TORONTO — As Canadian retail darling Aritzia gears up to report its latest quarterly earnings Wednesday, it continues to stand out as a leader and trendsetter in a complex, rollercoaster retail environment.
The Vancouver-born fashion company founded by Brian Hill in 1984 and now run by long-time employee Jennifer Wong, has developed somewhat of a cult following, particularly over the last decade, successfully tapping into the social media, influencer generation.
And retail experts expect the momentum to continue.
In a recent note to clients, RBC Capital Markets analyst Irene Nattel said Aritzia "enjoys an exceptional runway as it continues to seed the U.S. market, grow its online presence and expand assortment into new categories, all backed by strong manufacturing and supply chain capabilities."
Even celebrities like Jennifer Lopez, Kendall Jenner, Hailey Bieber, and Meghan Markle have been seen sporting Aritzia clothing within the last few years.
And after a pair of vegan leather pants went viral on TikTok in 2020, the company has further solidified itself as a one of the trendiest brands today, especially among Gen Z.
During the first two years of the COVID-19 pandemic when businesses were forced to close their doors and global supply chains were snarled, e-commerce helped the company drive performance, and when boutiques reopened, sales quickly surpassed pre-pandemic levels.
Retail watcher Liza Amlani attributes Aritzia's success firstly to product assortment, which has allowed it to become a go-to spot for workwear, clothes to go out in and casual wear. The founder of Retail Strategy Group said the company's use of consumer insights to inform both the items it stocks and its customer service strategy, has also given it an edge.
As a result, Aritzia has been able to carve out a unique spot for itself in the retail market between luxury fashion and fast-fashion, catering largely to the middle class and upper-middle class consumer.
"It has that element of aspirational. Even though it's not considered luxury, I would say it's still aspirational for many, many people," Amlani said.
"If you look at the competitors in the marketplace, especially for Gen Z, there aren't many players. I can't see inflation being a barrier for Aritzia on consumer demand and spend, because they don't have a lot of competition."
Much of the company's recent growth has been powered by its continued expansion south of the border.
Aritzia currently has 112 stores, 68 in Canada and 44 in the U.S., with plans to open eight to 10 new locations within the fiscal year. All but one will be in the U.S.
The company is also in the process of expanding some of its already-existing stores, like its Yorkdale Mall location in Toronto. It is adding more space and its A-OK cafe as it looks to enhance the in-store shopping experience.
"It is an attempt to sell the brand, not just sell the products. Being top of mind drives sales both online and offline after they've curated this desirable lifestyle," said Jenna Jacobson, assistant professor at Toronto Metropolitan University's Ted Rogers School of Retail Management.
She believes Aritzia has established itself as a brand people can relate to, thanks in part to its digital and influencer strategy, something that has significantly boosted its reach in the U.S.
"When you see an influencer that you follow posting some content tagging Aritzia or perhaps creating an Aritzia 'haul' video where people show off the best trends, I think that has a huge impact on people's understanding and acceptance of a brand and what they think of as being cool and trendy," Jacobson said.
Prior to the pandemic, Jacobson took her students to the company's headquarters, which she said they identified as one of the top Canadian retailers they wanted to learn about the most.
"I was amazed at the thought and detail that goes into the company, and the work to connect with customers at every level. I think that's one of the things that the retail industry has been challenged with," she explained.
Despite all the success, the company has hit some bumps in the road along the way.
When Aritzia made its public market debut in 2016, shares started out trading quite well as investors saw strong growth potential during what was a tough time for the women's apparel market in general. But the stock slumped a few months later with investor optimism dwindling even as the company delivered sales growth.
The stock has been up and down since then, seeing a substantial surge in 2021. It is up more than 250 per cent over the last five years.
Going into Wednesday, Stifel analyst Martin Landry said in a note to clients that he does not expect to see any softening demand, given Aritzia's target market.
"Our discussions with industry participants suggest that Aritzia has had a strong summer with summer collections mostly sold out," he wrote.
Landry added that significant attention will likely be dedicated to Aritzia's inventory levels, especially with companies such as Nike recently reporting overstocked inventory — which often means steep discounts are required to sell it all.
"We are not as concerned by Aritzia's inventory situation as a majority of the company's products are 'proven sellers,' which tend to have less fashion risk and hence less prone to large discounts and closeout sales," he wrote.
However, Canaccord Genuity analyst Derek Dley said in a note to clients that he is expecting margins for the second quarter to come under pressure from ongoing inflationary pressures and the cost of expediting shipping.
In the company's first quarter, net profits soared 86 per cent to $33 million on a big jump in revenues.
When it comes to Wong who took over the top job in May, Amlani said the choice makes sense.
"It’s a great story for the brand. And who knows the brand best than someone who started on the shop floor," she said.
This report by The Canadian Press was first published Oct.10, 2022.
Companies in this story: (TSX:ATZ)
Adena Ali, The Canadian Press
