Holts bets on affordable luxury

With Nordstrom on the way, Holt Renfrew launches a new discount chain

Kristin Laird April 18, 2013

Here’s a sneak peek at our April 22 issue

With Nordstrom on the way, Holt Renfrew launches a new discount chain

Holt Renfrew has spent 175 years building a brand that symbolizes affluence, catering to the upscale shopper who proudly parades around with its iconic fuchsia bag. But, in a true sign of the retail times, Holt Renfrew has gone downmarket.

Last month in Montreal, the privately owned retailer opened the doors to its first HR2 location, which offers designer products at a discounted price. Within the 25,000-square-foot location are more than 150 brands, including Michael by Michael Kors, Cole Haan, Kate Spade, Tory Burch, Ralph Lauren and the HR2 private label. While the Holt Renfrew full-line stores carry some of the same brands as HR2, product assortment does not overlap, according to a media release. (Holt Renfrew declined Marketing’s request for interviews.)

The move is widely seen as a preemptive measure to thwart the latest Canadian invasion by a famed American brand. Nordstrom will be arriving next year and its discount chain Nordstrom Rack will follow.

Though Holt Renfrew has remained tight-lipped about its growth plans and strategy behind the HR2 model, retail experts believe the move is in direct response to increased competition and shopper demand, as well as a way of luring in younger, aspirational consumers. The likely strategy for Holt Renfrew is to forge a brand affiliation with younger shoppers before they have the disposable income to shop at the more expensive store. “I think Holts is certainly synonymous with luxury, which has always been aspirational for any consumer who is style or fashion conscious,” says Alyssa Huggins, vice-president retail at BIMM Direct & Digital, an agency specializing in retail campaigns. “To have a brand that becomes more accessible to a wider net of consumers makes a lot of sense because it allows consumers to then get into the brand earlier on.”

It also gives Holt Renfrew the opportunity to tweak and refine the HR2 model before Nordstrom introduces its Rack stores to Canada.

“I think [Holt Renfrew has] a really unique opportunity in the market to get out there and open some locations relatively quick and get a foothold in the market before someone like a Rack comes in,” says Sarah Major, director at marketing research firm Sklar Wilton & Associates.

But could a move down market dilute the caché of the Holts brand? Not if it’s executed properly.

It’s all about balance, says Doug Stephens, president of Retail Prophet Consulting. An off-price model such as HR2 doesn’t allow for sophisticated merchandising or hands-on service, but still needs to be presentable and well-maintained, he says. “At the same time it needs to have that discount feel to it in order to get the endorphin rush for shoppers coming in.”

It’s also important to provide aspirational consumers access to product in a way that doesn’t disenfranchise the elite consumer, says David Ian Gray, founder of Vancouver-based retail consultancy DIG360. The Holt Renfrew brand would take a hit if its core consumer felt the high-end items they covet are “being shared amongst the great unwashed or the masses,” says Gray.

It’s wise for HR2 to carry product that is unique to the store and not excess or out-of-season items that couldn’t sell under the Holt Renfrew banner. This was part of the problem with Holt Renfrew’s now-defunct Last Call clearance outlet. “There was definitely an end-of-line feel,” says Stephens.

Another problem with Last Call was expensive price tags versus the in-store experience, says Major. “It didn’t have anywhere near the shopping experience you would get in a Holt Renfrew store… and in these bins you were still looking at $400 or $500 a bag,” she says. While Canadians aren’t afraid to hunt for a bargain, HR2 should be targeted at those still looking for a special shopping experience, says Major, who points to Michael Kors as an example of a premium brand that has successfully broadened its focus to include different consumer groups. Michael Kors has its namesake runway collection, a mid-tier line (KORS) and a price-conscious line (Michael by Michael Kors). “They haven’t gone to bargain basement prices,” she says. Luxury U.S. retailers Saks Fifth Avenue and Bloomingdale’s have also had success with their off-price chains.

HR2’s second location is scheduled to open later this spring in Vaughan Mills, a fashion outlet mall just north of Toronto.

For more news and commentary on Canada’s retail landscape, subscribe to Marketing (available in print and on the iPad).