When More Stores Isn’t the Answer: Aritzia and the Challenge of Growth [Op-Ed]

In the wild world of retail, the story of Aritzia, a once-celebrated Canadian brand, stands out. The Canadian retailer of “everyday luxury” saw its net income drop by 39% in Q3 of 2024, a decline worse than its peers and not attributable to broader trends like weaker consumer spending. In fact, while publications by the Financial Post are saying Aritzia’s “hype has fizzled” and the company has seen its stock value drop by half over the past year, its American counterpart, Abercrombie, has had a 5x increase in its share price and remains one of the best performing stocks on the NYSE. This disparity raises a critical question: Is it time for Aritzia to embrace strategic renewal?

Aritzia’s current strategy hinges on an ambitious expansion in the U.S. market, aiming to grow its American store count to around 90 by 2027. Todd Ingledew, Aritzia’s CFO, on a recent analyst call, asserted the company’s confidence in this approach. He remarked, “Our new stores are our most consistent growth driver, historically delivering predictable revenue growth and propelling our brand.”

Expanding the store count is indeed a tried-and-tested formula. And it works, until it doesn’t. New stores allow a brand to tap into new geographies, potentially boosting e-commerce in adjacent areas and increasing top-line revenue. However, the flip side of this strategy is equally telling. Store expansion does not inherently elevate brand relevancy, address novel customer needs, or ensure a unique competitive edge in new markets. Jennifer Wong, Aritzia’s CEO, candidly acknowledged these challenges, noting that heightened visibility in the U.S. is bringing the brand onto competitors’ radars. Fundamentally, solutions of quantity can’t solve problems of relevancy.

Aritzia’s recent moves, such as heavy reliance on discounting, exemplified by an 80% off “archive sale,” and spending on marketing for the first time in its 40 year history, hint at a deeper need for a strategic pivot. These strategies, though not inherently flawed, collectively suggest a brand in search of a new identity and direction.

Aritizia’s primary challenge is its product-centric approach, banking on items like the “super puff”  or rompers/athleisure to drive sales. This strategy can look thin compared against brands like Brandy Melville and Abercrombie, which are currently experiencing a resurgence by emphasizing their uniqueness across multiple platforms and channels. Being a product-driven company exposes them to swings in taste and makes them uniquely susceptible to quality complaints. 

Earlier, Abercrombie faced – and has since overcome – the same challenges as Aritzia. They peaked in 2007 then suffered more than a decade of decline. But starting in 2017, the company began a rebrand away from selling “Abercrombie products” to offering a classic “all American” preppie-oriented look with a commitment to inclusive sizing and quality manufacturing. Once known for logo-heavy t-shirts and sherpa-lined coats, Abercrombie became known for something deeper and more solid: its fundamental aesthetic and value. Aritiza could benefit from a similar renewal.

At Faculty of Change, we often encounter such scenarios. Brands facing similar challenges have found it helpful to reassess their market understanding, to become curious again and about what matters most and leverage this new perspective to foster growth. Perhaps it’s time for Aritzia to embark on a similar journey of introspection and strategic realignment.

While Aritzia’s expansion plans may offer short-term gains, the long-term sustainability of the brand may well depend on a bolder, more holistic approach to market strategy and brand positioning. As the highly competitive retail landscape continues to evolve, Aritzia’s next moves will be pivotal in determining its place in the world.

Jared Gordon is one of the founders of Faculty of Change. He and their team work with established retailers to uncover new sources of growth. They are releasing their 2024 Nearly Now report on January 25^th, 2024. You can find more information here.