How Arc’teryx Became a $2B+ Luxury Brand Without Intending To | WSJ The Economics Of — Transcript

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1. 0:02- To understand
2. 0:02one of the world's fastest growing apparel brands,
3. 0:05you have to look to the cold,
4. 0:07wet, and windy mountains of British Columbia.
5. 0:10- The company could not have been born anywhere else.
6. 0:14The connection to the Coast Mountains in B.C.
7. 0:16really create the conditions
8. 0:18that we're solving for their products.
9. 0:19- While mainstream giants like Patagonia
10. 0:22and North Face have long dominated the outdoor industry,
11. 0:25Arc'teryx distinguished itself
12. 0:27by carving out a distinct, highly specialized,
13. 0:30and elite brand identity.
14. 0:32- They've been able to walk
15. 0:34this really interesting tightrope,
16. 0:36making the highest performing technical product
17. 0:40that performs on the mountain,
18. 0:42and that does appeal to another audience as well.
19. 0:46- By keeping some of its highly complex manufacturing
20. 0:49in Canada
21. 0:50and pivoting to a direct-to-consumer retail model
22. 0:53to protect its premium pricing,
23. 0:55Arc'teryx engineered an explosion in revenue,
24. 0:58growing to a more than $2 billion business.
25. 1:02This is how a mountaineering brand
26. 1:04became a global luxury status symbol
27. 1:08without ever intending to.
28. 1:15To understand how a niche mountaineering outfit scaled
29. 1:18to the heights of global fashion,
30. 1:20we have to look
31. 1:21to the history preserved inside Utah State University.
32. 1:24- The Outdoor Recreation Archive is a global hub
33. 1:28for the history of all things outdoor brands,
34. 1:31outdoor products, outdoor gear,
35. 1:33and the people behind them.
36. 1:35- Within these archives is a story of a company founded
37. 1:38in 1989 under a different name.
38. 1:41- The first customer that Rock Solid, now Arc'teryx,
39. 1:44was designing for was Dave Lane.
40. 1:47- From the beginning,
41. 1:48Lane and his co-founders
42. 1:50weren't trying to build a lifestyle fashion brand,
43. 1:53they were building survival equipment.
44. 1:55- Arc'teryx is grounded in climbing culture
45. 1:57and outdoor activities where this is life or death.
46. 2:00You have to rely on your gear
47. 2:01and trust that it's going to keep you safe
48. 2:04in the harshest environment.
49. 2:05That is an aspect of their DNA
50. 2:07that's continued from the beginning to present.
51. 2:09- Within the next few years,
52. 2:11their engineering ambitions outgrew the name Rock Solid.
53. 2:14- In one of their catalogs,
54. 2:16the brand actually describes the Archaeopteryx,
55. 2:19this bird that evolved from reptiles
56. 2:22as breaking out of the boundaries of the horizontal.
57. 2:27- Today, that logo is as ubiquitous on hiking trails
58. 2:31as it is on city streets.
59. 2:33And Arc'teryx has seen its revenue surge
60. 2:36from $500 million in 2020
61. 2:38to over $2 billion in 2024.
62. 2:43Much of that success can be traced back to this building.
63. 2:47Arc'One is Arc'teryx's
64. 2:49243,000-square-foot Canadian manufacturing facility.
65. 2:55Access to the secretive site is tightly controlled,
66. 2:58but "The Journal" was granted rare permission to film inside
67. 3:02and document how it operates.
68. 3:05While most competitors have moved production overseas,
69. 3:08Arc'teryx still makes
70. 3:09a small portion of its products in Canada.
71. 3:12At Arc'One, the company experiments with new techniques
72. 3:16and produces some of its most technically demanding gear.
73. 3:21While 95% of its manufacturing is outsourced
74. 3:24to the Asia Pacific region,
75. 3:26Arc'teryx keeps a highly specialized 5% of production
76. 3:29in Canada at the Arc'One facility.
77. 3:32- Our factory here in British Columbia
78. 3:35is strategically important for us.
79. 3:37It gives us the ability
80. 3:38to not only perfect production methods
81. 3:41for what are really complicated products.
82. 3:44The Alpha SV, for example,
83. 3:46has over 150 component parts
84. 3:49with over 35 different suppliers.
85. 3:52- That complexity creates
86. 3:54what Arc'teryx designers internally refer to as a ping.
87. 3:58It's a term they use to describe a technical garment
88. 4:01that functions flawlessly for survival,
89. 4:03but also looks good.
90. 4:05This commitment to both form
91. 4:06and function comes with a hefty price tag,
92. 4:09with the Alpha SV jacket retailing
93. 4:12for around $900 in the U.S.
