March 2024
The pandemic has had a significant impact on many companies, affecting both sides of the supply and demand equation and introducing significant unpredictability into supply chain logistics. This supply chain volatility led many companies to stockpile inventory as a precaution against potential disruptions. By 2023, most merchants found themselves with excess inventories. As a result, retailers have been actively working to rebalance inventories.
These events have highlighted the importance of investing in infrastructure and software management tools to mitigate future risks and improve visibility across a distribution network. While the demand outlook in several end markets remains uncertain, a number of companies are strategically investing in their infrastructure to strengthen their foundations and emerge stronger when the next cycle begins.
This is the case for Aritzia, a vertically integrated design house for luxury everyday wear, which recently opened a new distribution centre in Toronto. The company experienced exceptional growth in 2021 and 2022, with sales more than doubling while navigating challenging supply chain disruptions.
Building a Stronger Foundation
The Aritzia brand is well known in Canada and is making impressive progress from a smaller base in the United States. The company has 67 stores in Canada and 50 south of the border, a market that is ten times larger. Importantly, the brand is resonating well with US consumers, with new store performance outpacing Canada and the e-commerce platform appealing to US customers. In this context, the company is strategically investing in its infrastructure to support its long-term growth prospects and ensure sustainable operational efficiency across its network.
The Pembroke investment team recently had the opportunity to visit the company’s new distribution centre in Vaughan, Ontario, which opened late last summer. The company now operates three different distribution centres, one in British Columbia, one in Ontario and one in Ohio. The new 550,000-square-foot distribution centre replaces the company’s previous 150,000-square-foot facility in Mississauga, Ontario, which was operated by a third-party logistics provider.
To put the scale of this new infrastructure into perspective, the new distribution centre is more than twice the size of its centres in British Columbia and Ohio, and should provide Aritzia with sufficient capacity to support growth until 2030. The internalization of third-party logistics and the increased capacity of the Toronto distribution centre will enable a more dynamic and efficient inventory management, designed to deliver a unique omnichannel customer experience.
While many distribution centre projects typically take six to twelve months to ramp up, Aritzia’s new distribution centre was up and running in a single month. This rapid launch was made possible by thorough planning and training prior to the opening of the facility.
Embracing the Omnichannel Era
In the aftermath of the pandemic, retailers have been quick to embrace the omnichannel era, driven by the surge in online shopping during the lockdowns. This accelerated digital transformation has seen retailers integrate their physical and digital channels to deliver a seamless shopping experience. Investment in omnichannel technologies, such as mobile apps and curbside pickup options, has become paramount, reflecting a strategic shift to meet evolving consumer demands.
This shift has also enabled retailers to gain deeper insights into consumer behaviour, enabling more personalized marketing efforts and improved inventory management. The concept of the “endless aisle” and the vast range of available SKUs require a nimble approach to merchandise assortment at the store level. Coupled with evolving customer expectations for delivery times and seamless transactions, retailers are under pressure to facilitate fast turnaround and efficient distribution centre operations.
Achieving this requires a strong focus on inventory management to ensure that the right products are available at the right time and in the right place. By optimizing inventory levels and distribution processes, retailers can improve delivery times and store restocking, ultimately enhancing the overall customer experience. As the omnichannel approach solidifies its position as the new standard in retail, companies that are adept at blending the physical and digital realms will not only survive, but thrive and foster customer loyalty.
We believe that Aritzia is delivering on these priorities, while continually improving its customer service. Our recent visit allowed us to witness the progress first-hand, reaffirming our conviction and deepening our appreciation of Aritzia’s methodical approach, focus on process and robust execution.
In an industry as dynamic and competitive as apparel, we emerged from our experience at the new facility with increased confidence in the foundation Aritzia is laying to strengthen its position when the upturn comes. We expect future results to reflect the fruits of these strategic investments.
Other Articles Of Interest
Disclaimer
This report is for the purpose of providing some insight into Pembroke and the Pembroke funds. Past performance is not indicative of future returns. Any securities listed herein, are for informational purposes only and are not intended and should not be construed as investment advice nor is it a recommendation to buy or sell any particular security. Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Pembroke seeks to ensure that the content of this document is correct and up to date but does not guarantee that the content is accurate and complete and does not assume any responsibility for this. Pembroke is not responsible for decisions or actions taken or made on the basis of information contained in this document.
