Aritzia to open stores in New York and Los Angeles amid cheaper rent costs

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The pandemic is causing a contraction in the retail industry, with a number of companies struggling to stay afloat, delaying rent payments or closing locations altogether. But for the retailers that survive, opportunities are emerging: less competition and cheaper real estate.

That’s the view of Aritzia Inc., which on Thursday announced plans to open two new locations in New York and Los Angeles to test store concepts for its Super Puff winter jackets. The long-term lease in New York is on a prominent corner in Manhattan’s SoHo district, in a space that formerly housed luxury food shop Dean & DeLuca, and is costing Aritzia “25 to 30 cents on the dollar” compared to what it would have been two to three years ago, chief executive officer Brian Hill told analysts on a conference call to discuss the company’s results.

It’s just one example of “compelling financial terms” the retailer is seeing in lease negotiations in the post-pandemic era as more locations come available, Mr. Hill said. While the company will not accelerate store openings, it will continue with its expansion plans in the U.S.

“As we are currently under-stored, and many in North America are shuttering boutiques, the real estate opportunity for us is unprecedented,” he said.

Like many other retailers, Aritzia suspended rent payments on the majority of its stores beginning in April and is currently in negotiations with its landlords.

The pandemic interrupted a solid run of growth for the company, as mandated store closings pushed the Canadian women’s fashion retailer to report a loss in its first quarter.

In the 13 weeks ended May 31, Vancouver-based Aritzia experienced a 43.4-per-cent drop in net revenue, to $111.4-million. In the first five weeks of the second quarter, net revenue has been down by 25 to 30 per cent compared with the same period last year. The company reported a net loss of $26.5-million for the first quarter, compared with net earnings of $16.2-million in the same period last year.

Like other retailers, Aritzia was forced to close all of its 96 stores in mid-March as a result of public-health measures designed to curb the spread of COVID-19. Its brick-and-mortar boutiques are an important part of the business, accounting for approximately 77 per cent of Aritzia’s sales.

However, during the closings in the first quarter, the company’s e-commerce revenue rose more than 150 per cent and has continued to be 50- to 100-per-cent higher than last year in June and July.

The industry is now seeing an accelerated shift to online shopping. Aritzia is evaluating its distribution network to keep up and is planning to expand its warehouse space.

“Our clients immediately and seamlessly shifted from retail [stores] to online,” Mr. Hill said.

One advantage of this shift is that e-commerce allows retailers to carry more variety than they have room for in stores. In an interview in June, Mr. Hill told The Globe and Mail that Aritzia would be expanding its product lines, launching swimwear, footwear and beauty products. He elaborated on those plans Thursday, saying the company is looking at 18 different product initiatives that it can now carry thanks to a “critical mass in e-commerce.” That includes more colours and pant lengths in existing styles, as well as additional styles and product lines.

Aritzia has now reopened 89 of its stores, which are currently operating at approximately 55 to 65 per cent of their revenue levels at this time last year. The company did not lay off or furlough any employees during the closures, which helped stores restart operations more quickly. But productivity has been affected by physical-distancing measures.

“We don’t know what the new normal will hold until some time next year,” Mr. Hill said on the conference call.

Before the stores closed, Aritzia had recorded 22 consecutive quarters of comparable sales growth – an important metric that shows sales growth not affected by store openings or closings. The company declined to report comparable sales figures Thursday, saying that metric is “not currently representative of its business” in light of the temporary store closings.

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