How Can A Pizza Chain Help Urban Outfitters Improve Sales?

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URBN: Urban Outfitters logo
URBN
Urban Outfitters

After announcing disappointing results for its third quarter, Urban Outfitters (NASDAQ:URBN) unveiled the acquisition of The Vetri Family group of restaurants, which included the award winning Pizzeria Vetri for an undisclosed amount. [1] Given the rapid growth of consumer spending on fast-casual dinning, the retailer stands to gain directly from this acquisition. However, indirect gains are also on the cards as Urban Outfitters can leverage  the pizza outlets to improve the shopping experience and thus drive store traffic. In the wake of the growing customer disconnect with brick-and-mortar stores and increasing use of online shopping, retailers across the industry are trying hard to win customers back. And this acquisition by Urban Outfitters is a move on that front.

Our price estimate for Urban Outfitters stands at $34, which is significantly ahead of the current market price.

See our complete analysis for Urban Outfitters

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How Did The Need Arise?

In a big way,  store based casual apparel retailers in the U.S. are struggling to keep their business afloat due to a significant decline in store traffic on account of online shift and the emergence of fast-fashion companies. In the present scenario, even store shoppers seek entertainment and convenience in addition to appealing merchandise. Although Urban Outfitters’s preppy and quirky clothing has been enough to draw customer attention for long, it is no longer the case. Therefore, apart from adding a greater fashion depth to its product offerings, which would position it at-par with fast-fashion brands, the retailer is trying to offer an interactive and unique in-store shopping experience. And one of the ways is to add non-clothing product categories, which might bring in different customers, who can end up buying apparel and accessories.

How Can The Pizza Chain Help?

Urban Outfitters is not new to the restaurant business as some of its stores operate an in-store coffee shop, as a means to attract traffic. In addition, it has co-located key stores with various restaurant formats targeting its youthful clientele—e.g., its Space 24 project to be located across from the University of Texas, Austin campus.  However, with Vetri’s acquisition, the company plans to expand into the casual dining sector, as the management feels that consumer spending has shifted from apparel and cosmetics to food, particularly casual dining. While it is still unclear how the company wants to operate Vetri restaurants, it acknowledges that Pizzeria Vetri concept has tremendous scope for expansion.

We believe that even though a restaurant acquisition appears unorthodox, it can help Urban Outfitters in some ways. It is almost certain that the company will not operate the restaurant business as a separate entity and will leverage existing Vetri outlets to promote and sell its merchandise, which could help improve brand visibility and bolster revenue growth. Urban Outfitters could have done this as well by acquiring a smaller apparel retailer, similar to what American Eagle Outfitters (NYSE:AEO) did.  But a successful restaurant like Vetri could ensure higher foot traffic than an apparel retailer. The pizzeria concept is gaining popularity in the restaurant industry and Pizzeria Vetri was named the best pizza restaurant in America by the Food and Wine magazine. The same magazine also also named the founding chef, Marc Vetri, among the top ten new chefs. Therefore, it makes sense for Urban Outfitters to expand this small food chain, to benefit directly from the restaurant revenues and indirectly from cross selling.

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Notes:
  1. URBN to Acquire The Vetri Family of Restaurants, Urban Outfitters, Nov 16 2015 []