Urban Outfitters’ Holiday Sales Fall Flat As Consumer Spending Goes Astray
The holiday season of 2015 did not turn out happy for Urban Outfitters (NASDAQ:URBN). While sales across the retail industry rose moderately, thanks to increases in consumer spending, they fell flat for the apparel retailer, mainly due to weak store traffic and an unfavorable spending pattern. Urban Outfitters’ comparable sales (including e-commerce) fell 2% and it was partially offset by a 40% increase in wholesale revenues. [1] The significant increase in wholesale revenues is mainly attributable to delayed Q3 shipments arriving in Q4.
Urban Outfitters has been a mediocre performer over the past year, losing a number of its customers to fast-fashion companies such as Zara and Forever 21. To make things worse, foot traffic across the industry has been declining rapidly due to a consistent shift to online shopping, an area where Urban Outfitters does not have a strong footprint. Despite saving a significant amount on oil, American consumers did not spend much on apparel and, whatever they did, was directed towards fast-fashion and sports brands. As a result, Urban Outfitters just managed to meet its last year’s holiday performance.
Our price estimate for Urban Outfitters stands at $34, which is significantly ahead of the current market price.
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Apart from its core merchandise problems, Urban Outfitters’ lackluster holiday performance can be attributed to how U.S. consumers spent their money this holiday season. According to First Data Corp, retail sales for the Oct 31-Jan 4 period increased 3.3%. [2] While the gains were similar to that of the previous year, fewer buyers visited stores this time around as store traffic fell 6.4%, according to the data compiled by RetailMetrix. This means that U.S. shoppers spent more online, which did not work in Urban Outfitters’ favor, as its online channel is very small relative to its store channel. Also, consumers’ savings on fuel did not translate effectively into an increase in spending on casual clothing, which weighed on apparel retailers’ results. An average U.S. household saved around $722 on gas last year, which did result in higher spending but on restaurants, cars and home improvement. And increased spending on apparel actually shifted to ‘athleisure’ items. Another factor that contributed to weak sales for casual apparel retailers was the unusually warm weather, which impacted demand for winter collections. Also, slow tourist purchases on account of strong dollar negatively impacted apparel retailers’ store sales at tourist destinations.
The casual clothing industry appears to be struggling due to multiple factors, be it competition from fast-fashion companies or the overall slowdown in apparel sales. Considering this, Urban Outfitters’ recent move to buy a pizza chain in an attempt to improve cross-selling and foot traffic seems to make a lot of sense.
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Notes:- Urban Outfitters Reports Holiday Sales, URBN, Jan 7 2016 [↩]
- Holiday Sales Rise, but Not All Retailers Are Cheery, The Wall Street Journal, Jan 7 2016 [↩]