The merging of two fashion brands

Last week, Vancouver-born fashion retailer Aritzia entered the men’s market with the purchase of a majority stake in Vancouver-based premium activewear brand Reigning Champ.

Under the terms of the agreement, which will see Reigning Champ’s management stay with the brand for the first five years, Aritzia will acquire 75% of the business, and the remaining 25% equity interest – held by Reigning Champ management – will be converted into Aritzia shares in up to three instalments between 2024 and 2026.

For Aritzia, which has more than 100 stores in North America (including 37 in the U.S.) and is projected to make more than than $1 billion in sales in fiscal 2022, the deal comes at a relatively small cost, notes retail expert Randy Harris, president of Trendex North America.

Now valued at around $63 million, Reigning Champ is expected to make around $25 million in revenue this year. It has two stores in Vancouver and two in Toronto (one of which is temporarily closed), and recently closed its shop in L.A. It also has a burgeoning wholesale business, selling premium sweats, T-shirts and accessories to select Nordstrom, Simons, Harry Rosen and Saks Fifth Avenue stores in Canada and the U.S., as well as outlets in China, the U.K., New Zealand and other global markets.

Industry experts, including Harris, believe the true value in the transaction stems from the opportunities each company offers the other. For Aritzia, the purchase provides an accelerated path into menswear and into activewear – apparel retail’s pandemic bright spot. Meanwhile, Reigning Champ will be able to leverage Aritzia’s strengths in marketing, ecommerce, distribution and warehousing while continuing to build its own brand.

• Harris: “This is a potentially low-risk, but high-reward strategic initiative for Aritzia. There’s almost no downside whatsoever. But I see a lot of upside potential by Reigning Champ leveraging all of Aritzia’s assets… There are a lot of synergies, but those synergies – certainly in the short term, meaning in the next two or three years – are all in the favor of the acquisition and not [the company] doing the acquisition.”

• Lisa Hutcheson, managing partner, JC Williams Group: “[From the perspective of having] the ability to diversify as a way to continue to grow, this acquisition makes sense. Even just seeing an opportunity in menswear, this is certainly a way for [Aritzia] to get in there, rather than developing from the ground up.”

• Tamara Szames, fashion industry analyst at NPD Group: “When you start to look at the history of both Aritzia and Reigning Champ and what they stand for… it’s a viable option for both parties… They share the same aesthetics and values, the integrity in what they offer their customers. That simplicity of style. Forever, we talked about how Aritzia would sell style, not necessarily fashion. And that’s the same with Reigning Champ – they offer to their consumers quality, a contemporary price point, they stand for style, and they stand for simplicity. Also, Aritzia has had to pivot to more of the leisurewear over the past 15 months with COVID. We know that that was driving growth.”

Where menswear might fit into Aritzia’s long-term plans

As it emerges from the pandemic, two big priorities for Aritzia will be to continue focusing on its growing ecommerce and U.S. businesses.

For the fourth quarter ending May 11, Aritzia’s net revenue fell 2.9% from a year prior, despite seeing net revenue growth of 9.2% in the U.S., amid a new round of store closures and reduced operating hours. Like other retailers, losses were offset by a surge of 81% in ecommerce sales compared to the year before. With ecommerce sales 88% for the full 2020 fiscal year, they now account for roughly 50% of Aritzia’s net revenue (up from 23% a year before).

It’s now looking to maintain that momentum, having invested in new digital features with the launch of a Clientele app, a digital concierge and integration with installment payment services provider Afterpay during Q4 2020. It recruited a new VP to build a centralized data and analytics function – which the company says will be pivotal in driving digital growth and personalization – as well as a U.S. president of retail to support its geographic expansion.

Overall, Forbes reports the company has identified 100 possible locations in the U.S., and it plans to add six to eight new stateside stores this year.

But while expanding its ecommerce and U.S. footprint are among its top priorities, Aritzia is also focused on growing through new product categories, including the launch of a swim line this fall and an intimates line next summer. It’s also adding more depth to its collection, including more inclusive sizing for top-selling items, as part of a five-year plan to double its style count.

Reigning Champ offers Aritzia another opportunity to push into new categories. Already, the retailer has dabbled in menswear with the 2019 introduction of a Super Puff winter jacket for men and women, which has recently promoted through pop-ups in the U.S.

Yet Aritzia CEO Brian Hill told The Globe and Mail that it has no plans to expand its menswear assortment in its own stores, which some of the experts say could make good strategic sense.

• Harris: “If they’re going to add [meanswear], it would be like Fairwhether 10 years ago adding men’s apparel to their store – it makes no sense… I was not a big proponent of [Aritzia] adding men’s puffer coats. Obviously, they have the technology and the suppliers to do that. But because Reigning Champ has puffer coats, I wouldn’t be surprised if Aritzia gets out of that business at some point. But don’t blur your image. In trying to be everything, you end up being nothing. Aritzia has a clear cut image. They’re not going to mess it up.”

• Hutcheson: “Until they really understand that business and the customer, it makes sense to [keep] them separate. But I don’t think that’s a forever strategy. I could see that they might [someday] either have side-by-side stores or add [Reigning Champ products] in certain stores as testing.”

• Szames: “[Aritzia is] going to be able to learn from this opportunity. They’re acquiring [Reigning Champs’] learning and development, their customer base, so they’re going to be able to understand what they need to do to tap into that men’s market… They’re not going to start all of a sudden developing the same product at Aritzia that they’re going to offer at Reigning Champ, but they can take those learnings. And they can take the collabs they are doing for Reigning Champ and apply that to Aritzia. Aritzia also offers many labels under their retail banner, and each label stands for its own mission… So they are tapping into every aspect of the woman’s life. So this is just the beginning into the men’s market.”