How Artizia became the most popular fashion chain in the USA

(Bloomberg) — Aritzia Inc. is winning over America’s teenagers and 20-somethings with a playbook that seems out of step with today’s often bleak retail environment.

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The company offers superior services, including personal shoppers. Discounts are rare. And it increases locations instead of decreasing them.

“The stores are beautiful and the service is excellent,” said Mark Petrie, an analyst at CIBC World Markets who has followed Aritzia since it went public in 2016. “It’s a compelling intersection of value and quality that not many other brands live on.”

Executives call the intersection “everyday luxury,” and it stands out with offerings ranging from $400 double-breasted wool coats to $80 mini dresses. That strategy has worked in America, where Vancouver-based Aritzia began ramping up store openings a few years ago. U.S. sales in the past 12 months to November rose 78% to C$1 billion ($745 million) and are now bigger than the business in Canada, where the first store opened in the 1980s.

On Wednesday, the company reported third-quarter sales and adjusted earnings that beat analysts’ estimates. Aritzia expects revenue for the current quarter to be as high as C$600 million, beating analysts’ projections of C$525.9 million.

But some analysts were concerned about shrinking profit margins due to rising costs. Shares fell on Thursday, but long-term investors were rewarded. Aritzia shares are up about 75% over the past two years, while the SPDR S&P Retail ETF sank 8.1% and the S&P 500 gained 4.8%.

Aritzia stands out for its meticulous focus on user experience. A team of architects and designers develops each location individually, creating “a mix of local influences, natural materials, custom furniture and art,” according to the company’s website.

Trying on clothes is also different. Many changing rooms do not have mirrors, so customers have to enter the public area with a shared one to see how things fit. This promotes greater interaction with associates to help design and recommend additional products.

Its packaging also aims to be outstanding, with online orders carefully folded and packed inside Aritzia fresh, white shopping bags that mimic shopping in person.

The brand had the advantage of being a fresh concept in the US market where many big clothing companies like Gap are losing their luster. Aritzia also has plenty of room to win new converts as it is still relatively unknown. The company did not do much mainstream marketing. Instead, he relied on stores to raise awareness. There are fewer than 50 in the U.S., but it plans to open seven this year.

All of this is likely to lead to a loss of market share for American competitors, according to Neil Saunders, a US analyst at consultancy GlobalData.

“This threat will only grow if Aritzia continues on its path of success,” Saunders said.

Brian Hill, who comes from a family of Canadian retail executives, opened the first Aritzia stand-alone store in a luxury shopping center in Vancouver in 1984. The purpose was to serve “young women who have significant disposable income but don’t want disposable clothing,” Hill said in a 2009 interview that came at a time when fast-fashion chains like H&M and Forever 21 were booming. .

About 20 years after its founding, Aritzia had only 15 stores. But after an investment from private equity firm Berkshire Partners, expansion accelerated, and the chain entered the U.S. in 2007. When Aritzia went public a little less than a decade later and raised C$400 million, it had about 75 locations. (Now working 113.)

Hill stepped down as CEO last year and now serves as the company’s executive chairman. He is still the largest shareholder of Aritzia with almost 19% of the capital and also controls about 70% of the voting power. Jennifer Wong, who began her career at Aritzia as a style consultant in 1987 and worked her way up the ranks, became CEO in May.

“We are very well known and loved in Canada,” Wong said in an interview. And now “we want to become famous in the USA. It’s really taken off in the last few years.”

See also: Rise of Generation Z

On a recent weekday afternoon in New York’s Soho neighborhood, Aritzia on Broadway was one of the few crowded stores. Shoppers tried on coats over streetwear to avoid long lines for the dressing room. Others lounged on leather sofas or grabbed free matcha tea.

A block north is another Aritzia location called Super World, dedicated exclusively to the Super Puff, a goose down jacket that sells for as much as $350 and became popular after Kendall Jenner wore it in an Instagram post in 2018.

Super World is one of 10 own brands that the company uses to target different segments of the market. The line, called Wilfred, is “whimsical modern,” while the other, called Tna, is “youthful lifestyle,” Hill said during a presentation to investors in October. All in all, they make about 95% of sales.

Aritzia got to this point without spending much on traditional ads. Aside from paid influencer partnerships, much of her marketing success has come organically, in part because she counts celebrities like Meghan Markle as fans. An active Reddit site with over 25,000 members dedicated to product reviews and recommendations.

Customer loyalty allows Aritzia to get away with a stricter return policy — 10 days for in-store returns, versus the industry norm of 30 days. It also rarely has discounts, except for two annual sales.

“It’s a habit of buying at full price, which is really healthy for any trader,” said Martin Landry, an analyst at Stifel Financial Corp.

With every fashion success comes the risk of diverting consumer attention to the latest TikTok trend or direct-to-consumer brand. Despite this, all seven analysts tracked by Bloomberg who cover Aritzia recommend the equivalent of a buy on the company’s stock.

“Sometimes it keeps me up at night thinking what quarter is it when this breaks?” said Dylan Carden, an analyst at William Blair & Co. “But I’ve been thinking about it for the three or four years I’ve been reporting on it. They are just exceptional marketers.”

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