These Three Things Could Drive Growth For Urban Outfitters In Future

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URBN: Urban Outfitters logo
URBN
Urban Outfitters

In Q2 2017, Urban Outfitters (NASDAQ:URBN) was able to improve its profit and margins on account of strong sales, improved merchandise margins and an increased focus on expense management. (Read Higher Comparable Sales Helps Urban Outfitters Beat Consensus Estimates). During this quarter, the direct to consumer channel posted a double digit sales gain, indicating that the company’s digital initiatives are on the right track. The online segment should continue to drive revenues for Urban Outfitters as the company continues to work on its social media and related initiatives. The company has also increased focus on exclusive products and we believe this can be another key driver for growth in the long term. Emerging categories such as intimate apparel, home good and beauty products are also witnessing strong growth and these product categories can be the next pillar of growth for the company.

See our complete analysis for Urban Outfitters

Focus On Exclusive Products

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Urban Outfitters’ biggest shift in strategy has been focus on exclusive products which cannot be sourced from elsewhere, in all merchandise categories. The company is working with its key brand partners to create an apparel line which is unique and not offered anywhere else. Urban Outfitters believes that product differentiation is a critical traffic driver and an obligation it needs to fulfill for its core customers. As the retail industry faces disruption from fast fashion brands that have shorter production cycles leading more rapid turnover, product differentiation is essential for the success of any brand. We believe Urban Outfitters strategy to create differentiated merchandise which is exclusively available at its stores can impact its revenues positively in the long term.

Digital Initiatives

According to a study conducted by the Pew Research Center, 92% of teens go online daily, including 24% who are constantly online. Given this trend, digital channels are critical for retailers to attract younger consumers. Urban Outfitters continues its focus on its digital initiatives, which are driving growth.  We believe this will remain a growth factor in the years to come. Its strategy on audience engagement via social media is showing strong results. The company has more than 5 million followers on Instagram and is witnessing significant viewership increase on Snapchat.  Creating visibility on social media is critical for Urban Outfitters’ growth, especially to maintain the loyalty of younger consumers. We believe the company has a strong focus in this area and is also working on making its direct to consumer sales channel better and easier to navigate. The company’s online sales are witnessing healthy growth and we believe digital initiatives should continue to drive growth for the company in the long term.

Emerging Categories

The intimate, home and beauty segments of Urban Outfitters continue to see steady growth. Its home division is aimed at younger consumers who are moving into their first apartment. The company is using social media as well. In Q2 2017, Urban Outfitters launched its Home showroom and hopes to integrate online and offline shopping experiences. In the beauty segment the company is focusing on exclusivity and the uniqueness of its products which can be a key revenue driver.

As Urban Outfitters focuses on proprietary products in all categories and continues to build on its digital initiatives, we believe it can continue its growth trajectory in the long term.

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