Urban Outfitters‘ (NASDAQ:URBN) Anthropologie has struggled recently as the brand’s key sales metrics, such as revenue per square feet, have declined significantly over the last five years. Anthropologie had difficulty in recovering from the 2008-2009 downturn that severely impacted retailers, and then dealt with inventory issues in 2011 that resulted in the company taking big promotions to clear stock. However more recently, the retailer’s increased focus on product balance and online efforts have shown some encouraging signs that Anthropologie‘s growth might just get back on track. Urban Outfitters operates 174 Anthropologie stores in North America and Europe, which account for about 20% of its value as per our estimates. Let’s take a closer look at the brand’s historical performance and future outlook of the brand.
What Is The Anthropologie Brand?
Anthropologie offers specifically tailored unique and eclectic product assortments for sophisticated and contemporary women in the 28-45 age group.  The company has been able to carve out a niche segment for itself in the apparel industry, and the brand’s products include a wide range of women’s casual apparel, shoes and accessories, home furnishing and an array of gift and decorative items. Rather than advertising its products, Urban Outfitters tries to sell a lifestyle to its customers by creating an appealing in-store shopping experience.
Anthropologie provides 45,000 – 50,000 SKUs (stock keeping units) in its stores, which is significantly more than Free People’s SKUs (another Urban Outfitters’ brand focused on women’s merchandise). However, the brand offers products at higher prices compared to Urban Outfitters’ other brands and operates with fewer promotions. As a result, it targets a limited customer base, comprising of more affluent buyers.
What Has Been The Historical Trend?
Due to higher prices, Anthropologie stores generate maximum revenue per square feet for Urban Outfitters (about $700). A limited presence in the U.S. and international markets provides good scope for its expansion. Despite these positives, the brand has struggled during the past few years. Due to its premium pricing, Anthropologie faced problems during the economic downturn when U.S. buyers cut their spending. This resulted in lower sales, fewer units per sale and lower average unit prices. Consequently, the brand’s revenue per square feet fell from $754 in 2008 to $744 in 2009.
Although this figure rebounded to $770 in 2010 as the economy started to recover, there was a drastic decline of 7% in 2011. This resulted from an imbalance in women’s apparel product mix that led to inventory hangover. The merchandise issues were most profound in women’s tops category especially in knits and sweaters, two of the highest contributors to Anthropologie’s women’s apparel business. To clear the slow moving inventories, the company had to usher in large scale promotions for its merchandise, which significantly impacted Anthropologie’s average unit retail (AUR) prices. The same issues weighed on the brand’s growth in 2012 (fiscal 2013) as well when its revenue per square feet slumped to $684. 
Why The Trend Is Likely To Reverse Going Forward?
Urban Outfitters is taking some important steps to revive Anthropologie’s growth. It is trying to improve the balance across its product attributes to reach a broader spectrum of customers. During Q1 fiscal 2014, Anthropologie shifted its focus from preppy and quirky looks to much softer, sensual and feminine looks, which resonated well with the customers.  The company also increased the brand’s product categories such as best-to-dinner wear and weekend casuals. Interestingly, these changes led to a significant rise in the brand’s demand despite the impact of unusually long winter, due to which the spring clothing demand subsided across the industry.  This resulted in fewer markdowns, which translated into 8% comparable store sales growth for Anthropologie.
To avoid an inventory hangover and remain fashion responsive, Urban Outfitters recently launched a new technology that allows a single view of inventory across all the channels. The retailer believes that this initiative provides an opportunity to substantially reduce the lead time. It is also testing different supply chain, brand design and communication initiatives that will help it reduce the time between order placement and market delivery.  Last year, Urban Outfitters’ web launch of Anthropologie petites garnered excellent customer response and forced the retailer to test this product in its stores.  Going forward, if the company is able to maintain its strength on these fronts and continues to expand in global markets, it can ensure Anthropologie’s steady growth.
Our price estimate for Urban Outfitters stands at $46, implying a premium of about 10% to the market price.Notes: