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The Rationale of Urban Outfitters' Pizza Purchase

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Philadelphia based retailer Urban Outfitters, Inc. ( URBN ) purchased another Philadelphia based company to add to its collection of clothing and home décor subsidiaries. However, this new subsidiary is completely unrelated to the core businesses of Urban Outfitters Inc. The clothing retailer acquired the entire Vetri Family group of restaurants, including the award winning Pizzeria Vetri.

"It's a perfect match," says Partner/Chef Marc Vetri. "URBN and the Vetri Family share the same singular goal, we pride ourselves on bringing the best possible experience to our customers and community. Through this partnership, and the experience URBN has in scaling growth opportunities, the Vetri Family will now be able to focus on what we do best - run restaurants that make people happy."

"Having known Marc for almost a decade and partnered with him through his charitable foundation, we are honored to have him, Jeff and the Vetri family join the URBN team," said Richard A. Hayne, CEO of Urban Outfitters, Inc. "Spending on casual dining is expanding rapidly, and thus, we believe there is tremendous opportunity to expand the Pizzeria Vetri concept," finished Mr. Hayne.

Investors did not take the news of this partnership kindly. Along with missing revenue estimates, URBN took a hit in afterhours trading. Just a few days ago, the company's per share price hovered around $30 per share, and now has dropped to about $22 per share.

(Please read Urban Outfitters (URBN) Stock Falling Over 7% on Q3 Sales Miss for more details on the company's most recent earnings report.)

Despite the skepticism, both men appear to be very optimistic with this concept of having a pizza shop in new Urban Outfitters stores. Furthermore, an article yesterday in the Huffington Post shares Mr. Vetri's and Mr. Hayne's enthusiasm.

The article primarily cites Howard Davidowitz, CEO of the national retail consulting and investment banking firm Davidowitz & Associates, to solidify the claim of Urban Outfitters investing in pizza is a smart idea.

"Despite the risk," the article reads, referring to Mr. Davidowitz, "the move is a savvy one, given the millennial spending shift to dining and experiences over purchases like clothing -- and their preference for online shopping over brick-and-mortar stores."

"All the shopping is done online and portably -- and the one thing Amazon can't do is feed you a pizza," Mr. Davidowitz said per the Huffington Post. This claim is actually not true. Amazon ( AMZN ), of course, can feed you a pizza - 4 Lou Malnati's deep dish pizzas to be more specific.

Mr. Davidowitz continues: "I think from the point of view of Urban Outfitters, the first thing they know is that the longer a customer stays in the store, the more business they're going to do. The second thing Urban Outfitters knows is that millennials are spending more money eating out. They know their base is interested in this, and they can't think of anything better to attract them with than pizza."

The article then cites a study suggesting that the millennials are more willing to spend money on food than any other generation.

There are a few issues about this argument. First, if "all the shopping is done online and portably" as Mr. Davidowitz states, opening a pizza restaurant within a brick-and-mortar store is counterproductive. If no shops in stores anymore, then no one will be in the store to purchase the pizza. This is of course mute if Urban Outfitters is simply investing in the restaurant to expand to multiple locations, and not solely placing restaurants within a retailer.

Second, Pizzeria Vetri primarily sells Neapolitan style pies, not slices. They do offer a square slice - pizza al taglio - but that costs either $6 to $8 per slice. It is very difficult to browse merchandise will eating a 12 inch Neapolitan pie. Also, $8 per slice?! Way too expensive. Unless there is a concept change of what type of pizza will be offered within an Urban Outfitters store, a sit-down style restaurant may be a misguided way to keep customers in the retailer.

This idea may be so out-of-the-box that it will revolutionize the fundamental concept of what retailers and restaurants should offer. People simply cannot understand at this moment in time. Or Urban Outfitters is simply attempting to bribe millennials with pizza to come into their stores. Even though Mr. Davidowitz strongly urges people to be patient with this idea, there is a much higher chance of this backfiring than being successful.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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