94. 4:16To Arc'teryx's core customers,
95. 4:18that price tag represents a worthwhile investment.
96. 4:22- When I think of Arc'teryx,
97. 4:23I think of the outdoors.
98. 4:24I also think of reliability.
99. 4:27The first time I actually experienced Arc'teryx
100. 4:29and heard about it was when I started climbing.
101. 4:32First piece that I ever got was an Arc'teryx bag
102. 4:37just 'cause I needed my own chalk bag.
103. 4:40My Shell Jacket has been through it all,
104. 4:44not only city wear, outdoor wear, and also bouldering,
105. 4:48and it's still holding up till this day.
106. 4:50Even with those jagged rocks, heavy rain,
107. 4:54it keeps me dry every single time I put it on.
108. 4:56- If that gear ever breaks down,
109. 4:58the company offers a free repair program called ReBIRD.
110. 5:03Instead of relying on customers to replace old coats,
111. 5:06Arc'teryx banks on them becoming brand loyalists
112. 5:09and returning to buy additional layers
113. 5:11and styles for different climates and activities.
114. 5:15- We operate 48 care repair centers we branded as ReBIRD.
115. 5:20These are aimed at helping keep our products in use longer
116. 5:24and as a central part of, again, the identity of the brand.
117. 5:29- ReBIRD turns Arc'teryx from a company
118. 5:31that sells you a jacket
119. 5:33into one that stays involved with that jacket
120. 5:35for much longer.
121. 5:37But Arc'teryx isn't the only outdoor brand trying
122. 5:39to give old gear a second life.
123. 5:42Patagonia has Worn Wear.
124. 5:43The North face has Renewed.
125. 5:46But Arc'teryx's recent surge in growth
126. 5:48isn't coming from rock climbers like Sean.
127. 5:51It's being fueled by gorpcore,
128. 5:53a fashion trend where technical outdoor gear is worn
129. 5:56as high-end street wear.
130. 5:58The brand's signature beanie, known as a toque,
131. 6:01has been spotted on celebrities like Frank Ocean.
132. 6:04- We don't ever think about serving the gorpcore community.
133. 6:09It's a tailwind.
134. 6:10It's a cultural phenomenon
135. 6:12that seems relevant to what we do.
136. 6:14But to be clear, you know,
137. 6:15we're not thinking about that
138. 6:19in how we're designing products.
139. 6:21- During the pandemic,
140. 6:23Arc'teryx shook up its entire business model
141. 6:25when it became concerned
142. 6:26that the brand's premium identity was being undermined.
143. 6:30- In 2021,
144. 6:31there were a lot of our wholesale partners
145. 6:33that were, you know, selling the brand at discounts,
146. 6:35and it chipped away at the value of the brand,
147. 6:39the positioning of the brand.
148. 6:40- In 2020,
149. 6:41up to 80% of the brand's sales were from wholesalers.
150. 6:45Today, the brand has shifted
151. 6:47to roughly 75% direct-to-consumer sales.
152. 6:51- Resetting that,
153. 6:52exiting wholesale partners
154. 6:54who couldn't sell the brand in a full price premium manner
155. 6:57was a critical part of how we reestablished Arc'teryx
156. 7:00as a full price premium brand.
157. 7:02And so what helped really unleash
158. 7:05that new growth trajectory for Arc'teryx
159. 7:07was taking ownership of the consumer relationship,
160. 7:11the guest as we call it.
161. 7:14- Nowhere is that full price strategy more lucrative
162. 7:17right now than in China,
163. 7:19where even Chinese president Xi Jinping is a fan.
164. 7:23In 2019, a consortium led
165. 7:25by China's largest sportswear company, Anta Sports,
166. 7:28bought Arc'teryx's parent company, Amer Sports.
167. 7:31This gave them an unmatched advantage
168. 7:34in the world's second largest consumer market.
169. 7:36- They bring to all the Amer brands
170. 7:39a unique set of advantages,
171. 7:42and those show up in three areas,
172. 7:44relationships with landlords,
173. 7:46access to real estate, access to talent,
174. 7:49and thirdly is an understanding of the Chinese consumer.
175. 7:54- Today, Greater China,
176. 7:56which includes Taiwan, Macau, and Hong Kong,
177. 7:59accounts for roughly 44% of Arc'teryx's parent company
178. 8:02Amer Sports' total sales,
179. 8:04and the margins are highly lucrative.
180. 8:06Arc'teryx prices its products about 20% higher
181. 8:10in China than in the U.S.
182. 8:13To maintain its growth,
183. 8:15Arc'teryx is betting that consumers globally
184. 8:17will continue to see extreme function
185. 8:19as the ultimate form of luxury.