With Holt Renfrew‘s expansion and Saks Fifth Avenue’s arrival in February, Canadian cities could soon boast a higher concentration of luxury department stores per capita than most American cities. We spoke with a luxury retail expert to determine if Canada will, as a result, become oversaturated with luxury department stores.

For the purpose of this study, North American luxury department stores included Neiman Marcus, Saks Fifth Avenue, Barneys New York and Holt Renfrew. Bloomingdale’s and Nordstrom were excluded due to their broader focus.

After Saks Fifth Avenue opens its first two Toronto stores (in February of 2016) and Holt Renfrew opens its Mississauga Square One location next spring, the Toronto area will boast seven luxury department stores in a region with a population of just over 6 million. Vancouver, with a metro population of about 2.5 million, could eventually see as many as four luxury department stores — Saks Fifth Avenue could open as many as two locations in the area, and Holt Renfrew is said to be speaking with landlords about possibly opening a suburban Vancouver-area location. Montreal (metro population 4 million) could see as many as two Saks locations as well, adding to an already expanding Ogilvy/Holt’s — giving Montreal up to three luxury department stores. And Calgary, with a metro population in excess of 1.4 million, could see two luxury department stores if Saks Fifth Avenue joins Holt Renfrew in Alberta’s largest city.

For comparison, we analysed American metropolitan areas housing Saks Fifth Avenue, Neiman Marcus and Barneys New York stores. Remarkably, most large U.S. regions have fewer luxury department stores, per capita, than the Canadian cities listed above. Miami is an outlier, featuring an unusually high number of Neiman Marcus and Saks Fifth Avenue locations. Boston and San Francisco also rank highly per capita, though only Miami surpasses Vancouver’s potential density of luxury department stores versus population. A number of U.S. cities larger than Calgary feature only one location for either Saks Fifth Avenue and Neiman Marcus, while Minneapolis (3.495 million), Baltimore (2.786 million), Pittsburg (2.356 million), Portland OR (2.348 million), Sacramento (2.244 million), Nashville (1.793 million), Providence RI (1.609 million) and Milwaukee (1.572 million) have no luxury department stores within their metropolitan regions.

The New York City and Los Angeles regions were deemed outliers and excluded from this study, due to their vast populations and sprawl. 

To gain insight into our findings, we consulted with luxury retail expert Farla Efros, President of leading retail consultancy HRC Advisory. She thinks there will be fallout as retailers fight for market share, with upscale independent retailers first to be hurt due to their small scale. She explained how Americans generally have more discretionary income than Canadians, including higher incomes and lower taxes and as a result, Canada could become oversaturated as Saks Fifth Avenue expands into Holt Renfrew’s domain. Ms. Efros noted that Canada’s population is growing slowly and that our employment rate is volatile, though the low Canadian dollar is keeping Canadians shopping locally in the shorter-term. Increased tourism may help, though China’s economic challenges could ultimately affect the way Mainlanders travel and shop abroad. Ultimately, it will come down to who serves the customer best and who carries the most desirable brands, likely signalling label wars between Holt’s and Saks in Canada in the coming years. 

Nordstrom President Blake Nordstrom has revealed that off-price Nordstrom Rack will enter the Canadian market in the fall of 2017. This is a considerable delay, as Nordstrom Rack initially intended to open Canadian locations not long after Nordstrom opened its first full-priced store at Calgary’s CF Chinook Centre in September of 2014. 

Nordstrom says that it plans to open as many as 20 Canadian Nordstrom Rack stores. It will face competition from Saks Fifth Avenue‘s Saks OFF 5TH, which plans to open approximately 25 Canadian stores. Nordstrom has indicated that much of the product carried in its Canadian Rack stores will be from its full-line Canadian stores, as opposed to OFF 5TH which primarily carries made-for-outlet product. 

Landlords have told us that they have been in talks with Nordstrom Rack, and that several Canadian locations have recently been under negotiation, particularly in Western Canada. We have been asked not to discuss these locations at this time. 

In 2013, sources told us that Nordstrom Rack had secured several Canadian locations, with its first to open at Ottawa Train Yards. In the spring of 2014, Nordstrom announced that it was delaying bringing Nordstrom Rack to Canada, citing rapidly expanding Target‘s struggles with its Canadian operations.

