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Feb 14, 2020

'They know what they’re good at': How Aritzia is bucking the retail trend

Aritzia impresses investors again as third quarter sales, revenue climb

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At a time when Canada’s retail sector is mired in a rash of store closures and disappointing sales, Aritzia Inc. appears to be doing something right.

Shares of the Vancouver-based retailer have shot up nearly 50 per cent since the company went public in October 2016. In its latest quarter, the retailer reported a 10-per-cent jump in net revenue from the same period a year earlier and a 5.1-per-cent rise in sales at stores which have been open for over a year.

Aritzia’s success largely bucks the trend many of the country’s retailers, such as Roots Ltd. and Hudson’s Bay Co, are experiencing where sales expectations aren’t being met despite a healthy consumer base. Others, such as Bench, Forever 21, Target and Sears, have shuttered Canadian stores completely.  

So what’s Aritzia doing differently than its troubled Canadian peers?

“They have the right mix of product and I think that’s the biggest piece [of their success],” HRC Retail Advisory president Farla Efros said in a phone interview, adding customers are willing to pay a higher price for the quality of Aritzia’s product.

“They know what they’re good at and they’re not trying to move away from that.”



Aritzia’s focus on getting its product right rather than being marketing-led during expansion has been integral to the company’s success, Cyndi Pyburn, director of retail advisory firm Sklar Wilton & Associates, said in an email.

The retailer has not only managed to woo consumers, but has impressed investors and analysts as well. The stock currently has nine buy ratings and no sell ratings, according to Bloomberg data.    

“Aritzia is positioned so well in the market, striking a strong balance between price and quality with clothing that appeals to a wide range of demographics,” said Jamie Murray, portfolio manager and head of research at Murray Wealth Group, which owns the stock in its Global Growth Fund.

“For the stock, expectations are higher today than three months ago as the Street finally appreciates its long-term growth prospects,” Murray said in an email.    

Aritzia now has 67 stores across Canada and 27 in the U.S. with plans to open up to six more boutiques per year. The company’s expansion sights are set particularly on the U.S., and it hasn’t formally announced any plans to open stores outside of North America.

Efros said she’d like to see Aritzia in other international markets, but warns the company would need to tread carefully. She pointed to Lululemon Athletica Inc. as an example of a retailer that successfully expanded over time.

“They need to ensure they have all their ducks in a row,” she said. 

However, Murray doesn’t see a need for Aritzia to add new stores overseas right now.

“Although we believe the company’s clothing would resonate with European and Japanese consumers, they should look to achieve scale in the U.S. as the company’s strategy depends on building out both physical stores and e-commerce distribution,” he said. 

E-COMMERCE PUSH

Aritzia has made strides in its e-commerce business, launched in 2013, enlisting the help of celebrities such as Kendall Jenner and Hailey Bieber, who have been seen sporting the company’s clothing on social media.

Efros said this brand-boosting strategy will become “critically important” for Aritzia if the company decides to expand outside of North America.

Aritzia saw strong double-digit e-commerce revenue in its third quarter and chief executive officer and founder Brian Hill sees it being a “significant driver” of growth in the future, particularly in the U.S.  The retailer says it’s on track for e-commerce sales to account for 25 per cent of its total net revenue by 2021.

“We like that Aritzia can essentially operate like a private company and has steadily invested in the business in terms of both fashion and technology,” Murray said.

“As a pure direct-to-consumer company, Aritzia needs to continue to stay ahead of competition by leveraging its relationship with consumers into usable data.”

While experts anticipate more trouble ahead for retailers in Canada, Aritzia is expected to remain a standout in the sector.

“They really do appeal to a much broader demographic than a lot of other retailers do,” Efros said.  

“I think retailers are going to continue to struggle,” she added, noting Aritzia will likely be an exception. “I think this year, in general, you are probably going to see the largest number of store closures that you’ve seen in a long time.”

Murray said because Aritzia is so leveraged to the Canadian consumer, any slowdown in discretionary spending could hurt the company.

“Aritzia’s operating at such a high level, [it would probably need to] be a macro-event that could derail its growth,” he added.