Nordstrom, We Hardly Knew Ye

Back in 2015, we all read the announcement that Target made the fatal decision to close its Canadian operations. At the time, that meant shutting down 133 stores and laying off 17,000 people.

Three years later in 2018, Sears Canada closed its doors, eliminating 12,000 jobs.

In 2022, Lowe’s sold its Canadian operations, including Rona, thereby exiting the country entirely.

Just last week, after less than a decade in Canada, Nordstrom announced it would follow this same fate. Nordstrom saw “no path to profitability” and will take a US$350 million charge to cease its Canadian operations. All 13 stores will close and 2,500 employees will be laid off. An activist shareholder looming in the background likely forced their hand.

Questions now linger about the future for Saks Fifth Avenue. Later this month, Hudson’s Bay will test out an experiment to roll out twenty-five Zellers stores, hoping that nostalgia will drive customer traffic.

These observations have several implications on how we invest our client capital.

First, we haven’t bought a department store, nor do we plan to. The business model is until fire due to severe competition and changing consumer preferences. Furthermore, shopping mall traffic is down and many venues may be repurposed into condos and colleges one day. Instead, we prefer specialty retailers, such as Pet Valu, which we added to client portfolios last year.

Second, we haven’t invested in any real estate stocks. There’s an abundance of uncertainty in the sector. Consequently, the multiple on these stock valuations is low – and for good reason. Between work-from-home and the demise of department stores, we have better opportunities elsewhere.

Third, any time an investor cites the value of a company’s real estate, steer clear. That value never seems to get unlocked. Hudson’s Bay went public at $17/share in 2012 but struggled to return to that price before returning private in 2020 for $11/share. During those 8 years, many said the value of its real estate far outweighed the share price. Investors never saw it.

Last, there’s something about cross-border activity that shuns us away from investing in companies with international growth ambitions. There’s no shortage of Canadian companies that have tried (and failed) to enter the U.S. market, and vice versa.

The exit of Nordstrom is an unfortunate loss for Canada. However, as investors, it is a sobering reality to stay focused on the present and future. Investing in previous industries that once prospered is not the philosophy that Schneider & Pollock Wealth Management Inc. employs for its clients.

Instead, we look towards the future while not forgetting the past.