The holiday season kicked off with online shopping leading the way and apparel retailers such as Urban Outfitters (NASDAQ:URBN) will look to make the most of it. According to our estimates, the main driver for the retailer is the direct-to-consumer channel, which is driving industry sales as well.
The establishment of a new fulfillment center, inventory integration across stores and fulfillment centers, and offering of web-exclusive products further strengthen this channel. The retailer will also be offering a wide range of seasonal products. Moreover, the addition of iPads and iPods to the stores have received positive customer response.  This positions the retailer favorably for the holiday season. However, the launch of Christmas merchandise featuring offensive language might slightly hurt Urban Outfitter’s brand image. On the other hand, it did appeal to several teenagers as they found it amusing and humorous. 
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Strong Direct-To-Consumer Channel
Urban Outfitters has a strong direct-to-consumer business, which is quite valuable for the retailer. It constitutes about 20% of the revenues and 40% of the company’s value according to our estimates. In the current scenario, the e-commerce channel is driving Urban Outfitters and the overall apparel industry including holiday sales. The National Retail Federation expects online shopping in the U.S. to increase by 17% and account for 10% of country’s consumer spending during the holiday season.
Over the past three quarters, Urban Outfitters direct-to-consumer business has grown substantially, registering a 36% growth in the recent quarter.  The retailer’s creative catalog design is popular among the customers, and it offers exclusive web-based and seasonal products. It started its west coast fulfillment center a couple of months back, which currently accounts for 15% of retailer’s total online demand.  The fulfillment center enables Urban Outfitters to provide fast and effective next-day delivery to the western states. Moreover, the retailer ships its products from both, the stores and the fulfillment centers thus eliminating inventory issues, and maintaining delivering quality and efficiency.
Seasonal Product Offering
Urban Outfitters is offering themed holiday sweaters, which have been popular. These sweaters feature embroidered dinosaurs, traditional diamond and striped patterns and Christmas trees.  It also offers sweaters and cardigans with reindeer, snowflakes, polar bears and Kitsch Christmas emblems. Urban Outfitters offers these sweaters in a variety of prices starting from a compelling $24 for Vintage Ugly Vest to designer-made $110. With the retro-style products appealing to the customers, the retailer launched an mp3 player which looked like a Sony Walkman from 1980’s.  We believe that these seasonal offerings will keep the customers interested in Urban Outfitters.
However, Urban Outfitters launched its Christmas catalog and gift wrapping paper featuring offensive language, which has received mixed reviews.  While most of the customers didn’t agree with the idea, teenagers have found it amusing.  This step is clearly aimed clinching a distinct position in the market for the holiday season. Given that most of Urban Outfitters’ customers are teenagers, these recent moves might just work for the retailer and place it favorably for the festive season.
Our price estimate for Urban Outfitters stands at $38, which is just ahead of the market price.Notes:
- Urban Outfitters Goes The Full Mobile At The POS, Retail Info System, Oct 1 2012 [↩]
- Hip Retailer Urban Outfitters Drops F-Bombs In Christmas Catalog, CBS Chicago, Dec 4 2012 [↩] [↩] [↩]
- Urban’s Outfitters SEC filings [↩]
- Urban Outfitters Invests in West Coast Fulfillment, Online and Mobile, Retail Info System, Nov 27 2012 [↩]
- Where to buy a holiday sweater on a budget, Daily Collegian, Nov 30 2012 [↩]
- Retro Products Made New Again-Always a Cool Gift Idea, Consumer Affairs, Dec 4 2012 [↩]