Tough Times for Urban Outfitters

Everybody has at one time or another worn an outfit they would rather forget, but a few fashion mistakes from Urban Outfitters are being blamed for the retailer’s recent lacklustre performance.

While Urban Outfitters’ sales increased overall, the underlying figures revealed some difficulty. For the third quarter of 2012, total company net sales – the manufacturer also owns the Anthropologie, Free People, Terrain and BHLDN brands – increased by 6% on the same quarter the previous year to US$610 million. However, comparable retail net sales at the Urban Outfitters brand, which accounted for 46% of revenue last year, were flat in the third quarter, while Anthropologie fared worse still, falling by 7%.

Given that much of the disappointment surrounding the company’s third quarter figures was down to gross profit margins slipping because stores had to cut prices to clear slow-moving stock, bad garment choices could well be to blame. While the economy in the US – where most Urban Outfitters stores are based – is recovering and strong positive growth in the apparel industry is expected to 2015, a product offering that misses the mark in terms of fashion is a huge mistake at a time when consumers are still carefully counting their cash.

Failing to keep its finger on the fashion pulse

Even though Urban Outfitters recorded a healthy 2010 financial year overall, it suffered a 3% decline in fourth quarter net profits in 2010, which was perhaps an early warning sign that a difficult year was on the way.

A few years ago Urban Outfitters was at the cutting edge of high street fashion, and although prices were slightly above average for the high street, its cutting-edge clothes justified the higher premium. Its designs pioneered today’s trend for quirky, individual styles that appeal to daring, young but mainstream consumers, as well as those with their finger on the fashion pulse, looking for something a little more offbeat. So what has changed?

It is possible that the chain’s success at the cutting edge led it to push fashion further than consumer tastes were ready to go – after all, there is a fine line between looking cool and looking daft. Added to this, the store has also been criticised for its presentation, offering higher priced products next to cheaper ones with little differentiation, which is confusing for today’s customer who expects similar priced items to be grouped together. In addition, a mixed range of products, including gimmicky gadgets and music in amongst the clothing range, although once part of the appeal, now feels slightly jumbled and outdated as other high street fashion retailers have honed their offerings.

A year’s bad press has not helped

Adding to the possible fashion faux pas, the brand has received some bad press in 2011. Firstly, an independent jewellery designer accused Urban Outfitters of copying her designs, which provoked a Twitter backlash and talk of a store boycott.

In August, the company was sued by the parents of a 15-year-old model for using her picture on a T-shirt without her permission. The third and most recent case of bad press came in October when the store drew complaints from America’s Navajo community which objected to items with an American Indian looking design being labelled Navajo, claiming this to be ‘culturally offensive’. The word was later removed from the products’ description.

Middle ground brings its difficulties

While products that do not appeal to consumers’ fashion tastes, combined with bad press, are at the heart of the recent blip, what must also be taken into account is that Urban Outfitters – and its Anthropologie brand – are positioned in an area that is currently struggling – between luxury retailers and the cheap fast fashion stores that are thriving.

Many consumers who might once have shopped at price points more towards the middle of the market are now opting for lower priced fast fashion, while consumers in higher income brackets are mixing their designer pieces with fast and more affordable fashion from the likes of H&M and Zara.

However, it must also be said that comparable mid-market stores such as Abercrombie & Fitch to date seem to be holding their own better, again suggesting that Urban Outfitters’ clothes just have not been hitting the right note.

Shake up and turn things around

With hopes of a turnaround the company has had a boardroom shake-up, appointing Charles Kessler, formerly of Abercrombie & Fitch, as Chief Merchandising Officer for Urban Outfitters, and bringing a new CEO into Anthropologie.

Given that demand for apparel is expected to continue to bounce back, with some fresh designs and creative thinking Urban Outfitters should be able to put its recent blip behind it and rediscover its style of old.