{"id":8900,"date":"2023-03-22T11:52:03","date_gmt":"2023-03-22T11:52:03","guid":{"rendered":"https:\/\/dmsretail.com\/RetailNews\/opportunities-present-to-repurpose-nordstrom-spaces-in-canada-experts-comment\/"},"modified":"2023-03-22T11:52:03","modified_gmt":"2023-03-22T11:52:03","slug":"opportunities-present-to-repurpose-nordstrom-spaces-in-canada-experts-comment","status":"publish","type":"post","link":"https:\/\/dmsretail.com\/RetailNews\/opportunities-present-to-repurpose-nordstrom-spaces-in-canada-experts-comment\/","title":{"rendered":"Opportunities Present to Repurpose Nordstrom Spaces in Canada: Experts Comment"},"content":{"rendered":"

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As Nordstrom begins its exit from Canada with liquidating sales, many are wondering what is going to happen to some of the big box real estate in choice locations that the giant retailer is going to leave behind.<\/p>\n

Are there companies and organizations waiting to jump in and take over that space or will that huge chunk of real estate follow what happened in much of the former Sears space in Canada where landlords broke it up into smaller units to accommodate more than one use?<\/p>\n

Martin Moriarty, Senior Vice President, Investments & Leasing with Marcus & Millichap in Vancouver, said he doubts one large-scale user will come in and swoop up the spaces, nor does he think the landlords may want that simple answer. \u00a0<\/p>\n

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Martin Moriarty <\/figcaption><\/figure>\n<\/div>\n

\u201cFor their landlords, Cadillac Fairview and Oxford Properties, two of the best in the business, they now have a generational opportunity to reprogramme, reimagine and reposition key central blocks of space in super-prime locations. This could involve creating a community of smaller retailers, food and beverage offerings and entertainment uses. Nationally, each unit will be different but in terms of Vancouver\u2019s impact, this may prove to be the opening needed for several new market entrants to land. I know there will be a lineup of notable groups looking to take this chance,\u201d he said.<\/p>\n

\u201cI may be remarkably wrong but it feels inevitable that the spaces will be subdivided to some degree. Each location, I\u2019m sure, will be strategically attacked differently depending upon location, size and configuration but I\u2019d say subdividing will naturally occur to allow for a wider variety of uses, tenancies and consumer experiences. It feels right and I think, in today\u2019s age, there is also something to be said for \u201cde-risking\u201d an asset by taking such an approach.\u00a0<\/p>\n

\u201cNordstrom selects great locations and there\u2019s a reason their real estate is revered by most retailers. Whilst hard for me to comment specifically across a national portfolio, I feel confident their landlords will not have a tough time filling these highly-coveted spaces but they will likely take their time to ensure they achieve the right mix of users to bolster their consumer experience. In short, great things do take some time.\u201d<\/p>\n

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Nordstrom at CF Pacific Centre (Image: Lee Rivett)<\/figcaption><\/figure>\n

Mary Mowbray, Senior Vice President, Retail Group, Colliers, said\u00a0Canada has relatively few players that could lease Nordstrom department stores which range from 138,000 square feet to 220,000 square feet \u2013 maybe Simon\u2019s or Holt Renfrew \u2013 so, it\u2019s unlikely, but not impossible, that the stores would be released in their existing sizes.<\/p>\n

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Mary Mowbray<\/figcaption><\/figure>\n<\/div>\n

\u201cIt\u2019s more likely that Nordstrom department stores will be broken up into medium sized units of 10,000 square feet to 30,000 square feet and re-leased,\u201d she said. \u201cThe mall owners could target lifestyle retailers, large format retailers, larger food and beverage concepts, and entertainment concepts.\u00a0No owner wants to see an anchor retailer like Nordstrom close but it also creates huge opportunities to introduce new uses and concepts.<\/p>\n

\u201cOwners need to bring in new concepts \u2013 new retailers but also food and beverage and entertainment uses \u2013 to keep attracting people to shopping centres, especially younger customers.\u00a0And, Nordstrom department stores are in the absolute best shopping centres in the country. They are the calibre of malls that new retailers and concepts are looking to be in.\u00a0The Nordstrom Rack stores are more likely to be leased to single tenants given their size and locations.\u201d<\/p>\n

She said as shopping centres look at big boxes today and in the future more of them will follow what happened with the former Sears space as landlords broke up the space to accommodate more tenants.<\/p>\n

