Free People, Anthropologie Offset Sluggish Urban Outfitters

Robust growth in the Free People and Anthropologie brands helped to offset sluggish performance by Urban Outfitters and left URBN up overall, executives said in a recent call to discuss Q4 2014 earnings.

Overseas expansion of the Free People shop-in-shop rollout drove URBN's overall wholesale revenue, which jumped 24 percent year over year, according to president and CEO Richard Hayne, who described Free People's quarterly performance as "almost flawless." The brand plans to open 12 new North American stores this year.

Anthropologie's apparel and accessories categories posted "strong" double-digit regular price comps, noted Hayne. "In the midst of one of the most highly promotional holiday seasons I can remember, the Anthropologie brand was able to drive stronger traffic, while significantly reducing their dependency on promotions," he explained, adding that the brand's markdown rate dropped 20 percent compared to the same period a year prior. Anthropologie will add 13 stores globally this year.

Consumers are hot for Free People shoes, with footwear sales in Q4 up a healthy 54 percent year over year. The brand launched its footwear wholesale business at the most recent MAGIC show, with initial bookings exceeding plans by 100 percent, Hayne said, and shoes available in department and specialty stores in August. 

Anthropologie is also getting into the bridal game, with the successful integration of the BHLDN brand — which saw 50 percent sales growth — in the quarter. URBN plans to add five additional BHLDN shop-in-shops inside Anthropologie stores this year, Hayne noted.

Like many other apparel retailers, URBN is eager to capture a share of the fitness craze and is working on Without Walls, its line of active lifestyle products that made its debut earlier this month online and in five Urban Outfitters stores. The company plans as many as six additional shop-in-shops for the fiscal year.

URBN worked hard in 2014 to finetune its business performance, reducing its average weeks of supply by one full week. "We accomplished this by reducing our design and production lead times by more than 10 percent and by planning and allocating inventory through a single view across both retail channels," explained Hayne.

The company also trimmed fulfillment times by more than 30 percent and shipping times by greater than 15 percent, largely by extending the number of shifts at fulfillment centers, expanding its use of store fulfillment, and upgrading delivery service levels.

Tech-minded URBN is expanding its mobile offerings by adding new web and in-store customer applications and capabilities. The company is also rolling out omnichannel functionalities, including pick up at store, same-day delivery and ship-through store, which will be tested in the second half of fiscal 2015.

To improve the international direct-to-consumer experience, the company is supporting more languages and local payment options. CapEx for fiscal 2015 is planned at as much as $235 million, with a focus on a new East Coast fulfillment center.

While Free People and Anthropologie have been bright spots for URBN, the Urban Outfitters brand has underperformed. "Sales correlate directly with fashion hits and misses, and I believe the Urban brand has had fewer hits than normal," observed Hayne. "It's that simple."

According to Hayne, Urban Outfitters is "too siloed," with insufficient communication between key teams. "The great creativity that has been the hallmark of our success became stifled," he said. "So we are restructuring, instituting new procedures and communication, elevating all creative functions to a more central role, and refocusing on our core 18 to 28 year old age group."

Hayne noted that both anecdotal and statistical evidence points to a drop in the average age of Urban Outfitters' core shoppers — now about 14 or 15 years old, instead of the college and post-college crowd. "I don't think this is a good place for us to be," he said. To recapture that customer, the company is refocusing on higher quality and better products — which likely will result in higher prices.
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