Top 100 2017: Aritzia rides out stormy retail year with style

As apparel retailers in B.C. and across North America announced closures, Aritzia expanded and went public

Credit: Courtesy of Aritzia

Aritzia recently doubled the square footage of its Richmond Centre store

As apparel retailers in B.C. and across North America announced closures, the Vancouver-based company expanded and went public

The past year was tumultuous in the world of retail. The first quarter of 2017 saw record bankruptcies in the U.S., and in B.C. companies such as Vancouver startup folded and technical clothier Kit and Ace closed down all 26 international stores. But while mall locations of BCBG Max Azria Group Inc., American Apparel Inc. and Danier Leather Inc. cleared out, Vancouver-based Aritzia Inc. was opening new locations, enlarging existing ones and restocking shelves with its coveted women’s clothing.

Some analysts have described hard times for merchants as the bursting of a retail bubble, but consultant Doug Stephens, author of the recent book Reengineering Retail: The Future of Selling in a Post-Digital World, doesn’t use that term. He says this is simply the end of a long and prosperous era that started after the Second World War and lasted until the 2007-09 recession.

“If you were an average retailer and you had an average product at an average price and you were able to spend a lot of money on advertising, you could be successful,” Ancaster, Ontario–based Stephens explains, noting the growing population, thriving economy, cheap suburban real estate and large family sizes during that period. “Unfortunately all those traits and trends are over now, and we find ourselves in an era where the middle is being routed out of retail. There are successful businesses at both ends of the spectrum, we see dollar stores and outlet malls popping up like weeds, and at the other end, the retailers that are delivering remarkable products are holding their own. But the fallout in the middle is really substantial.”

How does a B.C. company not only exist but thrive when so many others are closing shop? Aritzia, which started as a section of Hill’s department store in Kerrisdale and became its own entity in 1984, made its first appearance on the BCBusiness Top 100 list this year, at No. 74. Unlike Lululemon Athletica Inc., widely acknowledged as the inventor of a category now known as athleisure, Aritzia is a smart revisioner: its in-house designers pick up on runway trends and build branded collections around certain motifs.

“One of our biggest advantages is that we are able to move with fashion, and we’re not known for one look,” founder and CEO Brian Hill told investors in an earnings call in May, discussing a new label that features romantic styles with embellishments and saturated colours. (Hill, who tends to avoid media, declined to provide a comment for this story.) “We didn’t think we had a line with that kind of ethos, so we created Little Moon… If Little Moon for whatever reason doesn’t become meaningful, then we just shrug our shoulders and move on to the next line, and that’s the beauty of our model.”

Aritzia, which has about 60 stores in Canada, 19 in the U.S. and between 4,000 and 4,500 employees, certainly resonates with its target market of millennials, who flock to its locations, stand in blocks-long lineups for its warehouse sales and increasingly stock up online. At a middle-tier price point, it makes luxurious gestures; actor and Prince Harry flame Meghan Markle was recently Instagrammed wearing a white Aritzia blazer at a polo match.

The company capitalized on its years of strong growth with an initial public offering last October, and then took the usual bumps and bruises of the equity markets. Its shares were snapped up quickly at a high of $19, but following the January sale of more stock to the public by a group of early investors, prices dropped to about $14 at the end of May.

Financial results for the 2017 fiscal year ending on February 26 were fairly glowing, including annual net revenue of $667.2 million, a 23 per cent increase over the previous year. In the May earnings call, Hill also noted double-digit comparable sales growth—a key measure of retail performance that compares store sales with the same period of the previous year—in nine out of 10 consecutive quarters. In the fourth quarter of 2017, same-store sales jumped 11.5 per cent. “It’s no secret to anyone on this call that the industry’s struggling a little bit,” he said, “and we’re just so excited about the opportunities that are in front of us.”

Those opportunities are significant, including what Hill called a “heightened interest” in Aritzia from landlords in U.S. cities. Thanks to its ability to draw foot traffic, the chain is getting offers to lease prime real estate in Class A malls and high-street locations. In April it launched a flagship store in Los Angeles at the new Westfield Century City; with the shopping centre’s restaurants and parking lots yet to open, the location quickly became Aritzia’s top sales performer on the West Coast. This year the company will open at least five new stores, including one across from Dior in Chicago’s high-end Gold Coast shopping area and several private-label Wilfrid and Babaton locations in Toronto and Vancouver.

But as multitudes of young women snatch up its spaghetti-strap dresses, ruffled blouses and short shorts, retail consultant Stephens raises a red flag about Aritzia’s recent debut on the stock market. Going public is a great way to raise capital and allow businesses to scale, he says, but fast growth can be an enemy. Aritzia, he points out, has well-trained and engaged staff, but finding and training the right people becomes challenging while a company is opening multiple new locations. He cites Lululemon’s experience as an example of these perils.

“Here you had a company that was profoundly unique and mainstreamed a category of merchandise and were wildly successful, and then all of a sudden they became public and they were a different company,” Stephens says, explaining that bowing to short-term pressure from shareholders forced management to make bad decisions on manufacturing processes. “That led to all kinds of problems in terms of defects and headlines in the news,” he adds. “I find that all of the really quirky yet intriguing things about companies that are often just a consequence of their founders are things that somehow get watered down when they scale up.”