Holt Renfrew plans big expansion of discount stores to compete with Nordstrom

Canada’s high-end fashion retailer enters the ‘off-price’ fray with hr2 stores.

 
(Deborah Baic/The Globe and Mail)

(Deborah Baic/The Globe and Mail)

Holt Renfrew has dominated luxury retail in Canada for so long now that competition seems a distant worry. But that’s changing. A reinvigorated Hudson’s Bay Co. is offering more high-end apparel. The pending arrival in Canada of upscale U.S. retailer Nordstrom Inc. next year presents another threat. In an apparent pre-emptive strike, Holt Renfrew is launching a chain called hr2, which will sell high-end apparel in lower-rent locations at discount prices.

The “off-price” concept, as it’s known in the industry, is not new, but is relatively underdeveloped in Canada. Over the year ending in January 2013, off-price retail sales grew by around 10% in this country, outpacing the market as a whole, NPD Group reports. The segment is booming globally, too. Last October, Bain & Co. put sales growth for off-price retailers at 30% in 2012. So what took Holt Renfrew so long? Nordstrom, in contrast, launched its off-price spinout, Nordstrom Rack, 40 years ago.

Heather Arts, vice-president of hr2, says the concept had been in development for at least two years. It is launching now in part because appropriate locations became available, she says. Nordstrom’s arrival to Canada—and potentially its discount chain later on—was not a factor. “We’re aware of the competition,” she says, “but there was no urgency.”

The optics suggest otherwise. “Nordstrom is forcing Holt’s hand a bit,” says Terry Henderson, president of the Quebec and Atlantic division at retail consultants JC Williams Group. “They’re trying to be the first ones in.” The first hr2 opened in the Montreal suburb of Brossard, Que., in March. A second will open in Toronto this month. Henderson was impressed during his visit to the Quebec store. The layout was open and clutter-free, befitting a sophisticated brand.

Though hr2 will appeal to a wider demographic than Holt Renfrew, there will likely be customer overlap. “Some sales will be cannibalized, there’s no doubt about that,” says Wendy Evans, a Toronto retail consultant. Still, she points out Nordstrom and Neiman Marcus have had success with the concept. Nordstrom Rack stores are actually more profitable per square foot than those under the flagship brand.

Arts says cannibalization won’t be an issue. Hr2 outlets will not be located near Holt Renfrew stores. Though the two will carry many of the same brands, the products will be different.

Holt Renfrew wants to achieve a “national presence” with hr2 by 2015, and has plans for 10 locations. For a conservative company with only a handful of downtown stores, eight more qualifies as a big expansion. It also speaks to the level of competition coming to high-end retail. Says Henderson: “It’s going to be a battle.”

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