RUNNING HEAD: COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Company Analysis Project: Urban Outfitters Inc. Heiwon Shin Bugil Academy GLP
2 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Executive Summary Urban Outfitters is a lifestyle specialty company that has been in the market for over 40 years. It has five sub-brands – each targeting different age range and genre – but share the general atmosphere of being unique, up-to-trend, liberal, and emotionally connected with the customers. Compared to its competitors URBN has a well-spread method of selling: retail, wholesale, and direct-to-consumer, geographic market: around one retail store per one USA state, and over 10 each in Canada and Europe, and its general size (i.e. number of retail stores) is less than half of its major competitors such as Abercrombie and Fitch. Therefore it has less risk exposed to sudden changes or depression in general market or conditions that are beyond URBN’s control and even if there may be a problem, it is relatively easier to recover. Although it often suffers from controversies involving fashion copy right, respecting different ethnic, religious, or political groups – especially harmful because the majority of customers are strong, self-expressive individuals, it is relatively consistent, reliable and on the overall increasing trend. Recently Urban Outfitters received major changes in the following areas: management and opening of new markets - a change that could either be a risk or could be a turning point for URBN to expand. Therefore, if the interest lies in short term investment – URBN could be a moderate but safe bet while in the long term it is a hold because cues signaling the direction of the effects of newly devised strategies have yet to come to surface.
3 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Company Overview Urban Outfitters Inc. is a publically traded American company that offers innovative lifestyle goods including fashion apparel, accessories, and home goods. Under its label are Urban Outfitters, Anthropologie, Free People, BHLDN, Leifsdottir, and Terrain – each targeting specific age range or different audience. Launched in 1970, the brand Urban Outfitters targets the late teens and early twenties, particularly university students who have creative and sophisticated sense of fashion; Anthropologie targets “sophisticated and contemporary” (URBN 10K, 2011) women from mid twenties to mid forties; Free People targets “young contemporary women aged 25 to 30” (URBN 10K); Terrain targets men and women interested in outdoor and gardening activities; and BHLDN targets bridal events, party goers and throwers. What all these brands have in common is that they each strive to have nothing in common with its standardized, mass-production major competitors like Gap, Abercrombie and Fitch, American Eagle, and H&M: by focusing on creativity and uniqueness through product designs, the range of products, and general aura and emotional bond it shares with the customers. Although the majority of its retail stores are located in the USA, Urban Outfitters’ market is extensive: including Canada, Europe and Asia through retail, wholesale or direct-to-consumer markets. Urban Outfitters’ number of stores is relatively small. By the end of fiscal year 2011 (*URBN fiscal year ends at January 31 of that year), Urban Outfitters had 176 Urban retail stores, four websites, and Urban Outfitters catalog. Anthropologie had 153 stores, two websites, and Anthropologie catalog. Free People had 42 stores, a website and catalog. BHLDN will open its first store in fall 2011.
4 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Strategy Identification As a company in a monopolistically competitive market, Urban Outfitters attempts to differentiate itself through its products, services and advertisement to encourage brand loyalty and sell more at high prices. Furthermore, because Urban Outfitters was created to become different from the close-to-standardized, typical, everyone’s basic clothes competitors like Gap, Abercrombie and Fitch, American Eagle Outfitters, etc. – that have become almost uniform, Urban Outfitters’ survival is based on differentiation. Urban Outfitters’ greatest strength lies in its ability to develop interactive plans that all revolve around one main theme and message: unique, life friend. Based on this unique image, Urban Outfitters connects with the customers on an emotional level, which secures brand loyalty and for fiscal year 2012, Urban Outfitters is pushing through a bold marketing, growth, financial profit, and stock price strategies.
5 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Marketing Strategy
Consolidate a distinctive, differentiated "creative" + "close" image
Direct Advertisement Methods
Holistic Lifestyle
Unique fashion design
SNS
Specialized Retail stores environment
Online Direct to Consumer
Above all, Urban Outfitters builds upon its reputation as up-to-trend, unique and energetic lifestyle specialty company. To consolidate its fresh and bold image, Urban Outfitters Dividing the Urban Outfitters into different brands, it focuses on one specific direction in an indepth way. Each of the five methods become a form of direct advertisement of the image Urban Outfitters tries to put forth – unique, connected, up-to-date, and a true friend – but also works to strengthen each other, and together make customers prone to buying the products and services and become an Urban Outfitters person. First, Urban Outfitters Inc. promotes itself as a close, connected friend through its diverse range of products. Based on the target customer identified, Urban Outfitters brand offers products that such a customer would need or want in everyday life: starting from fashion apparel to furniture to wall paper to bed duvet to cooking utensils to cosmetics to books to music until it covers close to every detail of life. By thorough understanding of wants and needs, and providing
6 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
the Urban Outfitters version of such interests, Urban Outfitters attempts to build emotional bond with the customers.
