Andrew Lutfy at Royalmount in Montreal, on Dec. 6.Boris R. Thebia/The Globe and Mail
Andrew Lutfy’s first business venture was a spectacular failure.
He was seven years old, and his grandfather, Joseph Chamandy – founder of the Montreal-based children’s clothing manufacturer that would later become Gildan Activewear Inc. – offered him $0.25 to wash his Cadillac. The young Mr. Lutfy used a metal squeegee and, failing to notice it was missing the indispensable rubber blade, proceeded to destroy the paint.
His grandfather scolded him, “but he also gave me a big hug and a kiss,” Mr. Lutfy recalled in an interview. Buoyed by the unconditional support, the future real estate developer and chief executive of retailer Groupe Dynamite Inc. was undeterred. He named his car-detailing business Perfection Reflection, and walked the neighbourhood with a clipboard (looks more official, he figured) hunting for clients.
Not letting a little calamity get in the way of a sales pitch is a trait Mr. Lutfy has continued to rely on decades later. After pushing through bureaucratic hurdles, some community resistance and a pandemic that shut down construction, he presided this past summer over the opening of Royalmount, an 824,000-square-foot mall in Montreal in which he owns an 80-per-cent stake.
Then in November, four years after facing the “corporate tsunami” of COVID-19 that pushed the business into creditor protection, Groupe Dynamite completed its initial public offering. The parent company of mall stalwarts Garage and Dynamite now trades on the Toronto Stock Exchange with a market capitalization of roughly $2.2-billion. The company has roughly 300 stores, and is planning an overseas expansion for Garage, beginning with multiple locations in Britain in the coming year.
In short, Mr. Lutfy is banking on the future of retail – both with his own fast-fashion stores, and with the launch of a flashy luxury mall at a time when very few developers are building new shopping centres.
“There’s still another 90 per cent to go,” Mr. Lutfy said, standing outside Royalmount and gesturing toward the land set aside for future phases of the multibillion-dollar project. Plans include office towers and residential units.
Building Royalmount required securing a construction loan from a syndicate of lenders led by Bank of Montreal, and cobbling together a patchwork of real estate deals amounting to roughly $1.5-billion worth of land.
In one instance, Mr. Lutfy found out during a trip to China that the owner of a crucial tract had tentatively found a buyer. He got on a plane and went directly to the man’s office, toting his rolling suitcase and a bottle of whisky: “ ‘No’ is only for now,” Mr. Lutfy said. “No always turns into a yes.”
In all, he spent 15 years acquiring roughly 30 different properties located at the juncture of two highways in suburban Montreal. The site is also on the Metro line, although creating accessibility for those transit commuters did require building a footbridge over the Décarie Expressway.
But why build a mall now? Part of the rationale has to do with a larger shift: high-end fashion brands used to relied on department stores to sell their merchandise.
But over the past 20 years, that has changed: “All the luxury players have realized, actually, operating a store ain’t that complicated, and you can control the whole thing.”
Andrew Lutfy believes Montreal needs to build better spaces to attract retailers.Boris R. Thebia/The Globe and Mail
He believed Montreal needed to build better spaces to attract those retailers. Mr. Lutfy has his own money tied up in the project, and L Catterton Real Estate, which is partly owned by luxury conglomerate LVMH Moët Hennessy Louis Vuitton SE, owns a 20-per-cent stake. The space is fully leased, with a mix of other high-end brands as well as typical mall retailers such as Zara, Aldo, Uniqlo and (of course) Dynamite and Garage.
“I won’t say it’s a legacy project, because I really do plan on living forever. So I plan on enjoying the damn thing,” Mr. Lutfy said.
The demand for more space is there, said John Crombie, executive managing director of retail services in Canada for Cushman & Wakefield. Foreign retailers are showing interest in the Canadian market, he said, but vacancies are low, “so we’re seeing this huge crunch.”
And construction of new retail real estate has slowed considerably, Mr. Crombie added, to about four million square feet coming onstream in the next 12 months, down from roughly 40 million square feet per year pre-COVID.
