By: Nikhil Davar
Winter at Choate this year may have felt warmer than usual, but that didn’t stop students from sporting their furry Canada Goose parkas and jackets. The luxury outerwear brand, easily recognizable by the coveted red and white Arctic Circle sleeve patch, has become a symbol of status and quality throughout the Northeast. In fact, the Canadian brand took America by storm this past year, achieving record U.S. revenues of $103.4 million, growing an impressive 81% from the same period just a year before. The great growth and success prompted Canada Goose to go public at the onset of 2017. The company had a very successful initial public offering, with share price spiking a substantial 25.5% on opening day. Investors were clearly both impressed and comforted by Canada Goose’s strong brand image and sales growth. Since the offering, analysts have made both optimistic and pessimistic cases for the company; however, investors should ignore the latter. When describing the future of Canada Goose, many bearish analysts point to luxury industry failures such as a Michael Kors and The North Face. Others say the luxury industry as a whole is unfeasible in the public space, claiming sustained growth of a singular luxury brand is impossible. This article will discuss why Canada Goose is a different case entirely. The company’s unprecedented customer loyalty, unique brand identity, immense growth potential, as well as talented management make Canada Goose one-of-a-kind; this will reward investors significantly throughout the next few years.
Canada Goose’s Fundamental Strengths:
1. Brand Identity
Canada Goose isn’t just another expensive outdoor wear brand. It is a symbol of adventure, status, and authenticity. For decades, famous adventurers, athletes, and explorers have used Canada Goose to embrace the elements. These people are what the company calls “Goose People.” When a customer puts on a Canada Goose jacket, they become a “Goose Person.” They supposedly enter a lifestyle and community of bold action and adventure. Canada Goose’s products are meticulously crafted in Canada with attention to even the most minute details. For this reason, Canada Goose products are deserving of expensive price tags, since both the company and its customers understand and appreciate this key aspect of the brand. The high price tag is an outward statement of the company’s confidence in its unmatched quality and craftsmanship. The company has created an attractive and truly unique brand identity, one that the luxury industry has never seen before.
2. Customer Loyalty
The Canada Goose brand possesses customer loyalty unprecedented in the luxury apparel industry. In a survey conducted by the company, 82% of Canada Goose customers said they love every aspect of their Canada Goose product, and an even higher 84% of customers claimed they would choose Canada Goose again if buying another outdoor-wear product in the future. These numbers show that once customers enter the Goose community, they have a real sense of pride in what they are wearing and have no problem in buying two, three, or even more Canada Goose products. They love the brand and in fact, as the survey depicts, love it so much that they aren’t even willing to consider other options. This bodes well for Canada Goose’s future, because even if they begin to saturate their current markets, which they currently haven’t even come close to doing, they will have an extremely loyal and excited customer base that will continue buying more. These customers will readily purchase newer releases and be extremely receptive of future Canada Goose endeavors.
3. Talented Management
Canada Goose CEO and visionary Dani Reiss, grandson of founder Sam Tick, has expertly grown the once fairly obsolete and brandless outdoor-wear company into a multinational category king. As CEO, Reiss understands three immensely important principles that will bode extremely well for the company in the future. Firstly, he prioritizes quality and functionality over all else. Reiss knows that the reason Canada Goose has such an incredible brand status is because of its almost obsessive attention to detail. As a result, he has promised to keep Canada Goose manufacturing in Canada forever and to continue the company’s “direct-to-customer” sales program, which gives the company full control of its supply chain and ensures customers obtain the authentic product. In the short run this may limit the company’s scale, but Reiss doesn’t mind. He knows that long-term success in this industry can only be realized by sustaining the brand’s value and the company’s heritage. He understands Canada Goose must not enter markets where it is not an expert. As described by the company’s growth plans contained in their SEC F-1 filing, if Canada Goose wouldn’t be the best product in a new category, they would rather not enter that category at all. Lastly, he and his management have a clear intuition and talent in pricing Canada Goose products. They ensure prices are high enough to accurately represent the brand’s value and status, while also being encouraging enough to draw a variety of demographics to the lifestyle. Dani Reiss and his veteran team will continue utilizing this strength for years to come, which will not only preserve status, but also ensure margins are as large as possible. The deep understanding Canada Goose’s management demonstrates in all facets of business, from branding to financial health, indicate an incredibly prosperous future for the company.
4. Sustainable Strategies for Growth
As a young global company, Canada Goose has just barely begun satisfying the demand for its current offerings. Surveys conducted by the company show that in the US only 16% of people are even aware of the brand, yet revenues in this country have already exceeded $100 million. The current revenue and awareness is provided almost exclusively by e-commerce, the company’s New York City store, and word-of-mouth advertisement. For this reason, America’s potentially immense demand for Canada Goose products is still largely untapped. Given the fundamentally sound nature of this company, management has definitely recognized this situation and knows exactly what to do. At the moment, New York City is one of the only areas that is clearly in love with the brand. The company has indicated that it plans to leverage its success by increasing brand awareness across the country. When brand awareness is realized nationally, thousands of people in Seattle, Chicago, Philadelphia, Washington D.C., and Denver will don the iconic red and white Canada Goose sleeve patch. This kind of growth potential should make any investor’s mouth water. With brand awareness increasing in traditionally warmer climates, such as San Francisco, Los Angeles, and the Southeast, the newer spring and fall lines will gain significant traction as well. Without even expanding its current product offerings, Canada Goose will immensely grow US revenues. Canada Goose also has the opportunity to explode internationally. Brand awareness internationally is even lower than that in the US, existing only in parts of Western Europe and small pockets of Asia. Large markets such as China and regions like Scandinavia, Eastern Europe, and Russia have yet to experience the Goose lifestyle. The best part about the management’s focus on expanding Goose’s currently renowned products globally is that the company can provide investors with the sustained growth that they are looking for, without risking brand identity at all. Many luxury companies make the mistake of entering markets they know nothing about in order to provide investors growth. In the process, they sacrifice quality and everything that their company once stood for. Customers see this instantly and their loyalty is gone forever. By avoiding this common mistake by employing a more organic and moderate, sustained growth plan, Canada Goose shows its fundamental strength as a company.
What does this mean for investors?
Currently the stock is trading at around 35 times calendar-year 2016 earnings, which appears to be a relatively optimistic P/E ratio, especially when looking at the bogged down luxury apparel industry as a whole. However, when evaluating the company’s strengths and plans, it becomes clear that at the moment, investors have significantly undervalued Canada Goose. The company will definitely sustain, and probably significantly increase its current sales growth rate of 42% year-over-year in both the short and longer term. This discounted growth will drive impressive returns for investors and will cement Canada Goose’s place as an exemplary firm.