Graphic 1: A selection of the books Urban Outfitters sells (Website)
The holistic range of lifestyle merchandise effect does not stop at mere projection of friendly image: based on the bond created, it Urban-Outfitters-izes the customers by providing a model of physical appearance to intellectual and social aspects. In other words, having such a wide range of products and services, customers who were already close to Urban Outfitters through clothing will come to Urban Outfitters more and more. Through such multi-faceted range of products, Urban Outfitters attempts to stand out from one dimensional fashion apparel competitors and strengthen emotional bond with customers and make the customers dependent on Urban Outfitters for everyday lifestyle. Second, Urban Outfitters attracts customers through its unique fashion designs. The company is divided into clear distinct brands that each focus on one stream of fashion and bring in-depth fashion creativity within that branch. By incorporating the underground, independent designers and foreign brands into its own, not only does it secure a constant inflow of up-totrendiness but it consolidates what Urban Outfitters is all about: creativity. Its careful selection of products allows for it to maintain a cohesive image although its collection pools from wide areas.
7 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
For example Urban Outfitters brand features British brands such as Johann Vintage – sold in US exclusively through Urban Outfitters, Swedish brands such as Rodebjer, Minimarket, and Whyred.
Graphic 2: Facebook Post of New Product and album “The Way You Wore It Contest”
Third, Urban Outfitters makes use of Social Network System (SNS) such as Facebook and Twitter for quick speed advertisement, consumer-led advertisement, and promotion of “connected” image by receiving feedback and being able to immediately respond to consumers. With one person ‘like’ing the page or the featured posts, it immediately spreads to that one person’s friends. Considering the wide popularity of SNS, Urban Outfitters promotes itself quicker and for longer period of time more effectively. By opening up to comments, it also is able to communicate with virtually everyone in the world – promoting the connected image. Also, by inviting customers to post how they were Urban Outfitters as a contest, Urban Outfitters gives such contestants a stronger URBN person identity and also advertises to other customers in a unique way. Gr
Fourth, Urban Outfitters makes use of its specialized retail stores environment fully by using unconvnetional store space and customizing. For example, some Urban Outfitters brand retail stores are located in refurbished fire stations and some have broken glass on its display screen, each leaves strong impression and advertises the unique image of Urban Outfitters –
8 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
something that standardized stores like those of Gap, Abercrombie and Fitch and American Eagle Outfitters leave out. Also, by employing enthusiastic people who are of the target group and truly love Urban Outfitters brands and using their ideas to decorate the stores, Urban Outfitters has a customized look, music, decoration pieces and atmosphere. Through this, Urban Outfitters promote a friendlier image and strengthen the emotional bond because shopping does not stop with going through stacks of clothes but truly enjoying oneself and getting acquainted to other people like oneself with similar interests. For example, one store in Urban Outfitters recently had local music band come over to its shop and play for the customers – and thus, stores become a center of social scene. Fifth, Urban Outfitters uses its catalogs and websites. Through these media, Urban Outfitters promotes itself as on top of the trend, as being available virtually everywhere at anytime. By capturing wider range of customers, its presence advertises itself to European and Asian markets. Without traditional indirect advertisement methods like TV commercials, internet commercials, just with the websites and catalogs, Urban Outfitters gives out direct, clear and attractive messages that captures people’s attention and immediately lead to more shopping. The following are each brands’ websites. Graphic 3: Urban Outfitters Brands’ Website First Page Anthropologie
Free People
Urban Outfitters
BHLDN
9 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC. Terrain
Just by looking at the home page, each brand makes itself stand out. Urban Outfitters brings strong, pop colors and a sense of humor in, while Terrain brings calm, artistic sense in. The online shopping mall is constructed differently according to the different target customers it has. For example, Urban Outfitters’ first screen changes every fifteen seconds from the following five pictures – for young adults who are used to quick images changing, the website has adapted to their tastes. Meanwhile for Anthropologie, there is everything laid out in one page and with a click, it directs to different departments. Thus, Urban Outfitters’ marketing strategy is basically understanding what moves demand and providing appropriate incentives. Because it has identified clear target population it is able to spread information in the fastest, most effective way and know what the consumers want and know how they act and try to influence their behaviors to buy more from Urban Outfitters and rely on it as a major source of all lifestyle apparel and equipments. Using technology and psychology, Urban Outfitters attempts to reinforce and benefit from its differentiated image and emotional bond with the customers.
