Aritzia Inc. says it is shifting some of its supply chain away from China, which has been hammered with triple-digit tariffs from the United States.
The Vancouver-based apparel company said Thursday that the Asian country is one of the top three countries it relies on to make its clothing, but it intends to cut its China production from 25 to 20 per cent for its upcoming fall-winter season.
Its reliance on China will fall even further by next spring, when Aritzia predicts just a “mid-single-digit percentage” of production will happen there, chief executive Jennifer Wong said.
“We are taking the word diversification right down to the very epitome of what diversification means,” she told analysts on a call.
As part of that diversification, she said the business will turn to long-standing partners in the 12 other countries they produce in, like Vietnam and Cambodia. It will also explore new countries and broker relationships with new suppliers that can improve its existing products.
While she positioned some of that work as a reflection of the company’s decade-long diversification plan, she also credited tariffs with spurring change.
U.S. President Donald Trump has been lobbing tariffs at Aritzia’s home country, Canada, for much of the year. China has also fallen into his crosshairs and been charged a 145-per-cent duty, which it responded to with its own 125-per-cent rate.
For Aritzia, the higher fees pose a problem because the company’s web-like supply chain leaves its apparel crossing the globe to enter either its home market or its biggest expansion target, the U.S.
Aritzia, the Vancouver-based women’s wear company that’s long been a mainstay in Canada, is exploding in popularity in the U.S. with plans for a major expansion south of the border. But experts warn that expanding too quickly could backfire.
The speed at which tariffs have been threatened, imposed, walked back and reimposed is also proving to be a headache.
“Clearly and obviously the situation continues to evolve,” Wong said. “If there’s one thing we’re certain about, it’s very uncertain.”
Other Canadian brands, including Groupe Dynamite and Lululemon, have also discussed moving production out of China. While some apparel and footwear manufacturers had already started moving production out of China in recent years, brands like Adidas have already warned of price increases as a result of the new duties.
Despite the swings Aritzia has faced, it doesn’t appear to be pulling back from the United States.
It has plans for boutique openings this year in five new markets including Cincinnati; Pittsburgh; Raleigh, N.C.; Salt Lake City; and Scottsdale, Ariz.
U.S. customers elsewhere appear to already be loving the brand. Its U.S. net revenue increased in its most recent quarter by more than 48 per cent from last year, reaching $548 million.
Aritzia’s overall net revenue rose by more than 31 per cent in that fourth quarter to $895.1 million, with its retail revenue spiking by 24 per cent and its e-commerce revenue climbing by 42 per cent.
Those numbers, in addition to lower markdowns and warehousing costs, helped its net income in the period ended March 2 soar to $99.6 million, more than four times higher than the $24.2 million it made a year earlier.
On an adjusted basis, the company reported a net income of $98 million, compared with $38.2 million a year ago.
That amounted to adjusted earnings of 83 cents per diluted share compared with 34 cents the year before.
Irene Nattel, an analyst with RBC Capital Markets, called the company’s latest quarterly performance “strong and better than expected.”
The company also attributed the boosts it saw to investments in digital marketing, technology and flagship stores, along with an increase in income from foreign exchange gains and unrealized gains on derivatives.
It plans to build on its successes with an enhanced international e-commerce site to be rolled out in the first half of its fiscal year and a mobile app coming by the end of that year.