For many retailers, the COVID-19 pandemic came as a shock at the worst time. Already on the back foot and struggling to adapt to a changing industry, some have already sought creditor protection and are fighting for survival. But for Canadian clothing chain Aritzia Inc., weeks of store closings have only interrupted what has otherwise been a months-long growth surge.
The Vancouver-based company reported last week that even with buoyant e-commerce sales during the lockdowns, it expects revenue to dip by 45 per cent in its current quarter. The pandemic puts a cap on a streak of 22 consecutive quarters of comparable sales growth. But according to chief executive Brian Hill, it has not halted Aritzia’s plans for expansion, even if there are some expected delays.
“The crisis has certainly changed the timing of what we’re doing, but I don’t think it’s going to change what we’re doing,” Mr. Hill said.
Aritzia recently opened the doors on new locations in Vancouver and in Houston. And it plans five more new stores in the United States this year, where Mr. Hill sees more opportunities to grow. Aritzia currently has 69 stores in Canada and 28 in the U.S.
Aritzia’s e-commerce sales grew by 150 per cent during the crisis. It’s still unclear how much of the shift to online shopping will be permanent, but Mr. Hill said the company is not “overstored."
“We have earmarked the top shopping districts and top shopping streets and areas, and we will continue to target those. That’s not going to change. We think that these top shopping areas will still be the top shopping areas, and we still think they’re going to be a healthy business," Mr. Hill said. "… There are some big, big cities in big, big markets in North America that we have zero exposure to.”
Part of Aritzia’s strength lies in the variety of its in-house brands – which include TNA, Babaton, Wilfred and Sunday Best, and which comprise fashions from sweats to casual sundresses, to workwear and evening wear.
“They span the gamut from a demographic and lifestyle standpoint,” said Farla Efros, president of HRC Retail Advisory.
When consumer shopping habits shifted during the pandemic, Aritzia had comfortable, stay-at-home clothing in stock that people were buying more often. It worked through other inventory with sales – a relatively rare occurrence for the retailer.
The boost that the online business received means that the company is likely to see digital revenue jump from 23 per cent of sales in the year ended March 1, to 30 per cent to 40 per cent this year, Mr. Hill said. Where e-commerce sales will settle is still an open question, but the digital channels offer Aritzia room to experiment with new product lines, he added.
For example, the expansion into the U.S. likely means that there will be more demand for warm-weather products, such as swimwear, which the company is now considering. It is also looking at whether there are opportunities to sell more accessories than it currently does, and to expand into footwear and beauty products.
“E-commerce can provide and show a broader merchandise mix," Mr. Hill said.
Earlier this year, the company also said it would offer expanded clothing sizes on a trial basis with its Babaton brand – selling clothes up to size 18 compared with its usual limit of size 10 to 12. The test has been “extremely successful,” Mr. Hill said. “We’re actually looking at adding one more size to the higher end of that.”
The upheaval in the industry could be an advantage as Aritzia seeks to expand its territory. Not only is it among a relatively small cohort of retailers looking to grow right now, but the strength of the brand could draw shoppers in – which is a crucial consideration for landlords.
“More and more retail space is going to be available,” Ms. Efros said. “So I think they’re going to be in the driver’s seat to say, we want better rent, a better location. They’re going to have stronger negotiating power.”
Relations between landlords and retailers have been strained during the pandemic, as many tenants have deferred rent payments to help conserve cash. Aritzia has not commented on its rent payments but Mr. Hill said the company has not yet come to any agreements with its biggest landlords, and that discussions are continuing.
Aritzia’s stores began to feel the effects of COVID-19 at the end of February, and closed down all locations in mid-March. To cope, the company drew down $100-million on its revolving credit facility, suspended share repurchases, delayed some expenses related to building new stores, extended payment terms to some suppliers and temporarily cut executive pay by 25 per cent.
By accessing government assistance programs in Canada and the U.S., the company managed to avoid any furloughs or layoffs for its employees. Many retail store staff shifted to helping with e-commerce operations, in call centres or in the company’s distribution centres. It has also allowed Aritzia the flexibility to reopen stores quickly once public-health approvals come through. And Mr. Hill says he believes maintaining economic stability for staff during the crisis will help the company to continue to attract and retain talent in the long term.
“While [fiscal 2021] will be the most challenging year in Aritzia’s history, we remain convinced Aritzia will emerge stronger than most apparel retailers,” Bank of Nova Scotia retail analyst Patricia Baker wrote in a research note last week, pointing to Aritzia’s “world-class” e-commerce platform, the strength of its brand and a small brick-and-mortar presence that leaves the company with room to grow.
“There was already a meaningful shift in retail happening prior to COVID-19," Mr. Hill said. "... My thought is, this will accelerate it. We’re pretty confident people are going to be buying more or less the same amount of clothes they always were. We’re not entirely sure how much of that shift from retail to e-commerce will be a permanent shift. We are somewhat agnostic whether our customers prefer to shop one versus the other. Our experience is, they like shopping in both.”
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