the organizations which are predominantly in the discretionary categories like apparel, retailer, electronics and stuff like that, they will see some change a lot quicker than say, grocery. So what happens to Nordstrom now in Canada, and I know they, you know, discount all their merchandise and clear out the stores. To your point, those are big flashy retail locations. Uh, three of them in Toronto, others in large Canadian cities, they leave a hole. Yes. And, and there’s no obvious, if I think about my local now, which is a, uh, offshore center oc, we had Sears in that one end. We had h we’ve still got h, BBC at the other end. Um, the hbc needs a, a real renovation to, to become relevant again to to consumers. The Sears end is still closed. I mean, it closed in 2017 from memory.

Jordan Heath-Rawlings Mm-hmm.

Gary Newbury These particular stores, the, um, Nordstrom ones are over 200,000 square feet. So we’ve got one in Wheaton Center. Uh, we’ve got one in, uh, new Yorkdale, uh, and one in Sheway Gardens. These are massive plots of land plots of, um, physical space in areas where we already. other anchor stores. So there’ll be probably HBCs or you know, o other bigger box stores. Mm-hmm. , I’ve seen quite a lot of. Cuttings around Bit Bath and beyond saying, don’t worry, making escape a country, all 55 stores or whatever, and we’re gonna fill them up. No problem. It could be that many of those are free standing stores. No, perhaps in some ways a more attractive proposition to some retail, uh, chains. But when you’re in a ma, you know, it was a good thing about a mal people go to the MAO and they shop across different a across different stores without having to move their car again.

Jordan Heath-Rawlings Right.

Gary Newbury So you’ve in those three critical, uh, malls within the Toronto area, we end up with a big space. It sounds to me that the only way that a landlord can fill those would be to do some civil works on that space and create an environment that they can have 5, 6, 10 retailers, uh, using that space. Do you think, given what we’ve seen from Target, from Nordstrom and, and the retail climate in general right now, uh, that we will. More American chains attempt to come to Canada, and I mean, retail chains here, not restaurants come to Canada. I think in the short term, probably not. There might be the occasional, so-and-so opens a store and, and that’s a regular feature of the Canadian market. People like to come to Canada with one store. It’s a great test market because of the diversity of difference, you know, different backgrounds, et cetera, and different ways of thinking. If you can survive in Canada, you’re likely to be able to survive south of a border when you, when you attempt to scale that proposition up. So we will see lots of small things, but that small thing won’t be a big trend in terms of like this, this store’s come to Canada.

Gary Newbury I, I think we’ve got to look at it and think, uh, suspiciously look at it and think this is just a test. They may put two or three stores, and it might be one in Toronto, one in Vancouver. One one may be in Montreal, and that might be the end of that test program. But you might see if it’s a non-American, uh, chain going into the US and expanding a, a quite a right rate of knots. But we see more u US retailers actually coming out of Canada and that’s. Possible because it’s easy to cut off Canada because it doesn’t affect the US market if, um, uh, US. Uh, retailer came out of a particular area in, in the US that would be probably front page news for quite a few days and their, their brand might actually receive some reputational damage. But when they say, oh, we’re closing Canada, someone thinks, oh, that’s just closing the state, isn’t it? That’s small beer. It’s as I call it, Backpage gossip. It will be fascinating to see, uh, what happens and who’s next.

Jordan Heath-Rawlings Gary, thank you so much for this. You’re very welcome. Gary Newbury of Retail Aid. That was the big story. For more, you can head to the big story podcast.ca. You can always talk to us on Twitter at the Big story fpn or via email hello at the Big story podcast.ca. If you’d like an ad free version of this podcast, you can find one at the Big Story Plus on Apple Podcasts. And if you want to hear this podcast on a smart speaker, just ask it to play The Big Story podcast. Thanks for listening. I’m Jordan Heath-Rawlings. We’ll talk tomorrow.