Meghan Markle’s Go-To Boutique Is Defying U.S. Retail Slump

(Bloomberg) -- Aritzia Inc., the Canadian chain of boutiques favored by Meghan Markle, appears to have cracked the code to the U.S. retail market.

As competitors shut down locations and slash costs, the seller of upscale women’s clothing is pursuing an alternate strategy. It involves opening stores and staffing them with thousands of style advisers.

The plan is working, and Aritzia’s six straight quarters of double-digit revenue growth show how new players are flooding into the openings in the apparel market as brands like Guess? Inc. and Gap Inc. stumble.

Sales are particularly strong in the U.S. -- where about a third of Aritzia’s 92 boutiques are located. The chain has a store at Manhattan’s new mall, Hudson Yards, that’s performing well, and is opening others this fiscal year in Denver, Minneapolis, Houston, Austin and East Rutherford, New Jersey.

“Our business there is fantastic -- both online and in our stores,” said Chief Executive Officer Brian Hill, referring to the U.S. He spoke in an interview in Aritzia’s headquarters at a converted cannery overlooking Vancouver’s port.

Aritzia, which has a market capitalization of C$2.2 billion ($1.7 billion), is also an example of how physical stores can drive web traffic -- and vice versa. Hill said the brick-and-mortar locations are bringing in new customers, leading to higher online sales and higher volumes.

The company has positioned itself as an aspirational, “everyday luxury” brand -- the more affordable end of the Duchess of Sussex’s closet. Its bright, airy stores are adorned with original artwork, custom furniture and staffed with sales associates to provide personalized advice. The locations are luring in shoppers while other apparel companies are paring back due to falling foot traffic.

Investors Lukewarm

Investors aren’t so enthusiastic, however, with the company’s Canadian shares rising only 7% this year -- less than half the benchmark S&P/TSX’s advance. The current price of C$17.51 isn’t far off the C$16 price set in Aritzia’s 2016 initial public offering.

The muted performance is due to the recent exit of a major private equity investor, Berkshire Partners LLC, said Amar Pandya, an associate portfolio manager at Vancouver-based PenderFund Capital Management, which owns Aritzia shares. Berkshire Partners had acquired a majority stake in 2005 and helped to fund expansion.

The sale of a large stake “fed into the brick-and-mortar apocalypse backdrop, exacerbating those fears,” Pandya said.

“We certainly took advantage of that drop,” he added. “They’re at the very early innings of the U.S. expansion -- based on what we’ve seen over the past couple of quarters, the acceleration in the performance from the U.S. should continue.”

Analysts are bullish: Eight out of nine who cover the company recommend buying the stock, according to data compiled by Bloomberg.

“Aritzia is on excellent footing,” CIBC World Markets analyst Mark Petrie said in a July 12 note to clients, citing the new stores and their potential to boost e-commerce. CIBC expects the pace of store openings to accelerate.

Real Estate

Hill said the company is targeting premium locations for the new stores.

“We want the best real estate out there -- that’s why we’re at Hudson Yards,” he said. “I was told a long time ago by my father: Make sure you get the best real estate. Because then if it doesn’t work, you know it’s you.”

Hill is the third generation of his family to find a career in retail. His family owns the Hills of Kerrisdale department store -- a Vancouver institution -- and his grandfather was an executive at Hudson’s Bay Co.

China Interest

Aritizia is also interested in China, and Hill said the company will arrive there “at some point in the future.” By 2021, China may surpass the U.S. as the world’s biggest retail market, researcher eMarketer Inc. forecast last month.

Meanwhile, he’s undaunted by a U.S. market that’s been labeled as “over-retailed.” Dozens of retailers have gone bankrupt in recent years and store closures have outpaced store openings, according to a McKinsey & Co. report in January.

“Our growth is at such a high trajectory in the U.S. that we will continue to focus there,” he said. “We just have so much opportunity.”

--With assistance from Kim Bhasin and Craig Giammona.

To contact the reporter on this story: Natalie Obiko Pearson in Vancouver at npearson7@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Jonathan Roeder

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