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Nordstrom: The ‘Cadillac’ of mall tenants

Blake Nordstrom, president of Nordstrom Inc., spoke during a press conference in Toronto, Sept. 13, 2012, after announcing the U.S.-based retailer Nordstrom has plans to open four stores in Canada.

Deborah Baic/The Globe and Mail

Cadillac Fairview Corp. has emerged as a clear winner in the years-long marathon to woo Nordstrom Inc. as the upscale U.S. department-store retailer prepares to expand into Canada.

Toronto-based Cadillac, one of this country's premier shopping centre developers, has nabbed Nordstrom as its tenant for the retailer's first four store locations in Canada in four key malls, the companies confirmed on Thursday. The deal virtually ensures that Cadillac will attract more customers to those centres – in Calgary, Ottawa, Vancouver and Toronto – once the U.S. chain sets up shop here, starting in the fall of 2014.

While Nordstrom will not pay high rents – department stores never do on the basis that they serve to attract more shoppers to malls overall – the big coup for Cadillac is being able to lure more people to their properties and ultimately raise other tenants' rents, industry insiders said.

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"The value of these properties suddenly goes up," said David Ian Gray of retail consultancy DIG360 in Vancouver. "It becomes such a draw … They could start asking for bigger rents tomorrow."

Cadillac executives did not provide financial details of its deal with Nordstrom, but the agreement was the culmination of years of work in a pitched battle among Canada's top mall developers to get Nordstrom as a tenant. Cadillac is betting that the U.S. chain's arrival in its centres will rev up traffic and retail sales.

"We think Nordstrom is one of the pre-eminent retailers in North America," said John Sullivan, chief executive officer of Cadillac. "We think their coming to Cadillac Fairview first in Canada is a great marriage – a marriage made in heaven, if you will."

Cadillac was on its way to clinching the deal earlier this year when it bought back three high-profile leases from struggling Sears Canada Inc. for $170-million. At that point, Cadillac had an edge among other mall owners to attract Nordstrom. The U.S. chain wanted a number of stores, rather than just one, to launch in Canada to make its initial heavy investment here worthwhile.

The fight among mall owners for Nordstrom entailed developers that are owned by the country's largest pension funds: Cadillac, which is owned by Ontario Teachers' Pension Plan, faced off with Oxford Properties, owned by OMERS, and Ivanhoe Cambridge, a division of Caisse de Dépôt et Placement du Québec.

Even so, Oxford and Ivanhoe continue to talk to Nordstrom about the retailer eventually moving into some of its properties, industry sources said. Nordstrom envisions six to nine mainstream stores in Canada in the future, president Blake Nordstrom said on Thursday.

Department store retailers in North America pay less than $10 a square foot in rent while specialty chains pay about 10 times more, industry insiders said.

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Mr. Nordstrom said the retailer insisted on being in top retail locations "to make this thing work. We also needed more than one location in order to justify the huge investment."

The first Nordstrom store will launch in Chinook Centre in Calgary in the fall of 2014, followed by Ottawa's Rideau Centre and Vancouver's Pacific Centre in the spring of 2015 and Sherway Gardens by the end of 2016. (The first three sites are Sears outlets now and will be vacated this fall.)

"This is a significant milestone for us as a company," Mr. Nordstrom said. "We're the new kids on the block and there's a lot to learn."

Nordstrom also is expected to also roll out its discount Rack outlets after it launches its first conventional store. "Usually for every Nordstrom deal there are three Nordstrom Rack deals that are done, which would be right within our business plan," Fred Waks, chief operating officer of RioCan Real Estate Investment Trust, told analysts last month.

The department store's arrival will not come without some additional costs for Cadillac: It will pour money into the malls where Nordstrom will set up shop to upgrade the properties and expand some of them.

Nordstrom is preparing to enter this market at a time when U.S. retailers are viewing it as a lucrative destination with a stronger economy. Canada has about 50 per cent of the retail space per capita as that south of the border, according to Nordstrom figures.

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A slew of U.S. retailers have opened in Canada or are looking for space. And in what is expected to be a transformational event, U.S. discount giant Target set to start opening its first stores here in early 2013 following its acquisition of most Zellers stores, which are now closing.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More


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