\u201cThe excitement in retail is in newer concepts.\u00a0This includes newer retailers, which often start small to test products and the marketAnd, it includes newer uses, such as entertainment uses; these are generally larger than retail uses but often top out at 40,000 square feet, still much smaller than a department store,\u201d said Mowbray. \u201cMore, smaller tenants also provide the opportunity to introduce more new concepts over time and reduce an owner\u2019s risk.\u201d<\/p>\n

She said she didn\u2019t believe it will be tough for shopping centres to fill these Nordstrom spaces given the\u00a0quality of the shopping centres and their owners\u2019 experience.<\/p>\n

\u201cNordstrom stores are in the best centres in the country and are remarkably resilient.\u00a0And, the centre owners have the experience and the depth of knowledge to create exciting opportunities out of the vacancies,\u201d she said.<\/p>\n

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Nordstrom at Yorkdale (Image: Dustin Fuhs)<\/figcaption><\/figure>\n

George Minakakis, CEO, Inception Retail Group, and author of The New Bricks & Mortar: Future Proofing Retail, said this is a very sensitive time for consumers, retailing and real estate. Each developer will come up with their own strategies given the current marketplace conditions.\u00a0<\/p>\n

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George Minakakis<\/figcaption><\/figure>\n<\/div>\n

\u201cBoth Nordstrom and Nordstrom Rack occupy different real estate locations to start with. Nordstrom Racks are at power centres and outlet malls, they will be a different animal to deal with given the target audience and offers. And Nordstrom itself is mostly within first tier malls,\u201d he said.<\/p>\n

\u201cThe majority of spaces will be filled whether the same size or divided up.\u00a0 Malls like Eaton Centre, Pacific Centre and Yorkdale will have some interesting offers. Keeping in mind these locations are all about branding with the right merchants. So they can afford to be very selective and tactical.\u201d<\/p>\n

Minakakis said if he was leading retail chains he would be asking why they should enter Canada, a market that clearly is so different. It\u2019s not easy today to pull it off.<\/p>\n

\u201cAs for demographics, with the exception of Toronto, Montreal and Vancouver, most of our other cities are more like middle America than they are like New York or San Francisco. Getting creative with a retail space is more logical than generating no revenue from it,\u201d he said.<\/p>\n

The strategy by landlords to cut and divide space is inevitable for all shopping centres that have little opportunity to attract any big names to Canada, he said. Suburban malls do have an interesting opportunity for smaller chains that are doing well and want more visibility and traffic. More traffic is a challenge these days.\u00a0<\/p>\n

\u201cTen years ago most shopping centres had a long list of retailers who wanted to lease these spaces. Not as easy today to find large anchors, especially one that stands out as prominently an attraction as Nordstrom. If anything, Nordstrom\u2019s failure means bread and butter for some Canadian department stores, because US and likely international brands not here today, will think twice about making the big move to Canada. If anyone was hoping for a Neiman Marcus or Bloomingdales to enter Canada that\u2019s not in the cards,\u201d said Minakakis.\u00a0<\/p>\n

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Nordstrom at CF Toronto Eaton Centre (Image: Dustin Fuhs)<\/figcaption><\/figure>\n

\u201cSo, who would take these locations? One retailer that comes to mind is La Maison Simons however they have 15 locations and opening more stores may be attractive provided they aren\u2019t cannibalizing existing stores.\u00a0 There would also have to be very attractive terms to enter some of these prime locations. It all depends on a retailer\u2019s risk appetite.\u00a0<\/p>\n

\u201cWhat I am also trying to convey to many about Nordstrom\u2019s departure is that the luxury market in Canada is a little overstated by many who focus primarily on luxury brands and sometimes make it sound like everyone in Canada is buying these goods. This is a high income class driven retail culture. In our own research we found consumers who can buy luxury goods are about 10-12 per cent of the population, and the top three per cent can do it everyday. As a matter of fact, I also happen to know high net worth people who drive 15-year old trucks and don\u2019t buy these brands.\u00a0 For this reason, it will be tough to fill Nordstrom\u2019s shoes with new anchors that are as attractive.\u00a0<\/p>\n

\u201cIt will take time to fill these spaces in this economy. We should expect that developers will have secured leases before they begin to split up an anchor location, it\u2019s just smart to ride out the storm.\u201d<\/p>\n

