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E-commerce helps keep Aritzia profitable

Vancouver-based fashion retailer saw online sales jump 88.3% in past year
The Aritzia store at the McArthurGlen Designer Outlet Vancouver mall opened in mid-2020 | Rob Kruyt

Vancouver-based fashion house Aritzia Inc. has relied on e-commerce to stave off a steep drop in sales and profit during the pandemic.

The company (TSX:ATZ) said May 11 that e-commerce sales jumped 80% in the quarter that ended on February 28, and 88.3% in the fiscal year that ended on the same date.

Aritzia generated $425.9 million in e-commerce sales in the past fiscal year, which was 49.7% of its overall revenue, the company said. That compares with it generating $226.2 million in e-commerce sales, for 23.1% of its overall revenue in the year that ended in February 2020.

The pandemic has, however, rattled the retailer's balance sheet.

The company's revenue in the year that ended in February decreased by 12.6%, to $857.3 million. That compares to $980.6 million in the previous year.

Just shy of 66% of Aritzia's 2021 revenue, or $565,581, is in Canada, with the remainder in the U.S. Canadian sales in the fiscal year fell just over 12%, whereas U.S. sales were down almost 13.6%. 

CEO Brian Hill, on a conference call, however, sounded more excited about near-term prospects in the U.S., than in Canada. 

"It's a little bit more challenging in Canada because we haven't really come out of it," Hill said, referring to the COVID-19 pandemic. "I don't know if it's going to look like the same kind of recovery in Canada, as it does in U.S., and we're just three months behind? I don't know if it's slower. I don't know the economic situation in Canada, and we certainly don't have the growth runway in Canada that we have in the U.S."

Aritzia's gross profit was $312.5 million in the fiscal year that ended in February, with that being down 22.5% from the $403.4 million in gross profit the previous year.

When operating and other expenses are factored in, Aritzia was left with $19.2 million in net income in the most recent fiscal year, down from $90.6 million in the year that ended on March 1, 2020.

"Gross profit margin was 36.5%, compared to 41.1% last year," the company said. "The decrease in gross profit margin was primarily due to higher warehousing and distribution centre costs driven by the growth in the company's e-commerce business."

Retail analyst and DIG360 principal David Gray told BIV that he believes that Aritzia still needs bricks-and-mortar stores in order to be successful, and for its brand to have what Gray called "the magic."

He expects that some of the company's online sales will revert to be in-store, assuming that the pandemic recedes, people are more comfortable shopping in person, and consumers have a need to buy clothes for work and social events. 

Retail analyst and Retail Insider Media owner Craig Patterson told BIV that Aritzia's success online is encouraging given the challenging time retailers are having in Canada.

"Consumers are increasingly moving to digital channels where competition is fierce," he said.

“Artizia’s brick-and-mortar sales were impacted in part due to lockdowns in major markets."

One region particularly hard hit with lockdowns has been Ontario, where the government forced the closure of what it considered non-essential stores, he said.

Women have also been buying less clothing during the pandemic because many have been working from home, Patterson said. That was another factor that directly impacted Aritzia's sales.

"I would expect bricks-and-mortar sales to see a boost into 2022, and the increase in online sales will be the icing on the cake in terms of Aritzia’s future growth and success in sales across all channels”

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