Nordstrom followed a familiar path to failure: too big, too fast — and not Canadian enough

Nordstrom’s decision to close all its stores in Canada and seek protection from its creditors is just the latest example of a U.S. retailer setting up shop to much fanfare, only to have it all fizzle out.

Less than a decade after launching in Canada, the U.S. chain announced Thursday it will shutter all 13 of its department stores across the country in the coming weeks as it puts its focus on its domestic operations and jettisons a Canadian division that has never managed to eke out a profit.

Court filings show that in 2022, Nordstrom’s Canadian division sold about $515 million Cdn worth of goods. But it lost $72 million while doing so.

The news came as a surprise for many shoppers and employees, but it wasn’t a shock for Liza Amlani, principal and founder of the Retail Strategy Group, because she saw it coming.

“When Nordstrom came into Canada, they scaled way too quickly,” she told CBC News in an interview. The chain launched in multiple cities, and then brought its discount offering Nordstrom Rack to the marketplace too, before the parent stores had even found their footing.

“The challenge with scaling too quickly is that it’s very difficult to understand truly what that customer wants,” she said. “Because a customer in Alberta is very different from a customer in Toronto, who is very different from a customer in Vancouver.”

Amlani says many American retailers make the classic mistake of assuming that whatever they do in the U.S. will work just as well in Canada — and they often pay the price.

WATCH | Retail analyst explains what Nordstrom’s demise means for Canada:

Doug Stephens discusses what Nordstrom’s exit from Canada means for the retail landscape.

Perhaps the most well known example of that phenomenon in action was Target, which launched in Canada to much fanfare in 2013, only to shutter all 133 locations barely two years later.

Canadians who travel to the U.S. were very familiar with the chain, so she says when its offerings in Canada ended up being a strange mix of higher-than-expected prices and a lot of empty shelves, Canadians rejected it.

Nordstrom fared a little better, but Amlani says in retrospect the chain should have simply opened two stores, perhaps one each in Vancouver and Toronto, while it learned about the market. “Then they would have really been able to build something,” she said.

While the chain made many mistakes along the way, retail consultant Bruce Winder says the main one was that Nordstrom simply misjudged the opportunity presented by the Canadian market.

“They probably just overestimated how rich we are and how much we spend on luxury goods,” he said in an interview. “We just don’t have as many people who would desire that kind of merchandise they needed to break even.”

The pandemic has brought about major upheaval in the retail sector in general, but department stores face even more challenges than most because they are under siege from all sides, Winder says.

Discount stores are eating away their value-oriented customer base from below, while luxury brands are increasingly going direct to consumers instead of through retail channels. And they’re often saddled with legacy costs like rent and store maintenance for their huge storefronts, which makes it hard to pivot on the fly.

“I think the department store is on its last legs,” Winder says. “The business has been under fire through everyone from J.C. Penney to Macy’s and in Canada … Sears, Eaton’s closing years ago … the department store is probably at the last leg of its life cycle.”

That may well be the case, but the chain isn’t pulling its department store model everywhere. The news of the Canadian closures came as the U.S. parent revealed quarterly earnings this week, numbers that showed the chain took in more than $4 billion US in revenue over the busy holiday shopping period, and booked a profit of $119 million.

Those figures topped expectations, but the company has faced pressure from activist investors seeking to reverse a two-year slide in the company’s stock price, which is why Winder speculates that the chain basically gave up in Canada to focus on problems at home.

“What companies do normally when they’re under siege like this, is they start to jettison any assets they can,” Winder said. “Like a ship that’s sinking a little bit, they throw things overboard and … they probably looked at Canada and said, hey, it’s about three per cent of our business, we’re not making money yet, let’s just cut this off.”

Professor Nicole Rourke, who teaches business at St. Clair College in Windsor, Ont., says the rise in online shopping is hurting chains like Nordstrom that have an extensive brick-and-mortar presence and associated costs.

“It’s a tough time to be in the department store industry,” she said in an interview. “E-commerce has really made it very difficult to stay in business and be profitable.”

The chain couldn’t manage to make any more money selling online than it could in its physical stores, and as part of its wind-down in Canada, the chain has actually halted all of its online sales at Nordstrom.ca, even as the physical stores will soon be offering liquidation sales to entice shoppers.

Nordstrom’s inability to make online shopping work for them says a lot about why they went under, because Rourke says the Canadian marketplace is uniquely positioned to be ideal for those who can excel at e-commerce.

“Because we’re so geographically dispersed, we are the perfect setting to do e-commerce in,” she said. “That’s something that’s often overlooked by a lot of American retailers.”

Ultimately, Nordstrom may be destined to be just the latest in a long line of American chains that came north with great expectations, only to fail. “They looked at their product lines, and they just said, You know what, we’re not going to make it in Canada. It’s just not profitable enough for us,” she said. 

“They gave it a good old college try but they just couldn’t see the growth potential.”