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WIKI ANALYSIS
Urban Outfitters is a clothing and accessories retailer that focuses on women between the ages of 18 and 45. The company runs 4 different store brands: Urban Outfitters, Anthropologie, Free People and Terrain (launched in 2009). 78.9% of its 2008 revenue came from brick and mortar stores, with the remaining 21.1% split between catalog, e-commerce and wholesale.[1] Although the company's performance in fiscal year 2008 was below analyst expectations (earnings were 24 cents per share as opposed to Wall Street estimates of 28 cents per share), the company still boasts the greatest sales per square foot ($796 in 2008) and operating margin (16.9% in 2008) among its closest competitors, namely Abercrombie & Fitch Company (ANF), AnnTaylor Stores (ANN), Gap (GPS) and Guess? (GES).
Although URBN's sales in 2008 were below expectations, sales still increased from 2007 levels, which is a considerable accomplishment, considering the recession that hit the American economy in 2008. URBN has accomplished an increase in sales without excessive discounting through two key strategies: keeping its inventories lean and high product turnover (Urban Outfitters stores receive new inventory every two weeks). However, In a time when many retail companies are attempting to capitalize on new wealth growing in Asia, URBN's lack of an Asian presence can become a disadvantage. In addition, it's new retail concept, "Terrain" is a garden and home product line. As the amount of home construction has decreased due to the financial crisis it remains to be seen whether or not Terrain can stand on its own as a retail concept in this difficult environment.
Company Overview
Urban Outfitters is divided into separate business segments: retail stores, catalog, e-commerce and wholesale.
Retail Stores (78.9%)
The parent company operates four different store chains (revenue contribution in fiscal 2008 in parentheses)
- Urban Outfitters (42.1%) is its eponymous store that targets 18-30 year olds. Stores average 9,700 square feet and carry between 30,000 to 35,000 different items. As of the end of fiscal year 2008, there were 142 stores in North America and Europe. [3]
- Anthropologie (35.0%) caters to 30 to 45 year old women with clothing, accessories and home furnishings. Stores average about 7,600 square feel and carry 20,000 to 25,000 different products. By the end of fiscal year 2009, the company operated 121 stores in the U.S.[3]
- Free People (1.8%) targets women between 25 and 30 years old. The company operates 30 of these stores, which carry 1,600 products on 1,600 square feet of space [3]\
- Terrain (<1%) sells garden equipment as well as live plants. It is Urban Outfitter's newest brand and the first store was opened in April 2008 in Pennsylvania. The company plans to open another location in 2009. [3]
Catalog and E-Commerce (14.9%)
Urban Outfitters sells directly to consumers via catalogs and online sites for each of its store brands.
Wholesale (6.2%)
The company sells its Free People products through wholesale channels to department stores such as Bloomingdales and Nordstrom (JWN).
Financial Performance
During Q3 of fiscal 2010 (ended October 31, 2009), the company continued to show inventory and expense discipline and capitalized on its niche market through opportunistic market-share gains from other weakened competitors. Total sales increased 6% to $506 million[4] and performance of new stores and direct-to-consumer sales was able to offset an overall 2% decrease in comparable store sales. Comparable-store sales fared the best at the retail chain Anthropologie, which saw a 3% rise, while Free People and Urban Outfitters declined 13% and 5%, respectively, [4] an improvement from the comparable-store sales declines of 4%, 16%, and 8% last quarter. [5] Earnings were $0.36 per share, or $62 million, which were above analyst expectations of $0.35/shares.[4]
Comparable and New Sales Growth(Decrease)
| ' | 2005 | 2006 | 2007 | 2008 |
| Comp Stores Sales Growth | 10.9%[6] | (6.2%)[6] | 5.5%[7] | 7.8%[7] |
| ' | 2006 | 2007 | 2008 | 2009 |
| Total Stores | 175 | 207 | 245 | 294 |
| New Stores | 28 | 32 | 38 | 49 |
| Net New Stores Y0Y% Growth | 20.0% | 18.3% | 18.4% | 20.0% |
.
Key Trends and Forces
Retail industry's focus on Asia can leave URBN in the dust
Growth at Urban Outfitters depends on the company's ability to expand and open new retail centers (it has opened more than 25 stores annually for the past three years). In recent years, the company has opened Urban Outfitter retail locations in Europe. Many retailers have started to establish a presence in Asia in order to profit from new wealth developing in that region. H&M, one of URBN's competitors, has 13 stores in China and 2 in Japan.[9] In addition, 14.7% of Guess's 2008 revenues came from its wholesale division, which includes wholesale operations in North American and Asia.[10] Urban Outfitters, however, has no plans to establish a presence in Asia meaning the company is missing out on a chance to capitalize on a developing market. Although the company is already well-established in America, its lack of an Asian presence can be a disadvantage, especially since its competitors already have a head start.
