Nordstrom Inc.’s retreat from Canada points to company-specific issues as well as wider challenges in a beleaguered retail sector still recovering from the pandemic, according to retail analysts.
The Seattle-based retailer’s Canadian e-commerce business ceased operations Thursday, and its six Nordstrom and seven Nordstrom Rack stores are due to close by the end of June.
Nearly a decade after opening its first Canadian store in 2014, CEO Erik Nordstrom said the retailer did not see a path to profitability in Canada.
Retail analyst Bruce Winder told BNN Bloomberg Thursday that he wasn’t surprised by Nordstrom’s exit, given the company’s difficult past year in the U.S. and the smaller Canadian market posed challenges for its luxury department store model.
“When these stores were built, a lot of us were kind of wondering if they would work, so sadly, it's not a big surprise that they eventually got out here,” Winder said in a television interview.
Still, Winder said the news will rattle the struggling retail industry as businesses that are trying to bounce back from pandemic losses face new challenges with elevated inflation, a high-interest rate environment and more frugal customers.
“Canada really didn’t need this,” he said. “This sends a shockwave through the whole industry, and the whole real estate sector as well.”
PANDEMIC IMPACT
The transition will be difficult for the 2,500 Canadian Nordstrom employees affected by the company’s wind-down, Winder said. The retail sector has been hit particularly hard the last few years, he said, as public health measures limited in-person shopping and strained business’ bottom lines.
David Swartz, equity analyst at Morningstar Research Services, said the pandemic hampered Nordstrom’s Canadian growth after its 2014 debut, as sales at several of its stores relied on a tourist customer base that was cut off when COVID-19 set in.
“When the pandemic hit, it really took a big bite out of the business,” he said in a television interview Friday.
Canada was also subject to longer pandemic-related business shutdowns, said Dana Telsey, CEO and chief research officer at Telsey Advisory Group, and retail has been slower to recover than in the U.S. as a result.
NORDSTROM’S BUSINESS WOES
Tesley said slower recovery from COVID-19 in Canada may have factored into the company’s decision to focus more on its much larger U.S. market.
“The concentration of where dollars are focused is where companies are gravitating towards in this very unsettling consumer spending environment,” she said.
Nordstrom has also seen declining sales at its Nordstrom Rack stores in recent years, Swartz said, so the company likely needed to focus on profitability in other parts of its business.
“The issue in Canada is really just a small issue compared to Nordstrom is much bigger problems,” he said. “I think the management thought that the expansion into Canada was really more of a distraction.”
Winder said Canada’s relatively low population density made it a difficult market for a large, luxury retail operator to break into, particularly now as customers facing high inflation cut back on more expensive purchases.
“I don't think the market is as big as a lot of our American friends thought [it was],” he said.
Winding down the Canadian stores and immediately shutting down its website in the country is a way for Nordstrom to send a message to investors it’s serious about growing its profits, Winder said.
FUTURE OF RETAIL SPACE
Nordstrom’s departure will leave behind major gaps in Canadian shopping centres, and Winder said malls may have to “get creative” to fill the large real estate footprint left behind.
“It’s no secret that the whole department store model is under fire … It’s in decline,” he said.
Telsey said spaces could see more mixed-use purposes or stores that have “activity-based formats” like sporting goods stores with batting cages could move in.
Swartz said U.S. retail spaces have faced similar questions after store downsizing and suggested other, non-retail tenants in housing, education or places of worship could eventually pop up in old department stores.
Commercial real estate owner Cadillac Fairview said it was still determining the future of spaces occupied by Nordstrom in its Toronto, Vancouver, Calgary and Ottawa shopping malls.
“Cadillac Fairview is constantly assessing the ever-changing retail landscape and while it’s too early to speculate what we will do with these spaces in the future, our team is working diligently to manage this change and work towards an outcome that is in the best interests of our centres and our long term success,” the company said in a statement to BNN Bloomberg on Friday.
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