Aritzia Inc, the Canadian chain of boutiques favored by Meghan Markle, appears to have cracked the code to the US retail market.
As competitors shut down locations and slash costs, the seller of upscale women’s clothing is pursuing an alternate strategy. It involves opening stores and staffing them with thousands of style advisers.
The plan is working, and Aritzia’s six straight quarters of double-digit percentage revenue growth show how new players are flooding into the openings in the apparel market as brands like Guess Inc and Gap Inc stumble.
Photo: Bloomberg
Sales are particularly strong in the US — where about one-third of Aritzia’s 92 boutiques are located. The chain has a store at Manhattan’s new mall, Hudson Yards, that is performing well, and is opening others this fiscal year in the southwest and northeast of the US.
“Our business there is fantastic — both online and in our stores,” Aritzia chief executive officer Brian Hill said, referring to the US market.
He spoke in an interview at Aritzia’s headquarters at a converted cannery overlooking Vancouver’s port.
Aritzia, which has a market capitalization of C$2.2 billion (US$1.67 billion), is also an example of how physical stores can drive Web traffic — and vice versa.
The brick-and-mortar locations are bringing in new customers, leading to higher online sales and higher volumes, Hill said.
The company has positioned itself as an aspirational, “everyday luxury” brand — the more affordable end of the Duchess of Sussex’s closet.
Its bright, airy stores are adorned with original artwork, custom furniture and staffed with sales associates to provide personalized advice. The locations are luring in shoppers while other apparel companies are paring back due to falling foot traffic.
INVESTORS LUKEWARM
However, investors are not so enthusiastic, with the company’s Canadian shares rising only 7 percent this year — less than half the benchmark S&P/TSX’s advance. The current share price of C$17.51 is not far off the C$16 price set in Aritzia’s 2016 initial public offering.
The muted performance is due to the recent exit of a major private equity investor, Berkshire Partners LLC, said Amar Pandya, an associate portfolio manager at Vancouver-based PenderFund Capital Management, which owns Aritzia shares.
Berkshire Partners had acquired a majority stake in 2005 and helped to fund expansion.
The sale of a large stake “fed into the brick-and-mortar apocalypse backdrop, exacerbating those fears,” Pandya said.
“We certainly took advantage of that drop,” he added. “They’re at the very early innings of the US expansion — based on what we’ve seen over the past couple of quarters, the acceleration in the performance from the US should continue.”
Analysts are bullish: Eight out of nine who cover the company recommend buying the stock, according to data compiled by Bloomberg.
“Aritzia is on an excellent footing,” CIBC World Markets analyst Mark Petrie said in a July 12 note to clients, citing the new stores and their potential to boost e-commerce.
CIBC expects the pace of store openings to accelerate.
REAL ESTATE
The company is targeting premium locations for the new stores, Hill said.
“We want the best real estate out there — that’s why we’re at Hudson Yards,” he said. “I was told a long time ago by my father: ‘Make sure you get the best real estate, because then, if it doesn’t work, you know it’s you.’”
Hill is the third generation of his family to find a career in retail. His family owns the Hills of Kerrisdale department store — a Vancouver institution — and his grandfather was an executive at Hudson’s Bay Co.
CHINA INTEREST
Aritizia is also interested in China, and Hill said that the company would arrive there “at some point in the future.”
By 2021, China might surpass the US as the world’s biggest retail market, researcher eMarketer Inc forecast last month.
Meanwhile, Hill said that he is undaunted by a US market that has been labeled as “over-retailed.”
Dozens of retailers have gone bankrupt in the past few years and store closures have outpaced store openings, a report released in January by McKinsey & Co said.
“Our growth is at such a high trajectory in the US that we will continue to focus there,” Hill said. “We just have so much opportunity.”
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