Why The Digital Segment Is Crucial For Urban Outfitters This Holiday Quarter

by Trefis Team
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Urban Outfitters
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Urban Outfitters (NASDAQ:URBN) has been among the top performing companies in the retail sector this year, with the digital segment driving revenue growth for all three of the company’s brands. The brick-and-mortar stores have played a significant role during the holiday season, which is reflected in higher fourth-quarter sales compared to the other three quarters. However, a change in the retail landscape, through a shift towards the online channel, is highly evident in URBN’s results, with the digital penetration of the company’s retail segment sales reaching 40%. Accordingly, it will be important for the company to sustain its digital momentum this holiday quarter.

Omnichannel Is Important This Season

Omnichannel retail entails the ability to seamlessly integrate different channels, whether it is in-store or online, in order to offer consumers a coherent and consistent experience no matter what platform they’re using to shop. According to the Holiday Shopping Intentions Survey conducted by the International Council of Shopping Centers (ICSC), 84% of shoppers will visit a physical store throughout the holidays, so brick-and-mortar retail remains important despite the secular shift toward e-commerce. Retailers with omnichannel platforms should benefit the most, as buyers that pick up online purchases in stores often look at other products in the store when they collect their purchases. Per the survey, of the 40% of consumers that plan on picking up their items in stores, 82% expect to make additional purchases. Accordingly, omnichannel offerings should drive incremental revenues for retailers such as Urban Outfitters.

Importance Of The Holiday Quarter

With unemployment levels at their lowest levels in several years and consumer confidence high, shoppers are expected to spend a higher amount this holiday season. Per NRF’s survey, consumers are expected to spend $1,007.24 on average, up 4.1% versus last year. For Urban Outfitters, roughly 29% to 30% of its sales in the full year occur in the fourth quarter, while historically its wholesale is evenly spread throughout the year (25% in Q4). For FY 2019 (year ended January 2019), we expect the holiday quarter retail sales to account for 29% of total revenues, as seen in recent years. On the other hand, we expect a marked increase in fourth quarter wholesale revenues as a result of the addition of Anthropologie in the wholesale segment, through its partnership with Nordstrom. In Q3, the Urban brand also entered wholesale with the launch of its BDG collection through nordstrom.com domestically and Zalando in Europe. These factors should help drive the company’s wholesale revenues.

We have a $52 price estimate for Urban Outfitters, which is higher than the current market price. The above chart is made using our interactive dashboard platform. You can click here to access our dashboard on The Importance Of The Holiday Quarter For Urban Outfitters to modify our assumptions and arrive at your own revenue estimates for the company.

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