Shares of ROOTS Corporation (TSX:ROOT) were down 15.74% as the noon hour winded to a close on October 25. If this decline holds, it will mark one the more disappointing initial public offerings, especially for such a well-known Canadian brand.
Back in September I warned investors that Roots was a far bigger gamble than, say, Canada Goose Holdings Inc. Whereas the latter has bred success in recent years and has a small brick-and-mortar footprint combined with strong e-commerce results, I am more skeptical of Roots.
The legacy brand has 120 North American locations as well as 65 locations in Asia. Traditional retail has been under assault with the rise of online retailers like Amazon.com, Inc. forcing companies to face up to this evolution in customer behaviour.
Just in the past few months we have seen the collapse of Sears Canada, which resulted in job loss for over 12,000 employees. There was also Toys “R” Us, which was forced to declare bankruptcy. Hudson’s Bay Co. has been under tremendous pressure to reorient after recording disappointing earnings for some time now.
More than anything, this seems to be bad timing for a Roots IPO. Roots boasted compound growth of 14% over the period between 2014 and 2016. Clothing retailers will have to appeal to investors by strengthening e-commerce platforms in order to compete with an industry facing disruption. Investors should stand pat with Roots until its long-term growth strategy becomes more clear.
