Groupe Dynamite operates 115 stores in the U.S. in addition to its 182 locations in Canada.Graham Hughes/The Canadian Press
As it copes with U.S. President Donald Trump’s global trade war, Groupe Dynamite Inc. GRGD-T has found that fast-fashion cuts both ways.
The Montreal-based retailer – which relies on the U.S. market for the bulk of its growth – was quick to feel the effects of the U.S. tariffs against countries that manufacture its goods, particularly China and other countries that manufacture clothing for its Dynamite and Garage store chains.
That is because the company does not tend to stock up on inventory. Ordering frequently from suppliers helps the stores to keep up with trends, but meant that Groupe Dynamite had little buffer in its U.S. business when the tariffs took effect. (The retailer operates 115 stores in the U.S., mainly under its Garage brand, in addition to its 182 Garage and Dynamite locations in Canada.) The company reported on Tuesday that its gross margin declined by 1.8 per cent in the first quarter, largely because of elevated tariff costs.
But the same quick turnover of its stock has also made it possible for Groupe Dynamite to shift its supply chains in response to trade tensions. In the first 13 weeks of its fiscal year, the retailer slashed its orders coming from China to the U.S. by more than 50 per cent.
Dynamite CEO and mall maven Andrew Lutfy is banking on the future of retail
“There’s an important percentage of our receipts that are what we call ‘chase,’ meaning the receipt – from purchase order to in-store – is under eight weeks,” Groupe Dynamite chief executive officer Andrew Lutfy said in an interview Tuesday. “So you think about how fast we’re moving.”
Still, the Trump tariffs have been so disruptive to global supply chains that the past few months have been reminiscent of the early days of COVID-19, Mr. Lutfy said.
Just as in the pandemic, when factory shutdowns in some markets caused retailers to search for alternative sources for products, companies like Dynamite are boosting orders from countries such as Cambodia and Bangladesh to account for shifting tariff pressures.
“That means everyone else has to do 100 per cent more; it doesn’t mean they can do 100 per cent more,” Mr. Lutfy said. “We’re seeing tremendous inefficiency and bottlenecks in supply chains and logistics.”
That is leading to higher prices on orders from other markets, he added, meaning that even with the higher tariffs, in some cases the company is still seeing value in ordering from China.
Garage and Dynamite customers are shouldering some of the cost of those inefficiencies: As of the first quarter, the average selling price on the retailer’s items was up 9 per cent compared to the same period last year. Groupe Dynamite has been public about its strategy to raise prices on its clothing by more than the rate of inflation. Shoppers are so far tolerating the change.
“At the end of the day, it seems like an acceptable indulgence,” Mr. Lutfy said of consumers’ attitudes toward the company’s products, leading to resilience in consumer spending in its stores and online.
Groupe Dynamite’s stock rallied nearly 19 per cent on Tuesday as the company reported higher revenue and profits, despite the softer margins.
In the first quarter ended May 3, the retailer saw a 13-per-cent rise in comparable sales, an important metric that tracks sales growth not explained by new store openings. Both store traffic and the size of customers’ purchases increased in the quarter.
On Tuesday, the company raised its guidance for comparable earnings growth for this fiscal year. The forecast now calls for growth in the range of 7.5 to 9 per cent, up from previous guidance of 5 to 6.5 per cent.
“It’s the red lipstick effect, for sure,” Mr. Lutfy said, referring to the theory that shoppers will continue to spend on small indulgences during difficult economic times, while pulling back on larger purchases. Recently, he added, the company has been releasing a number of items in a colour it calls tomato puree. “So, red lipstick; the drop of this red collection. It just flew out of the stores.”
After consumer sentiment cratered earlier this year in response to the trade tensions, spending has bounced back – in some categories. On Tuesday, the U.S. Commerce Department reported a larger-than-expected decline in retail sales in May, dragged down by lower motor-vehicle purchases, as well as falling sales of auto parts and building materials. But online sales were up by 0.9 per cent in the U.S., and clothing retailers’ sales grew by 0.8 per cent.
Consumers are putting off big-ticket purchases, Mr. Lutfy suggested, particularly those that require debt financing such as new cars or home renovations.
“We’ll stay put for another year, or we’re not going to change that furniture for another year or two, or we’re not going to fix this or that,” Mr. Lutfy said. “Fine, those are big dollars, but you know what? I think I could go to the mall and pick up a cute top.”