Expansion into home and garden products in face of slowing demand
URBN opened its fourth retail concept, Terrain, in 2008. This segment focuses on home and garden products. That market is closely correlated with new home sales, as homebuyers need to decorate and furnish their new homes. The subprime lending crisis has led to a decrease in the rate of new home construction in addition to a significant drop in home prices. Lower home growth means that there is a lower demand for home products. Fortunately for URBN, the Terrain concept has just begun and there is only one store, with another slated to open in 2009[3], therefore the slowdown will not harm its bottom line that much. However, since it is not known when new home construction will increase and demand will rise, it is also not known whether or not the retail concept will grow or stagnate.
URBN positioned to weather U.S. economic downturn
In 2008 and 2009 retailers across a variety of price points are seeing falling sales due to consumers being uncertain of their financial security. However, URBN's sales and operating income have actually increased from 2007 to 2008--sales increased by $300 million and net income increased by almost $40 million.[12] The company has managed to weather the storm in part by keeping inventory levels low.[13] Lean inventories lower the chances of excess product existing into another season, which the company would have to get off the shelves through discounts and promotions, which would eat into profit margins. In addition, the company targets a trendy consumer who is more likely to follow clothing trends and thus likely to shop more often than those who have a more traditional aesthetic. In addition, the store has a high product turnover rate, meaning there is new product in stores every few weeks instead of a matter of months, which is standard for retailers such as Gap (GPS).[2] This strategy gives customers a reason to enter the store more often as there is always new product to see. URBN's strategies have put it in a good position to tackle the U.S. recession that has continued into 2009.
Competition
Urban Outfitters sets itself apart from most other clothing and accessory retailers with its boutique-like atmosphere and its focus on fashion (none of its store brands sell basic items).
| Company | Operating Margins for FY 2007 | Revenues for FY 2007 ($millions) | Operating Margins for FY 2008 | Revenues for FY 2008 ($millions) |
| Urban Outfitters | 15.3% | 1,508 | 16.9% | 1,835 |
| H&M | 20% | 11,983 | 19.4% | 13,534 |
| Guess? (GES) | 17.7% | 1,750 | 15.7% | 2,093 |
- H&M is an international retailer of men's and women's clothing and accessories. The company originated in Sweden and now has 1,738 locations around the world.[9] H&M focuses on being a "cheap chic" retailer, providing trendy clothing at a low price. In this sense both H&M and Urban Outfitters pursue a similar customer: consumers who are interested in trendy clothing but who cannot afford luxury brands. H&M has bolstered its position as a fast-fashion retailer through designer collaborations, in which high-end designers design clothing for the retailer. Notable design collaborations are Karl Lagerfeld, Roberto Cavalli and Matthew Williamson. A collaboration with Jimmy Choo is expected to hit stores in fall 2009. H&M has the greatest number of stores in Germany, followed by the United States and then Sweden. The company's international exposure means it has access to markets Urban Outfitters does not. H&M had $13.5 billion in 2008 sales compared to Urban Outfitter's $1.9 billion.[15]
- Guess? (GES) primarily targets men and women between the ages of 18 and 32.[16] Outside that key demographic, the company also has Guess? Kids, targeted to boys and girls ages 6 to 12; and Guess by Marciano. Guess's pricing is similar to that of Urban Outfitter's clothing brands and is also focused on trends. Urban Outfitters also has a wholesale segment under the Free People brand, selling Free People products to department stores such as Nordstrom (JWN). Guess? also has a wholesale segment where its products are sold to Macy's Inc. (M) and Dillard's (DDS). Guess? is an international brand like URBN, but unlike URBN it has established a presence in Asia.
References
- ↑ URBN 2008 10-K
- ↑ 2.0 2.1 URBN 2008 Annual Report pg. 22
- ↑ 3.0 3.1 3.2 3.3 3.4 URBN 2008 Annual Report pg. 23-24
- ↑ 4.0 4.1 4.2 Urban Outfitters Reports Record Earnings in Q3 2010.
- ↑
- ↑ 6.0 6.1 URBN 2006 Annual Report pg. 25
- ↑ 7.0 7.1 URBN 2008 Annual Report pg. 30
- ↑ Urban Outfitters, Products/Operations.
- ↑ 9.0 9.1 HMB 2008 Annual Report pg. 21
- ↑ GES 2008 Annual Report pg. 1
- ↑ New Residential Construction Index.
- ↑ URBN 2008 Annual Report
- ↑ Urban Outfitters, Inc. F4Q09 (Qtr End 01/31/09) Earnings Call Transcript.
- ↑ Urban Outfitters (URBN); H&M; Guess?(GES) Forms 10-K, Fiscal Year 2008, "Financial Data."
- ↑ HMB 2008 Annual Report
- ↑ GES 2008 Annual Report pg. 1
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