“They’re being bold,” he said of Royalmount’s developers. “And I think they’ll be rewarded for it.”
Still, traffic to the mall has declined since the initial excitement around the opening, and Mr. Lutfy acknowledges there is work to do: “You’re changing people’s habits.”
Growing up, Mr. Lutfy says that running a business “was like my drinking water.” His father owned a company that made lingerie. Both of his grandfathers were in apparel manufacturing.
But for his first 21 years in retail, Mr. Lutfy was not the boss. He went to work for his girlfriend’s father at age 18, as a stock clerk at a Garage store. He worked his way up, but “I was a shareholder in someone else’s family business.”
By 2003, they were at odds over strategy: Garage and Dynamite bought clothing on the wholesale market at the time.
“I knew that model was dead. And that’s where we agreed to disagree,” Mr. Lutfy said. He bought out the in-laws and threw “a grenade into the business,” taking over the clothing design, striking deals with factories to make the merchandise and, within a few years, expanding into the U.S., where it now has 114 stores.
Mr. Lutfy’s son and daughter have both worked at Groupe Dynamite over the years, but during a family dinner in 2018, he learned that neither intended to take over.
“It was a bit emotional, I must say, and traumatic,” he said. He considered selling, but figured the only buyers would be private equity, who would install their own board and management, find new growth and exit “high-fiving themselves” three to five years later.
“And that’s going to make me sick,” he recalled thinking. “I could do that myself.’ ”
It was time for another “grenade,” as he tells it. Roughly 80 per cent of the management team exited. In 2019, Groupe Dynamite installed its first board of directors. Mr. Lutfy introduced an employee stock ownership plan. He brought in consultants from McKinsey.
Then the pandemic threw its own grenade into the industry. Dynamite sought creditor protection and disclaimed leases at dozens of underperforming stores.
Since restructuring, the company has been growing, Mr. Lutfy said, although Dynamite’s performance has lagged that of Garage. The latter brand accounts for the bulk of the U.S. expansion, as well as the international plans.
The retailer aims to fund that expansion with future earnings. Groupe Dynamite did not raise any capital from its IPO. Instead, companies controlled by Mr. Lutfy sold shares for aggregate gross proceeds of more than $300-million.
That is relatively unusual: since 2013, just 10 out of 204 Canadian IPOs have offered secondary shares only, according to LSEG Data & Analytics. The stock debut was tepid, and Groupe Dynamite’s shares are still trading around their initial $21 offering price.
The decision to go public, he said, was partly because “just from an estate-planning standpoint, I can’t keep owning 100 per cent of this thing.”
Mr. Lutfy continues to own more than 80 per cent of the shares, a stake he says he plans to gradually sell down to closer to 10 per cent over the next decade. He also plans to extend the stock ownership plan.
Groupe Dynamite operates in a crowded market for women’s fast fashion, with fierce competitors including H&M and Zara, as well as online-only players such as Shein.
To compete, the company turns over its stock eight to nine times per year, Mr. Lutfy said. At the beginning of each season, the company has only locked in about half of its merchandise orders, leaving the rest open to chase trends. That’s a major change from 2018, when the company committed to 95 per cent of its orders upfront.
“I am ultimately taking the risk out of fashion,” Mr. Lutfy said of the approach.
But retailers that cycle through inventory so rapidly, encouraging consumers to buy more to keep up with trends, have come under fire for the toll they take on the environment. A 2023 study estimated Canadians throw away more than 460 million kilograms of textiles annually. Once in landfills, the synthetic fibres used in fast fashion take years to break down.
Mr. Lutfy said that, because the company sells almost every piece it makes, its stores throw away or donate almost no excess merchandise.
“All I can take ownership and accountability for is, to the extent that there is going to be – for thousands of years there’s been that demand, and there will continue to be that demand – how do I do it as responsibly as possible?”
Mr. Lutfy believes there is room for Garage to grow to many more markets.
“Today the world is a lot smaller,” he said, adding that fashion influencers, celebrities and trends have become increasingly global. “People are dressed a little more similarly today than they ever were.”