Saks recently revealed that it would open a 30,000 square foot OFF 5TH at Calgary’s CrossIron Mills in September of 2016, and sources say that OFF 5TH has secured space in all three major Western Canadian metropolitan areas, with announcements expected to be made shortly. Saks OFF 5TH’s first Canadian locations will open next spring in Ottawa (Tanger Outlets Ottawa), Niagara-on-the-Lake (Outlet Collection at Niagara) and at Vaughan Mills, north of Toronto.  

By Manny Alamwala

The Canadian Tire Corporation is a Canadian retail legend. It has survived the ups and downs that economy has thrown at the retail industry in the past 70+ years; recessions, international competition, digital revolution. As the old adage goes, the only thing harder than getting to the top is staying at the top. This is what current CEO and Canadian Tire veteran, Michael Medline, knows all too well. We have seen it too often with companies at the top of their game, only to a note in history books (example: the great Canadian retailer Eaton’s).

On October 14, 2015, Michael Medline delivered a talk at the Empire Club of Canada around the theme “Innovate or Die”.  At the end of the talk he made a bold statement of Canadian Tire’s new vision:

“To be the most innovative retailer on the planet.”

It is no secret that Mr. Medline is a great advocate for pushing innovation, which can be seen by massive changes that have occurred at Canadian Tire and all its brand in the last 3 years: $300 million investment towards digital, creating tech labs all over Canada (especially in the tech hub of Waterloo).  He noted the investment will only continue in the next 3 years as Canadian Tire pushes to lead instead of follow.  The investments are starting to show outstanding results which is positively affecting the bottom-line:

• Digitally enhanced customer experiences at Sport Chek flagship locations,
• Moving Sport Check to a completely digital flyer,
• 140,000 sq ft interactive showcase Canadian Tire flagship store in Edmonton,
• Digital loyalty program with 8 million members,
• Click and collect,
• Enhanced eCommerce site,
• First retailer in Canada to have an innovation lab.

Innovation is about disrupting business models and finding new ways to delight customers, Mr. Medline highlighted 3 things innovative companies do well:

1. Leapfrog the competition: If retailers in Canada play catch-up, they will get crushed. Being a follower is too slow in the fast changing world of retail today. Mr. Medline mentioned that the CTO is just as important as the CFO.
2. Play your own game: Take advantage of your own competitive advantage instead of looking at others. Just because Amazon is testing drones, doesn’t mean that Canadian Tire will be jumping on that as well.  Leverage your own assets.
3. Dream big, act old: If your vision is not called a little crazy, you’re not trying hard enough.

Michael Jordan missed thousands of shots, missed, failed and that is why he succeeds.  Retailers must be willing to take a lot of ‘shots’ to win.  Stepping out of the comfort zone and taking risks is the only way innovation will happen.

Mr. Medline is not scared of the future, but rather embraces it and takes control of it.  Brick and mortar stores are here to stay, retailers must not look at eCommerce as a threat, but as an opportunity. The shift in consumer behaviours is creating an exciting environment for retailers to rethink how people interact with brands and the store.  Mr. Medline believes in the Canadian tech scene and sees Canada as an innovation force to be recognized globally. With that, he put out a challenge to all Canadian retailers to bring their A-game because Canadian Tire will be making bold moves in the near future to be the “most innovative retailer on the planet.”

Manny Alamwala has retail in his blood with 10+ years of experience from the sales floor to the corporate office.  He is the founder of thetieshop.ca, which provides stylish men’s accessories at affordable prices for Canadians.  Manny is on a path to be a change leader in the retail industry by embracing, implementing and utilizing technology.

A new research study finds that only 20% of retailers are investing optimally in their future growth. This is concerning, considering unprecedented competition from pure play e-tailers, new international entrants, and expanding discount chains. We interviewed the retail expert who interviewed top executives at 20 chain retailers for this study, to gain insight into what retailers in Canada and the United States are doing to effectively allocate capital to the right combination of growth strategy initiatives, as well as what can be improved.  

The study, which was conducted by leading retail consultancy HRC Advisory, found that 80% of retailers surveyed lacked the right combination of growth strategies including new stores, e-commerce, m-commerce, omni-channel, and remodelling existing stores. The study found that only 10% of retailers prioritized remodelling and refreshing existing locations, while the majority focused on opening new stores. The study also found that the same 80% of retailers lacked clarity on the return-on-investment surrounding e-commerce and omni-channel investment initiatives, and that only about 20% of retailers surveyed planned to expand internationally.  

