Why Is Urban Outfitters Investing In Restaurants?

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URBN: Urban Outfitters logo
URBN
Urban Outfitters

Apparel retailer Urban Outfitters (NASDAQ:URBN) has begun to offer more than just clothing at some of its stores. In three of its locations – Brooklyn, Los Angeles, and Austin – the company’s stores feature several bars. In its Brooklyn store, called Space Ninety 8, there are two bars, one on the roof, and another next to its men’s department on the third floor, as well as an Israeli restaurant. In fact, browsing through the clothing aisles with a drink in hand is not discouraged. The retailer isn’t alone in adopting this strategy; Barnes & Noble has in-store cafes, and a Target store in Chicago features a Starbucks. This tried-and-tested strategy of malls, with cafes and food courts, is now being used by retailers trying to lure consumers who are shifting to the Internet for all their shopping needs. This also stems from recent data by research firm Nielsen, which noted an increase in restaurant sales of 10% between April 2014 and April 2015, while only a 2% to 4% rise in retail sales. According to Anjee Solanki, national director of retail services in the US for Colliers International, while people may not be shopping for clothes often, eating out is habitual. Many come to the restaurant or bar just for drinks or the atmosphere.

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According to the US Census Bureau, total eating and drink place sales were up 6% on a year-to-date basis in July 2016. Furthermore, while the overall sales are improving, consumers have not yet had their fill of restaurants. According to research conducted by ORC International for the National Restaurant Association, 45% of adults are not eating out as frequently as they would like. Similarly, 46% report not purchasing take-out delivery as often as they would want to.

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The company has also purchased the Vetri family restaurant group, which includes pizza chain Pizzeria Vetri, for $20 million. The reason stated by Urban Outfitters’ CEO Richard Hayne was the substantial rise in the spending on casual dining, which can help the retailer to gain directly from this acquisition. However, indirect gains are also in 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.

Consumers have also become selective in their spending, with the restaurant industry holding up well because of their ability to provide experiences. If given a choice on how they would spend an additional $100, if they had it, over 40% of adults favored spending it on an experience, such as a restaurant or other activity, and 58% said they would spend it on shopping. Even teenagers, Urban Outfitters’ target market, are prioritizing experiences, which are shareable on social media. According to a Piper Jaffray’s survey, their favorite app is Instagram. As per the report, teens now spend 22% of their income on food, up from 7% in 2005, particularly in Instagram-friendly locations. A study by Harris Group found that 72% of millennials prefer to spend their money on experiences, rather than material things. This trend is forcing companies to adapt. For example, Macy’s is using miniconcerts, yoga classes, and cafes to draw customers. According to the Harris poll, factors prompting this behavior, and greater distribution of photos, is due to a craving for recognition, and a “fear of missing out,” which is driving their desire for experiences. Irish fast fashion brand Primark has engaged teens by transforming its stores into a shareable experience. The retailer encourages shoppers to upload pictures of their purchases on to its website. Further, it offers free wifi and changing rooms large enough to fit two shoppers, in order to be more selfie-friendly. This has led them to garner 10,000 images on to its site. Urban Outfitters is also focusing heavily on its social media management, with its Instagram followers exceeding the five million mark in the second quarter of 2016, a growth of 65% over the previous year, or about 200,000 followers a month, and its Snapchat account witnessing a 25% month on month rise in its viewership.

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Notes:

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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Urban Outfitters
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