Mall owners across the country are scrambling to replace Nordstrom Inc. JWN-N department stores as anchor tenants, after the U.S. luxury retailer said it will wind down its Canadian operations.
On Thursday, Seattle-based Nordstrom announced it will close all of its 13 outlets in Canada and lay off its 2,500 employees in British Columbia, Alberta and Ontario, just nine years after opening its first Canadian store, in Calgary.
The company filed for creditor protection in Canada and revealed it had invested US$775-million in its stores here, yet never turned a profit on them. It plans to liquidate inventory and close the stores by June.
“Despite our team’s best efforts, including multiple initiatives to improve our outcomes, our Canadian business has not been profitable,” chief executive Erik Nordstrom said in a conference call. “The impact from COVID drove further losses with no realistic path to sustainable profitability.”
Nordstrom lost $95-million in Canada over the past 12 months, on sales of $515-million, according to a court filing. In addition to COVID-19, the company said, high operating costs and a “lack of brand awareness” undermined performance. Nordstrom, founded as a shoe store in 1901, has 350 outlets in North America. Its U.S. stores, many of which include spas and high-end restaurants, are consistently profitable.
The closings of the company’s six Canadian Nordstrom stores and seven Nordstrom Rack discount stores will eliminate anchor tenants in several of the country’s largest malls, including Vancouver’s Pacific Centre, Calgary’s Chinook Centre, Ottawa’s Rideau Centre and Toronto’s Sherway Gardens, Yorkdale and Eaton Centre. Landlords stand to lose rent from Nordstrom – which can legally break leases after filing for creditor protection – and could face requests for rent reductions from other tenants, if customer traffic declines as a result of Nordstrom’s absence.
“Backfilling the larger full-line Nordstrom stores could prove challenging and costly, particularly given the size of the boxes,” real estate analysts at RBC Capital Markets said in a report. Nordstrom is the second major retailer to close down its Canadian operations in as many months, after Bed Bath & Beyond revealed plans in February to shut 65 Canadian stores.
“Retail closures and bankruptcies could rise in the year ahead, particularly as economic traction slips,” the RBC analysts added.
Nordstrom is an anchor tenant in three Cadillac Fairview Corp. Ltd. properties, including the Eaton Centre, the country’s most-visited mall. Cadillac Fairview is owned by the Ontario Teachers’ Pension Plan.
“Cadillac Fairview is constantly assessing the ever-changing retail landscape,” spokesperson Janine Ramparas said on Friday. “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 toward an outcome that is in the best interests of our centres and our long-term success.”
Nordstom’s other landlords include Montreal-based Ivanhoé Cambridge, which rents space to two stores; Vancouver’s QuadReal Property Group; and Toronto-based Oxford Properties. All three are also owned by pension plans. On Friday, the companies declined to comment on Nordstrom’s planned departure.
Commercial real estate experts said it will be difficult for the mall owners to find large enough retailers to take over the Nordstrom spaces, especially in places like the Eaton Centre, where the luxury retailer is spread out over large floor plates across multiple levels.
Even before the pandemic started, mall operators and department store chains had been trying to transform their shopping spaces into destinations, to draw online shoppers to physical retail. For example, some malls have developed co-working spaces.
Mall operators have also had to get rid some of their retail space, or convert it for use as schools, housing or places of worship.
Stan Krawitz, a principal with Avison Young, a commercial real estate brokerage, said Nordstrom’s spaces in many malls will likely have to be divided to attract smaller retailers. He said the Nordstrom exit will be a problem for every landlord, but that it would not be “fatal” for highly sought-after malls like the Eaton Centre, Yorkdale and the Pacific Centre.
Some retail analysts have privately wondered whether Saks Fifth Avenue could be next to pull up stakes. The U.S. luxury chain, which is owned by Hudson’s Bay Company Ltd., has three full-line stores in Calgary and Toronto, and 15 lower-priced Saks Off Fifth locations in Canada, along with its more than 80 Bay department stores.
Richard Baker, the American businessman who has controlled HBC since taking it private in early 2020, said the company has no plans to leave Canada, and is looking to expand its investments here.
“It’s not good news for Canada that another high-quality, well-run department store retailer is choosing to leave the country, but it’s an opportunity for Hudson’s Bay and Saks to grow market share in a very difficult market,” Mr. Baker said. He added that the two chains would be looking at picking up some of the vendors that previously worked with Nordstrom.
“Before the pandemic, and straight through, we invested hundreds of millions of dollars in upgrading our digital experience and improving our overall offering of quality and service at Hudson’s Bay and Saks, and we’re going to continue down that road,” he said.
Mr. Baker also took aim at suggestions that weakness in Canada’s luxury-goods market led Nordstrom to exit.
“Nordstrom closing in Canada has nothing to do with the luxury market. It has to do with a prolonged depression in retail sales in the downtowns of Canada that has impacted them more than they could tolerate,” he said. He added that the Bay’s stores in suburban locations and smaller cities have helped HBC weather decreased foot traffic in large Canadian urban cores.
As for the vacant retail spaces Nordstrom is leaving behind in Canadian malls and shopping centres, Mr. Baker said he’s confident landlords will “re-energize them with new and exciting retailers.” Asked if Hudson’s Bay or Saks is interested in moving in, he declined to respond.
Nordstrom has committed up to $25-million to pay employees for working through to store closings in June, including severance, according to court documents. The retailer has also set aside $2.6-million for bonus payments to keep key personnel on the job, including store managers, department heads and security staff.
Nordstrom estimates that about 10 per cent of its employees, or 250 people, will be eligible for the bonus.