The direct-to-consumer approach has the added advantage of
reducing Canada Goose's reliance on the struggling retailers that
accounted for all of its sales just three years ago. Department
store chains like Hudson's Bay Co.'s Saks Fifth Avenue,
Bloomingdale's, Harry Rosen and Holt Renfrew are at the front lines
of Amazon's assault on the industry, which has been forced to
shutter stores and lay off employees amid declining mall traffic.
This summer, Amazon said it would launch a service called Prime
Wardrobe that lets consumers try on items at home before they buy,
causing department-store shares to slump.
Retail Slump
"There's no doubt that the wholesale landscape today is
languishing," said Reiss, who has been chief executive officer of
Canada Goose since 2001. He's the third generation of his family to
run the company, founded by his Polish immigrant grandfather in
1957.
He emphasized that Canada Goose still has a strong relationship
with its wholesalers, while its popular outerwear and new line of
knitwear are attracting shoppers in department stores. But Reiss
believes the direct-to-consumer category, which accounted for 29
percent of Canada Goose's revenue in the fiscal year ended March
31, will grow faster and could one day overtake wholesale as the
biggest source of sales.
"It's more clear to me today than ever how big that opportunity
is," he said.
Select Stores
The pillar of its consumer strategy is e-commerce. Canada Goose
has four country-specific sites -- in Canada, the U.S., U.K. and
France—and plans to roll out seven more European sites this
year with a plan to eventually be "online everywhere around the
world," Reiss said.
Canada Goose is supplementing that online presence with a
smattering of flagship stores. So far it's opened two, in Toronto
and New York. Four more stores -- in London, Chicago, Boston and
Calgary—are coming this year with a goal of 15 to 20
worldwide by 2020.
"We have been very disciplined over the last 20 years in every
decision we've made," Reiss said. "We're going to apply the same
discipline with our real estate decisions to make sure we don't
sign any leases that we're going to regret in a few years."
Potential Growth
Analysts are encouraged by the potential growth trajectory of
Canada Goose, which has seen its shares gain 42 percent since its
trading debut in March, boosting its market value to C$2.58 billion
($2.16 billion).
"Canada Goose is the first ever hyper-growth softlines brand to
arrive fully in this new digital era, and it should be amazing to
have front-row seats to watch what happens when you incubate one of
these young rocketships in a totally digital landscape," Evercore
ISI analyst Omar Saad said in an April note initiating coverage of
the retailer.
"Think about it: Instant access to 3 billion modern consumers
without needing to spend untold sums building fancy stores and
expensive marketing campaigns," he said.
Saad estimated that Canada Goose's e-commerce sales already
account for more than 20 percent of its total revenue, up from zero
in 2014. This is well ahead of Burberry Group Plc, which has the
next highest digital penetration of the luxury brands at 10
percent.
That has big implications for Canada Goose's gross margin, which
was 53 percent in the fiscal year ended March 31. By contrast,
Moncler SpA's was 77 percent in its last fiscal year, while
Burberry, Hermes International and LVMH
Moet Hennessy Louis Vuitton SE ranged from 65 percent to 70
percent.
For every 5 percent mix shift to direct-to-consumer, Canada
Goose gains 120 basis points of margin, estimated BMO analyst John
Morris.
A direct-to-consumer jacket sale provides two to four times more
operating income than a sale of the same product through a
wholesaler, according to Canada Goose's annual report. Revenue in
the direct-to-consumer channel more than tripled in the 12 months
ended March 31, compared with 12 percent in the wholesale
channel.
"We believe that the shift of a greater percentage of our
business to direct-to-consumer will be one of the things that helps
improve our margins, for sure," Reiss said.
Winter Gear
To pull this off, Canada Goose needs to maintain the cache that
has consumers across the northern hemisphere willing to spend up to
$1,495 on its made-in-Canada parkas. For most of its history Canada
Goose was a utilitarian brand, selling practical winter gear for
use in the Far North.
"We made a best-in-class product but nobody really knew about it
outside of the people who lived and worked in those places," Reiss
said.
Reiss, 43, who joined the company in 1997, recognized its
potential to be more than just a maker of utilitarian outerwear and
became obsessed with the idea of brand authenticity.
He tried hard to raise Canada Goose's profile in Toronto but
everyone told him the products were too utilitarian, too expensive,
or both.
Coldest Place
"But when I traveled to Europe I found that in Europe they
really understood it," he said. "They're like, 'Oh, this is a parka
made in Canada that is used in the coldest places on Earth by
anybody who knows. This is almost the platonic image of a winter
jacket."'
Canada Goose's jackets took off in Stockholm first and quickly
spread to Italy, Germany and even Japan but took longer to take
root in their home market.
"In typical Canadian fashion, Canadians adopt their own things
after everybody else does," Reiss said.
Canada Goose's next big frontier is China, where many upscale
consumers are familiar with the brand through their travels.
"We're working on a China strategy as we speak," Reiss said.
"China's a huge potential market for us."
—Bloomberg News
