Urban Outfitters (NASDAQ:URBN) is a clothing and accessories retailer that focuses on women between the ages of 18 and 45. URBN runs 4 different store brands: Urban Outfitters (39% of sales), Anthropologie (36% of sales), Free People and Terrain (8% of sales). In 2010, the remaining 17% of sales came from direct to consumer business.
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.
Urban Outfitters is divided into separate business segments: retail stores, catalog, e-commerce and wholesale.
The parent company operates four different store chains (revenue contribution in fiscal 2010 in parentheses)
Urban Outfitters sells directly to consumers via catalogs and online sites for each of its store brands.
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, URBN has opened 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. Urban Outfitters, however, has no plans to establish a presence in Asia meaning it is missing out on a chance to capitalize on a developing market. Although URBN 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.
Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.  Natural disasters also severely damaged crops in many large cotton producer countries, such as China, India, and Pakistan. This led to decreases in cotton exports from these countries and increases in cotton imports as these countries sought to supplement their supply of cotton.  With limited cotton supplies and rising prices, retailers will either have to absorb these higher material costs, restructure the composition of their clothing to have less cotton, or pass these higher costs to its consumers. Higher clothing prices or lower quality clothing could discourage consumer spending, resulting in decreased net sales. However, adult or teen clothing retailers may not be too adversely affected as their clothing (which is usually 30-40% cotton based) has more flexibility in their composition and thus, costs. In addition, raising commodity prices in other areas will also raise costs for retailers. While premium price and established brands may be able to pass their higher costs to their consumers, value based companies may not fare as well and may suffer from lower profit margins.
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).