Brian Hill's knowledge of retail real estate closely rivals his knowledge of the fashion retail sector. That expertise has paid big dividends for the founder of Canadian design house and fashion retailer Aritzia over the past 40 years.

Hill founded Aritzia in Vancouver in 1984 and the company has since grown to over 130 North American stores and a thriving online sales platform. 

Retail net revenue in Q2 ended Aug. 31 rose to $571.7 million from $425.6 million a year earlier, driven by high-teens comparable sales growth in existing stores, and the strong performance of 13 new and four repositioned boutiques.

As attendees of this year’s Real Estate Forum at the Metro Toronto Convention Centre learned, Hill’s interest in and knowledge of real estate rivals his expertise in, and passion for, clothing.

RBC Capital Markets Real Estate Group managing director Nurit Altman spoke with Hill about all aspects of the company — including its real estate strategy.

Good store locations are critical

Hill’s father was also in the retail business and, when Aritzia started expanding across Canada in 1995, he passed this advice on to his son: “If you're going to expand across the country, get really good real estate, because then when you fail you’ll know it's because you're shitty. Whereas if you get lousy real estate and you fail, you won't know if the real estate's shitty or you're shitty.”

Hill said he and Karen Janes, Aritizia’s executive vice-president of real estate development, don’t just look at locations that are being marketed for lease or sale. They seek out the best site and then try to figure out how to get it.

Hill is also very interested in interior design and architecture, which is reflected in Aritzia’s stores. 

“If people are going to spend their time with you, you better make sure you deliver on that,” he said. “So we really focus on all the details within the real estate to make sure that we're maximizing the customer experience.”

Hill elaborated later on in the discussion:

“You can have a pretty store but if it doesn't function and there are lineups everywhere and people can't navigate through, it's a problem. At the same time, if you don't have a beautiful store and you're not inspiring the client, you're not going to have a busy store and it doesn't need to function at that point in time. It's really about the balance between form and function.” 

While Aritzia has tier-one, -two and -three stores, it puts the same amount of effort and money into the design no matter the location. It aims to recoup that investment in 18 months at each store but, in most cases, payback comes in under 12 months.

“It's not how much it costs, it's how much it costs relative to sales,” Hill explained. “And it's not just how much it costs relative to sales, it's relative to your sales over a 10-year term — which most of our leases are.”

United States expansion

Hill said Aritizia had the highest sales per square foot of any retailer in Canada but had to start from the bottom when it opened its first two stores in the United States in 2007. 

Its American business still wasn’t that profitable after the company went public in 2016, but Hill said it eventually “cracked the code” and is now doing very well south of the border. Net revenue from the U.S. now accounts for about 60 per cent of Aritzia's total, while its store counts in Canada and the U.S. are close to equal.

“It's a big country with a lot of different cultures and a lot of different climates, so you have to work all that in,” Hill noted. 

“Our business in Canada has been fantastic for a long period of time, but our business in the U.S. hasn't been. But our same-store sale comps coming out of the U.S. now are incredible, so it's really exciting for us to be there.”

Challenges and opportunities

Like other retailers over the past five years, Aritzia has had to deal with COVID-19-related store shutdowns, supply chain issues, inflation, tariffs and, most recently, the elimination of the U.S.’ de minimis exemption — a longtime trade rule that allowed goods valued under US$800 to enter the country without paying duties or taxes, and with expedited clearance.

During the height of the pandemic, Aritzia came within eight months of going bankrupt before its e-commerce sales kicked in to bail it out.

But while Aritzia’s stores were shut down, Hill was counter-intuitively doing real estate deals and leasing space. 

“You had a vision and you understood how important bricks and mortar was to Aritzia, not just as a selling channel but as a strategic asset,” Altman said.

“We did about 15 deals in the first three to six months of COVID,” Hill responded, “and because we were the only ones out there competing, not only did we get great financial terms on some of these deals, we actually got access to real estate we never would have gotten access to.”

Balance is important

A key factor that has contributed to Aritzia’s resilience is its focus on balancing form with function and infrastructure with sales. 

“If you drive your sales and just feed your sales all the time, at some point the infrastructure won't be able to support it,” Hill said. “Your whole operation can come tumbling down.

“At the same time, if you invest only in infrastructure and drive your infrastructure, if your sales don't keep up or they go through a dip, you can't pay for it all and you get yourself into trouble.”