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Why Is Urban Outfitters Increasing Its Store Count While Its Peers Are Cutting Down?

Sluggish first quarter growth appeared to be a norm in the apparel retail industry; yet Urban Outfitters ( URBN ) posted record net sales for the same period. Foot traffic at malls has declined considerably, owing to a weak economy and the rise of omnichannel retailing, which is forecast by Forrester to grow to $1.8 trillion in the US by 2017 . Urban has been a first mover in this space, and now derives about a quarter of its sales through e-commerce. More significantly, it believes it has figured out what the shoppers want, and is making efforts to transform its stores to please its customers. The company is trying to create an unmatched in-store experience which would help them to capture a greater share by expanding its store format and providing a broader offering in categories such as home, beauty, and intimates, besides Anthropologie's BHLDN wedding brand, and the Terrain outdoor living brand.

While several retailers have been undertaking store closures, Urban Outfitters still seems to be in an expansion phase. According to the CEO Richard Hayne, the US is overstocked in the apparel category, with approximately ten times more retail space per capita than in Europe. A factor working in URBN's favor is that it does not have a sprawling store footprint; instead, it undertook a cautious approach, which is serving them well now.

During FY 2017 (year ended January 2017) as well, the company plans to open 24 net new stores, including an expected three in Europe. Majority of these are of its Free People Brand. The expected capital expenditure for the company during FY 2017 is $170 million, with the majority of it being allocated to relocating and expanding stores.

URBN- New Stores
URBN- Capex

During the first quarter, the company opened its first two expanded footprint locations for its Anthropologie brand, in Portland, followed by one in Newport. These are expansions of existing stores, with two and a half times more square footage than the typical store, designed to deliver an engaging experience to new and current customers. This larger area gives them the ability to offer a broader assortment in the expanded categories, including a petite shop, jewelry and accessories, an intimate boutique, an 800 square foot beauty shop, shoe salon, and over 6,000 square feet of home goods. This has been met with a favorable customer response, with higher average order value and increased units per transaction. On the basis of this, the company has decided to open four more stores in this format in the next 12 months, with sizes ranging from 20,000 to over 30,000 square feet, which will include Terrain, BHLDN, and a dining experience.

Have more questions about Urban Outfitters? See the links below:

  • Earnings Review: Why Were Urban Outfitters' Results Impressive?
  • What Is Urban Outfitters' Revenue & Net Income Breakdown In Terms of Different Operating Segments?
  • How Has Urban Outfitters' Revenue Composition Changed In The Last Five Years?
  • What Is Urban Outfitters' Fundamental Value Based On Expected 2016 Results?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Urban Outfitters

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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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