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From Oh, Canada to 'O, Canada!': Retail's growth anthem

Alex Slobodkin | E+ | Getty Images

Always looking to increase sales, more retailers are turning their attention north—to less skittish Canadian consumers who don't have as many shopping choices.

Candace Corlett, president of WSL Strategic Retail, sees Canada as a way for retailers to squeak out more growth in a tough environment.

"In this retail economy, anywhere you can get growth, you go," she said. "Every sliver counts. Ten years ago, there was a business mindset that said that Canada was small and perhaps not worth the investment."

Both luxury goods retailers as well as discounters, including Target and Wal-Mart, are among those planning to step up their presence in the country, whose increasing urbanization makes it a more lucrative target.

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That was underscored this week when Canadian retailer Hudson's Bay announced plans to buy luxury retailer Saks for $2.4 billion, a move aimed at beefing up its presence in both Canada and the United States. Hudson's Bay CEO said Saks' expansion into Canada could occur quickly, with up to seven department stores and 25 Off Fifth outlets.

"For North American retailers, it's easier to look over the fence at their neighbor versus looking across the pond for growth," said Carman Allison, Nielsen's director of shopper and industry insights. "With Canadians being exposed to media and advertising, brand awareness already exists for a number of key retailers and brands before they even enter the new market."

The move by Hudson's Bay, which also owns Lord & Taylor, will increase Canadian luxury goods competition, which currently consists mostly of Hudson's Bay and department store Holt Renfrew, analysts said.

Growing luxury space

The category is set to become increasingly crowded with the arrival of high-end department store Nordstrom, which will open its first Canadian location in the fall, with four more stores planned.

Ahead of Nordstrom's entry, Holt Renfrew, which has nine stores across the country, is doubling the size of one of its Toronto locations. The expansion will boost the store's square footage by 40 percent. The company also plans to open a new flagship store in 2016, and to renovate and enlarge several stores throughout its network.

"There are not many luxury goods department stores in Canada and certainly with Saks going there and the arrival of Nordstrom, it helps to satisfy the demand," said Dana Telsey, CEO of Telsey Advisory Group.

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That demand grew 13.1 percent from 2007 to 2012 (as measured by luxury goods sales), according to Euromonitor data.

One draw for retailers targeting affluent shoppers is that Canadian shoppers didn't feel the sting of the recession as sharply as their U.S. neighbors did.

"It means they have a shopper who isn't as frugal, bruised and cautious," Corlett said. "U.S. shoppers are still very cautious—even the affluent have a sense of justifying what they buy."

Caution: Potential pitfalls

To achieve success in Canada, though, retailers must employ multiple approaches that consider variations—including population density and demographics—between the provinces, said Mike Moriarty, a partner in the retail practice of A.T. Kearney, a global management consulting firm.

"Canada is not like the U.S.—it's quite different," he added. "Anybody that thinks they can come into Canada and treat it like the U.S. is really misguided."

One important distinction is that Canadian consumers largely lack U.S. shoppers' enthusiasm for sales and coupons.

According to WSL's 2012 study of how Canadians shop, a lower percentage of people surveyed reported using coupons, visiting coupon sites or redeeming coupons at store check-out.

But that may create an opportunity, as well.

"The Canadian shopper isn't as driven by coupons and sales, but that's because there hasn't been as much competition," Corlett said. "So it will be interesting if the Canadian market becomes a sales culture. It would be smart for retailers not to recreate the passion for sales that they've created in the U.S."

By CNBC's Katie Little. Follow her @KatieLittle.

Retail