What Is Urban Outfitters Doing To Revive It’s Namesake Brand

by Trefis Team
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URBN
Urban Outfitters
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Through its namesake brand, Urban Outfitters (NASDAQ:URBN) offers preppy and quirky merchandise for teenagers and young adults in the age group of 18-28 years. While the brand’s products have resonated very well with its young customer base historically, they have failed to draw customer attention lately. Urban Outfitters lost its growth momentum towards the latter half of fiscal 2014 as it was unable to deliver its iconic preppy merchandise in an energetic environment. The brand is all about a distinctive shopping experience, creativity and eclectic fashion products, and Urban Outfitters feels that it did not leverage these factors as strongly as it did in the previous year. In addition, miscalculation of demand and aggressive marketing of products with low demand worked against the retailer. However, Urban Outfitters has taken several important steps over the past few months to rejuvenate its brand image and offer better merchandise.

Earlier this year, the company hired a new president with strong background in apparel retail to look after its namesake brand in North America. Also, Urban Outfitters is deploying several strategies to reconnect with its core customer base. We believe that the brand can once again return to delivering trend relevant products by effectively leveraging its strong and flexible supply chain. The company has stated in its previous earnings call that revival for Urban Outfitters will be its priority this year.

Our price estimate for Urban Outfitters at $43.43, implies a premium of about 20% to the current market price.

See our complete analysis for Urban Outfitters

The Company Has Hired A New Leader

A couple of months back, Urban Outfitters hired Trish Donnelly as the president of its namesake brand in North America. Ms. Donnelly has vast experience in merchandising and direct-to-consumer business. She previously worked for three years as president at Steven Alan and for seven years as executive vice president at J. Crew Direct. The company believes that she can leverage her business expertise and strong leadership qualities to devise some relevant strategies for Urban Outfitters’ growth. Given the current situation of the brand, change in leadership appears to be a valid move. Urban Outfitters established a strong image for itself in the U.S. by consistently delivering cool, preppy merchandise popular with teenagers and young adults. Donnelly needs to ensure that the brand’s focus does not shift from its iconic image during the recovery process because it can seriously damage the company-customer connection. Urban Outfitters just needs some proper direction to return to its usual strategies.

Under Armour Is Working To Win Customers’ Attention Back

Urban Outfitters is elevating its creative functions and restructuring new procedures and communication, into a more central role in order to reconnect with its core customers. During the fourth quarter of fiscal 2014, Urban Outfitters introduced a new concept named “Without Walls”, which aims to attract young customers with active lifestyle products, placed in an enthralling environment. The concept, initially launched in five stores, was expanded to eight stores by the end of the first quarter, where it received a good response. The retailer plans to add this concept to more stores in the current year with enhanced product offerings. Additionally, Urban Outfitters is focused on promoting its compelling merchandise through creative display and online imagery. It is planning to include living and home, beauty, music and food offerings in its product portfolio. Alongside, the retailer is looking to enhance the brand’s reach with expansion of new format stores, which offer a mix of merchandise, food, drinks, events and services.

What To Expect?

Driven by its missed fashion calls that resulted in low store traffic and high discounting, Urban Outfitters’ revenue per square feet declined to $695 in 2013 from $737 in 2012. While the company is looking to rejuvenate the brand’s growth, we do not expect to see a complete turnaround in one year. Therefore, we project the brand’s revenue per square feet to remain flat this year and gradually improve thereafter to reach $800 over the course of next five-six years. However, if the company’s turnaround efforts result in a sales rebound this year, pushing its 2014 revenue per square feet back to 2012 levels, there can be about 5% upside to our price estimate for Urban Outfitters. We believe that this is easier said than done since Urban Outfitters’ revenues fell by 12% in Q1 fiscal 2014, and the brand would have to do very well in the remaining three quarters to reach its 2012 sales levels.

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