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Luxury Retail Stocks Duke It Out for Canada

Will any of these companies score an early-round knockout?

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Move over, Nordstrom (JWN), you’re not the only luxury retail stock looking to capture the Canadian market. Set to open its first store in Calgary Sept. 19, 2014, JWN has already begun its search for managers. But in nine short months, the competitive landscape in luxury retail in Canada will change dramatically.

No longer will Holt Renfrew and Hudson’s Bay (HBAYF) own for themselves the luxury segment of the department store retail marketplace. While Nordstrom is the first entrant from south of the border, more are likely to follow. Can Hudson’s Bay and Holt Renfrew do enough to hold off the competition?

Yes and no. I’ll explain.

Sears Implodes

Nordstrom’s move into Canada has come on the back of Sears Holdings’ (SHLD) crumbling empire. Sears has been selling anything of value, and Sears Canada (SEARF) held some valuable leases that others could use more profitably — Nordstrom, for example. First, Sears sold leases in Vancouver, Calgary and Ottawa back to mall owner Cadillac Fairview for C$170 million in July 2012. These represent Nordstrom’s first three stores in Canada.

In June of this year, Sears sold two leases at Yorkdale Mall and Square One Shopping Centre (both Toronto-area malls) back to its owners for C$191 million with an option to buy another Toronto-area mall for $53 million. Although Yorkdale Mall announced a C$331 million expansion in April that includes Nordstrom, it’s possible this expansion could be shelved now that the Sears location is available. If the mall goes ahead, Macy’s (M) or some other department store could be moved into the space. Yorkdale’s already one of the best-performing malls in North America; this would certainly push it to number one.

Finally, in late October, Sears Canada announced that it was selling five leases back to their landlords for C$400 million including its flagship store in downtown Toronto. The Toronto Eaton Centre location is highly desirable for anyone looking to make a splash in Canada’s largest city. Nordstrom is the likeliest candidate, but there will be others sniffing around. Sears has to be out by the end of February, so expect some kind of announcement about prospective new tenants by mid-2014.

Competitive Landscape

The Globe and Mail’s Marina Strauss wrote a very interesting article Nov. 27 about Richard Baker, the man behind Hudson’s Bay Company (HBAYF). Baker figured out how to extract more value from Target (TGT) — selling former Zeller’s store leases to the Minneapolis retailer for C$1.8 billion in 2011 — than the C$1.1 billion he paid in 2008 for the entire company.

Now he’s gone and acquired Saks for $2.9 billion in cash.

Article printed from InvestorPlace Media,

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