In today’s retail environment, brands just aren’t holding the same importance they once were. Case-in-point: Urban Outfitters.
Last week, Urban Outfitters Inc. reported its Q4 2016 earnings. Unsurprisingly, they were short of expected and same-store sales were flat. The company posted profits of 55 cents per share, rather than its predicted 56 cents. Needless to say, Urban Outfitters’ shares (URBN) fell as much as 7.9% to $23.40 on Wednesday. On March 10, URBN was booted from the S&P 500 index as the S&P Dow Jones raised its market cap guidelines.
While many like to attribute the slow in sales to the heavy brick-and-mortar disruptor of e-commerce, that’s just not the case according to CEO Richard Hayne. On a conference call Tuesday evening, Hayne commented:
“The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel. Retail square feet per capita in the United States is more than six times that of Europe and Japan. And this doesn’t count digital commerce.”
He added that the economic and construction boom in the 1990s and 2000s are ultimately what left us with too much retail space today. While that may be true, I believe there’s more to it in Urban Outfitter’s case.
Hipster Goes Mainstream
The company boasts five separate brands under its umbrella. This includes three apparel-oriented brands, including Urban Outfitters and off-shoots Anthropologie, which targets middle-aged upper middle class women, and Free People, an apparel brand for women in their mid to late twenties. More recently, Urban Outfitter Inc. introduced garden and home decor brand Terrain and BHLDN, Anthropologie’s wedding brand.
Ironically, it’s original self-titled brand seems to be the one that is most lost.
Urban Outfitters was first founded in 1970, opening its flagship store in West Philadelphia. It gained popularity with consumers in their late teens and early twenties. According to Llenrock’s Principal and Partner Michael Wachs, Urban Outfitters was for kids who wanted to “piss off their parents.” It’s true. The brand excelled by tapping into counterculture fashion and brought it to the mainstream.
Unethical, Uncool & the Cycle of Fashion
“Urban Outfitters and American Apparel did a good job of commodifying the earliest kind of hipster- the Vice-reading, PBR-swilling, trucker-hat-wearing twentysomething. But they have not successfully evolved to meet the needs of the new wave that cares about authenticity and buys products from brands that have a strong ethical core.”
Urban Outfitters has been struggling to keep up with the fast-paced and short-lived trends its customer base is drawn to. Its attempts to stay edgy are now offending shoppers, rather than their parents. For instance, the slew of controversy surrounding problematic products such as racist games (Ghettopoly), t-shirts encouraging eating disorders, ripped-off concepts and more has kept the brand’s PR team hard at work throughout the 2000s.
Here’s the problem: today’s “hipster” is concerned with political correctness and ethical manufacturing rather than just simply rejecting the mainstream. Millennial and Gen Z shoppers are more than willing to spend just as much (if not more) on clothing from ethical non-corporate retailers. Know your customer.
Ethics aside, Urban Outfitters’ success may ultimately lead the brand to a slow death. The idea of “Hipster fashion” is different than it was in the 1990s and 2000s. It seems the retailer hasn’t caught on. Today, manikins in Urban Outfitters window displays just seem aesthetically confused: mixing long, flowing hippie skirts, black and white Adidas track jackets and grunge-style combat boots looks more messy than it does edgy.
The evolution of the hipster has swung from radical against-the-grain counterculture fashion to a more classic, timeless, reserved minimalist look. One brand that has fully tapped into this is The Gap. The company is initiating a comeback by tapping into the simplistic style that put the brand on the map in the 90s through its recent ad campaign “Generation Gap.”
In no way am I advising Urban Outfitters to follow suit – it’s just not applicable to them. Perhaps, Urban Outfitters does indeed have too much space for such a focused look and, unlike The Gap, the brand can’t simply tap into one iconic look to provoke young consumer interest.
Don’t get me wrong, the retailer has made attempts to stay hip. This includes taking F&B under its wing – a move that I personally believe will help keep traditional retailers alive. When Urban Outfitters Inc. announced in November 2015 that it would buy Philadelphia’s Vetri Family group of restaurants, its stock fell 7.4%. Investors just didn’t get it. But the expansion may help keep money flowing. Plus, what’s more hip than pizza?
Even if Urban Outfitters has lost its way, CEO Hayne’s acknowledgement of the retail bubble is something we should not ignore. It will be interesting to see what the company does next. My advice? Don’t just focus on online sales. Consolidate your existing space first.