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Nordstrom at CF Sherway Gardens (Image: Nordstrom)<\/figcaption><\/figure>\n

Clearance sales at Nordstrom stores in Canada have begun as part of the winding down of Nordstrom Canada under the Companies\u2019 Creditors Arrangement Act. Nordstrom has six full-sized stores in Canada including three in Toronto (CF Toronto Eaton Centre, Yorkdale and CF Sherway Gardens) as well as in Ottawa at CF Rideau Centre, Calgary at CF Chinook Centre, and at CF Pacific Centre in Vancouver. Nordstrom also operates seven Nordstrom Rack stores in Canada in the metropolitan Vancouver, Edmonton, Calgary, Toronto and Ottawa markets.\u00a0<\/p>\n

On its website the retailer said: \u201cNordstrom Canada entered the Canadian market in 2014 with a plan to build and sustain a long-term business in the country. Against the backdrop of a challenging operating environment, Nordstrom Canada\u2019s parent company, Nordstrom, Inc., has determined, after careful consideration of all reasonably available options, that it is in the best interests of its stakeholders to discontinue further financial and operational support for the Canadian business operations. As a result, Nordstrom Canada has determined that it will wind down its operations and close its 13 Nordstrom and Nordstrom Rack stores. Further, Nordstrom.ca has ceased operations, effective immediately.\u201d<\/p>\n

The retailer said the liquidation sale process is expected to be completed in late June.<\/p>\n

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Nordstrom Rack at One Bloor (Image: Dustin Fuhs)<\/figcaption><\/figure>\n

Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail, said landlords will either look for a big new entertainment draw that brings affluent customers to malls or break up the space and lease it out to other tenants in need of smaller spaces.\u00a0<\/p>\n

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Bruce Winder<\/figcaption><\/figure>\n<\/div>\n

\u201cAnother option could be a luxury auto dealership or spa or something like that. There aren\u2019t many retailers who could fill the space Nordstrom had that fit the demographic of the shopper from these malls. These are massive, anchor locations that leave these centres with a huge eye sore and reminder of Nordstrom\u2019s demise. No doubt they already have some deals in the works. Looking forward to seeing what opens later in 2023 or 2024,\u201d he said.<\/p>\n

\u201cI don\u2019t think that (landlords) will have a hard time filling the Nordstrom space, but it may take time and require capital to reconfigure the locations. The Nordstrom spots are prime, anchor locations in malls with traffic from shoppers who have high disposable income so the right tenant could make it work if the space is broken up.<\/p>\n

\u201cInternational luxury brands keep coming to Canada so over time they could take portions of this space, but the malls will need another anchor that draws customers out of their chairs and into the shopping centre. It has to be compelling yet make sense from a customer lifestyle perspective. Nordstrom\u2019s exit may make other international brands think twice about expanding into Canada or at least may teach them a good lesson about starting small and testing and learning before gradually expanding.\u201d<\/p>\n

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Nordstrom Rack at Vaughan Mills (Image: Nordstrom)<\/figcaption><\/figure>\n

Michael Kehoe, Broker of Record, Fairfield Commercial Real Estate in Calgary, said the Canadian Nordstrom locations will be re-configured, repurposed and re-leased strategically over time as these shopping venues across the country evolve to keep pace with consumer demand.<\/p>\n

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Michael Kehoe<\/figcaption><\/figure>\n<\/div>\n

\u201cIn some cases, densification is likely to occur as a long-term, mixed-use development strategy,\u201d he said.<\/p>\n

\u201cThe gene pool of department store retailers in the Canadian market is limited however, I am expecting to see some innovative solutions from the building owners. Could there be an international player that may enter the market or perhaps a large format Canadian retail brand will be a part of the solution? Excited to see the continuous evolution of the consumer retail industry unfold as shopping patterns continue to change across the country. We can expect that the Nordstrom spaces will be recycled and repurposed over time with other retailers, entertainment and other non-retail uses.<\/p>\n

\u201cThe Canadian Nordstrom spaces are prime and I expect that Cadillac Fairview, an innovative and successful retail landlord will generate some high-profile solutions with interesting new shopping, entertainment and dining destinations that will add value at their Canadian properties. There are obvious challenges facing the consumer real estate industry and the overall economy in Canada but I am not expecting that the Nordstrom spaces will sit idle for long.\u201d<\/p>\n