How Nordstrom Will Avoid a Target-Like Meltdown in Canada

By Markets Fool.com

Last Friday, upscale retailer Nordstrom (NYSE: JWN) opened a new 220,000 square foot flagship store in Toronto. This marks its fourth store in Canada -- all opened within the past two years -- and its second Canadian flagship store. Nordstrom will open a second Toronto-area store next month.

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Nordstrom opened a flagship store at Toronto's Eaton Centre last week. Image source: Nordstrom.

Nordstrom is just one of several big American retailers looking to expand into Canada. But success in the U.S. is no guarantee of success in Canada. Target's (NYSE: TGT) aggressive move into Canada a few years ago was a complete disaster, forcing the company to write off its entire investment. Here are two ways that Nordstrom will avoid a similar fate.

Giving customers what they expect

Many Canadian consumers routinely shop in the U.S. This isn't too surprising, as Canada's three biggest metro areas are all near the U.S. border. As a result, Canadian shoppers are familiar with U.S. chains like Nordstrom and Target.

One of Target's biggest problems in Canada was that it didn't offer the same merchandise or price points in Canada as it did in its U.S. stores. Understandably, many shoppers familiar with Target's U.S. selection and pricing felt cheated. Target eventually cut its prices, but this just exacerbated its losses. The merchandise selection never really improved.

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The lesson for Nordstrom is that it needs to bring its best brands and legendary service to Canada. It is doing just that. For example, the company's fashion-forward SPACE boutique will have eight locations by this fall, of which three will be in Canada. Other top brands like Madewell that aren't even available in all of Nordstrom's U.S. locations will be featured in the new Toronto stores.

Nordstrom has also hired employees months in advance for its new stores in order to thoroughly train them in Nordstrom's service standards. Training for department managers included five week placements in other Nordstrom stores where they could be mentored by the company's most experienced managers.

Despite Nordstrom's best efforts, there will undoubtedly be bumps in the road. Fortunately, the company's slow pace of expansion there gives it time to test and learn.

The best locations

Having top-notch store locations is the other key to Nordstrom's strategy for success in Canada. Target settled for subpar real estate in its haste to expand in Canada, buying out more than 100 store leases from failing discounter Zellers. This made for a poor customer experience.

Many of Target's stores in Canada were poorly located. Image source: The Motley Fool.

By contrast, Nordstrom is putting full-line stores in Canada's best malls. Eaton Centre, where Nordstrom opened its first Toronto store last week, routinely ranks as one of the 10 most productive malls in all of North America -- not just Canada -- in terms of sales per square foot.

Yorkdale Shopping Centre, where Nordstrom will open its second Toronto-area store next month, also regularly makes that top-10 list. So does Vancouver's Pacific Centre, the site of Nordstrom's other Canadian flagship. The other three malls hosting Nordstrom's first batch of Canadian stores are not far behind.

This indicates that there are already many well-heeled consumers making their way to these malls. Nordstrom just has to get its fair share of this potential business.

Execution is the key now

Nordstrom has been patiently investing in its nascent Canadian business for several years. Part of the allure of this new market is that there is less competition than in the U.S. Nevertheless, Target's demise in Canada proves that succeeding there is not a cakewalk.

With four stores open (and a fifth one coming next month), Nordstrom now has a solid footprint in Canada. Going forward, it just has to execute by providing the high-quality merchandise and excellent service it is known for in the U.S. If Nordstrom can do that, it has a good chance of winning over Canadian consumers.

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Adam Levine-Weinberg owns shares of Nordstrom. The Motley Fool recommends Nordstrom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.