Threads of Promise: Urban Outfitters' Plans to Grow
You can only imagine the revelry taking place Urban Outfitter's (URBN) offices when the company reported its stellar second quarter results. Profits rose 46 percent as the retailer posted record sales and earnings. Comps, including direct-to-consumer channels, grew 11 percent. Wall Street was ebullient (well as much as it could be in after-hours trading) and shares bumped up 3 percent to $32.40.
However, tailoring a strategy for continued double-digit growth is not unlike cutting fabric on the bias -- one slip of the scissors and a garment designed to fit like a glove hangs like a sack instead. Urban's counting on a bespoke plan targeting four initiatives: e-commerce, international expansion, new brands, and brick-and-mortar growth. That's all fine on the drawing board, but those tactics may not all yield similar results.
The retailer, which operates namesake stores as well as Anthropologie and Free People, has put a lot of investment muscle in growing its top performer Anthropologie. To date, Anthro's international e-commerce launch and its U.K. expansion have been right on the money. But when Glen Senk, Urban's chief executive officer says a Tokyo flagship is planned for 2012, I have to wonder.
Japan's economy has been sluggish for more than 10 years and its population is aging. Though Anthro does a bang-up job of catering to women over 30, Urban's investment in namesake outlets in China may be wiser than trying to horn in on Uniqlo's and other fast fashion retailers' hold on the Japanese shopper.
Stateside, Urban's planning to open 45 stores in 2011, including an accessories-only test store for Anthropologie in Bethesda, Md. which will be heavy on the shoe offerings. Again, if Anthro does it, you can be it will be chic and unique.
However, watching its inventory over the past few years, I've noticed a move to higher and higher priced footwear â€" and a subsequent avalanche of styles marked down 50 percent and more before the end of a season. Margins in apparel retail are usually as slender as a high fashion model, so either Anthro's scoring a phenomenal wholesale deal or its eating the loss and disguising it amid the profitability of the rest of the merchandise.
On the positive side, expanding the portfolio would be an excellent way to grow Urban's business. Acquiring -- or starting -- brands infused with Urban's quirky originality shouldn't be that hard to accomplish and would stand out from the legions of copycats that many retailers have become.
If team Urban's up for it, they might consider branching into plus sizes. I've mentioned this before as a way for Talbots (TLB) to diversify and appeal to a new customer, and I think it could be a good fit for Urban's brands as well, especially Anthropologie.
No matter which direction the retailer chooses, the road ahead for Urban is definitely going to be one to watch.
Related: