Why U.S. retailers struggle in Canada

Big-box retailers are leaving Canada because they can’t replicate their U.S. success. Nordstrom closed its Canadian business last month due to a lack of a “realistic path to profitability.”

But, Lowe’s sold its Canadian retail operation to Sycamore Partners for $400 million in cash. After raising financing to avoid bankruptcy, Bed Bath & Beyond’s Canadian businesses will close, according to February court filings.

Retailers are drawn to Canada’s market share possibilities. Statistics Canada reported that December retail sales grew 0.5% to 62.12 billion Canadian dollars ($45.41 billion). Despite their riches, retail giants have faced supply chain costs, logistical issues, and competition.

“Many firms view Canada as another state. They don’t think about Canada being a separate country,” said Insider Intelligence’s retail and e-commerce content VP Suzy Davidkhanian. “But Canada has several entry barriers.”

Despite being neighbors, shipping from the U.S. to Canada is difficult.

Harrow & Green USA President Simon Chamberlain said shipping products from the U.S. to Canada is more expensive and cumbersome than shipping to the U.K. and other European countries. Chamberlain said his company supplies Nordstrom’s Canadian full-line stores with U.S. merchandise.

Canadian package labels must be bilingual in English and French. Canada employs the metric system instead of the imperial system in the U.S., hence net quantity statements must be in metric units. Chamberlain said it takes weeks to get a Canadian government business number to send things to Canada commercially during the outbreak.

Chamberlain said commercial invoicing should lower harmonized tariffs because most U.S. products are imported. He stated that shipping expenses are still high.

According to Gartner’s marketing practice director Brad Jashinsky, big-box stores in the U.S. have vast distribution networks, but not in Canada. U.S. retailers raise prices and stock shelves slower without a strong Canadian delivery network. Target’s Canadian locations were plagued by out-of-stocks and higher prices for two years until 2015.

“Some shops have sought to pass on those higher prices to Canadian consumers, and they noticed,” Jashinsky said. “Lowering pricing will hurt your profits. It’s two-sided. Even the finest merchants need time to become profitable in a new market.”

But, retailers prioritized profit. Not all retailers can sustain losses for years in hopes of a turnaround.

In March, CEO Erik Nordstrom told investors and analysts that Nordstrom entered Canada in 2014 and had 13 stores there, but the market only accounted for 3% of the company’s sales. Due to its exit from Canada, the business expects net sales to drop $400 million.

“We entered Canada in 2014 because it presented a compelling opportunity, and we are grateful for the many customer relationships we have created over the years,” Nordstrom stated. “Despite our team’s best efforts, including various programs to enhance outcomes, our Canada business has not been profitable.”

Lowe’s too. Lowe’s CEO Marvin Ellison stated that selling the Canadian retail operation would “simplify the Lowe’s business strategy.” It accounts for 7% of 2022 sales. Rona, Réno-Dépôt, and Dick’s Lumber will establish its first Canadian store in 2005.

Supporting unsuccessful overseas ventures becomes harder for retailers in financial distress. According to court records, Bed Bath & Beyond’s Canadian operations may shortly close. Canada has 54 namesake and 11 BuyBuy Baby stores.

Davidkhanian of Insider Insight added that U.S. merchants must also compete with Canadian retailers that residents already know and trust. Holt Renfrew, founded in 1837, and Hudson’s Bay, founded in 1670, are Nordstrom’s competitors.

Davidkhanian said citizens had “Canadian pride and loyalty” towards businesses. “If you don’t grasp the market you’re falling into, you’ll lose.”

Not all U.S. retailers lose in Canada. Walmart Canada runs approximately 400 locations since 1994. Davidkhanian said Walmart’s long-term investment and value appealed to Canadians. According to Dart Insights and Communications’ Maru/Blue survey in 2021, Costco was Canada’s most respected grocery/food retailer over Loblaw Cos.

Davidkhanian advised, “Understand your value proposition and get it right.”