In the survey, the 20% of retailers that are ‘getting it right’ are effectively balancing capital spending across channels, not to mention sharply increasing their total capital spending in 2015/2016 to fund their growth and operating strategies. As a result, this group is able to most effectively connect their brick-and-mortar stores, e-commerce and fulfillment centres as well as adding new stores and remodelling their flagships and other key store locations. The same study found that the remaining 80% of retailers are spending approximately the same amount of capital as in prior years, primarily using internally-generated cash flow as the source of capital. 

According to HRC Advisory CEO Antony Karabus “2015/2016 is the high-water mark in total capital spending for the 20% of retailers that are getting the balance of capital spending right,” and that “Disciplined capital allocation is one of the most important ways in which a CEO and CFO can influence a retail chain’s profitable growth. Striking the right balance between the key strategies to optimize the growth trajectories of a retailer’s online and brick and mortar assets is crucial”. Mr. Karabus then went on to describe that his findings included “evidence that only the 20% of surveyed retailers with strong balance sheets and access to capital are comprehensively investing in all of the key e-commerce and omni-channel capabilities, adding new stores and remodelling the top stores in their existing store fleets – all of which are necessary to transform retailers to reflect today’s increasingly digital shopping environment. As a result, these retailers are positioned for an even stronger future as they are investing to provide the consumer with a more consistent, upgraded experience across all interactions in all channels.”  

Mr Karabus interviewed the CEOs and CFOs of 20 chain retailers for this HRC Study in the specialty sector (70%, including apparel, accessories, home and footwear), department store sector (15%) and discount sectors (15%). The study was conducted in the spring/summer of 2015, adding to previous retail research studies conducted by Mr. Karabus between 2008 and 2011. About 60% of the participating retailers were private and 40% public. 

To gain clarity and to find Canadian examples, we interviewed Antony Karabus about HRC Advisory’s study. Mr. Karabus described how a number of retailers doing business in Canada are optimally investing in their brick-and-mortar operations, as well as online and omni-channel initiatives. Mr. Karabus discussed Canadian Tire’s new South Edmonton Common prototype store, which features technology innovations such as a driving simulator to test tires, and a virtual deck to plan patios. Under the same corporate umbrella, Sport Chek’s West Edmonton Mall flagship prototype, also technology-heavy, was reported by Retail Insider to have experienced tremendous sales increases relative to its previous mall location. Mr. Karabus also discussed remodelling of Canadian luxury retail stores, providing examples of Holt Renfrew’s upgraded Yorkdale Shopping Centre location, and how its bright interiors and personal shopping suites keep consumers engaged. Further, Mr. Karabus noted that Harry Rosen’s stunning store remodels are a very good examples of effective capital cost allotment, particularly as shoppers continue to shop in physical stores and to provide effective differentiation strategies relative to the e-commerce retailers selling better mens wear. 

Indigo has done an exceptional job in the transformation of its business, according to Mr. Karabus, from a bookstore to what it describes as a “cultural department store”. The general merchandise categories are an well curated assortment of both proprietary and branded product that complements its dominant book business well. The remodelling of its Yorkdale (and other selected locations) store to add the dedicated Lego and American Girl shop-in-stores are exceptional and can be argued to have “changed the game” relative to other traditional bookstores,” he said. 

Although many Canadian retailers were late to the e-commerce game, Mr. Karabus noted that it’s not necessarily a bad thing. Although some retailers may have to play ‘catch up’ in an attempt to gain market share online, these same retailers didn’t need to incur costs and time investment required by early-adopters, many who learned through inefficient trial and error. 
 
For more on this study, please see the following links via the HRC Advisory website: 

Study: Omnichannel Key to Success [Women’s Wear Daily]

HRC Advisory Study Finds 80 % of Retailers Have No International Expansion Plans [Sourcing Journal]

Study: Retail Industry a Bit Stumped on Growth Strategies [Retail Dive]

HRC Advisory: Retailers Must Reconsider Digital Age Investments [HomeWorld Business]

Q&A with HRC Advisory CEO Antony Karabus: Many Retailers Underestimate Importance of Remodels [Chain Store Age]

HRC Advisory Study: Retail Industry Divided on Growth Strategies, Capital Spend [Chain Store Age]