10 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Growth Strategy
Growth
Market Penetration 50+ne wretail stores domestically + internationally
Market Development
Wider Europe + Asian Market
Investment in ECommerce
E-commerce
More stock in UK distribution center
Shipping lines extended
Product Development
Coopeation with outside
Related Diversification
BHLDN: Bridal Events Specialty Launch
Suit lines
New distribution center in Nevada
As a monopolistically competitive market, struggling to not just stay in business but grow, Urban Outfitters is pushing forth four types of growth strategy: market penetration, market development, product development and related diversification to grow in terms of product range but also in market size. To expand in the current market with current line of products, Urban Outfitters is opening up over fifty retail stores in USA in fiscal year 2012. Considering that all of its retail stores domestically and internationally add up to less than 400, this expansion is not inconsiderable. It is strengthening its e-commerce investment contracting with a company that specializes in e-
11 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
commerce for technical help, increasing stock in UK distribution center in Rushden for European market, and building upon the new distribution center in Reno, Nevada to enable better distribution to markets in the western USA. To conquer new markets, particularly larger parts of Europe and Asia, Urban Outfitters is using its e-commerce and extending direct-to-consumer shipping lines. For example in Free People website, it has announced that shippping lines are extended to South Korea. Because online shopping has collections that are only available through online, in some respects, it is more attractive. To consolidate and attract more shopping from existing market, Urban Outfitters continuously works on its cooperation with third party industries, and develop more products of differenct range. For example, recently it has added MBeze cosmetics line and added a suit line in Urban Outfitters brand – thus selling more from customers who already favor its brand. One of the largest change for fiscal year 2012, is the launching of BHLDN, a brand targetting bridal events, and parties. With this special focus on events, Urban Outfitters is finding a new market with its unique party dresses, accessories, and decoration pieces.
12 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Financial Profit Strategy
Profit
Increase Profit
Higher price range lines
High price BHLDN
Decrease Cost
Streamline Organization (creation of the Group CEO role)
Direct not indirect advertising
Chief Executive Manager: Glen T. Senk
Urban Outfitters’ financial profit strategy can be divided into largely two parts: increasing profit, and decreasing costs. To increase profit, Urban Outfitters develops higher price range products. Although Urban Outfitters is generally within the middle range in terms of price, within the same store, certain lines are more expensive than others. For example, dresses in Urban Outfitters brand can cost up to $500. In terms of brands, Urban Outfitters, Inc. launched a higher price range brand through focusing on special occasion purposes. By emphasizing the specialness of the occasion, it legitimizes higher price range – where usually the lowest price of a wedding dress starts from $1000 and goes up to around $4000, unlike the brand Urban Outfitters’ usual lowest of $20 to around $200.
13 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Especially in times of general financial depression, Urban Outfitters is focusing on decreasing costs. With the new Chief Executive Manager Glen T. Senk, Urban Outfitters is pushing through major streamlining of organization that is based on multi-level skills – what Senk calls “Group CEO role.” With the new Chief Merchandising Officer Charles Kessler, Urban Outfitters is trying to get better professional hands on its finances to get through the depressed market situations. Also, as before, Urban Outfitters boldly rejects traditional indirect advertisement and relies solely on direct advertisement to promote its values and appeal to customers.
Stock Price Strategy Urban Outfitters Inc. is executing its stock repurchase program that was approved by its Board of Directors on November 16, 2010 which allowed the company to repurchase up to 10,000,000 additional common shares, supplementing 2006’s earlier authorization of repurchasing up to 8,000,000 common shares. By the end of April 30, 2010, the company repurchased around half of what it was authorized: 4,824,689 at cost of $148,674 but retired them and did not repurchase (URBN 10Q, 2011).
(URBN 10Q, September 2011)
14 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Stock Performance Urban Outfitters has been showing steady stock performance for the past three years. Graph 1 shows that stock performance has usually been between twenty to forty percent. There have not been particular extremes in this generally steady trend.
Graph 1 Stock Performance – Urban Outfitters
This observation holds consistent also in comparison to SP500 (see Graph 2): URBN has been outperforming the market throughout 2009 - 2011. Especially considering the very nature of fashion industry being always subject to seasonal preference changes – which are often times not entirely predictable – Urban Outfitters has been a reliable performer in the stock market, with no particular notable dips or turning ups. Recently within the last half a year, the amount of Urban Outfitters’ outperforming the general market has decreased slightly.
Graph 2 Stock Performance – Urban Outfitters in comparison to S&P500
15 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
In comparison to its major competitors (see Graph 3) such as Pacific Sunwear (PSUN), Gap Inc. (GPS), American Eagles Outfitters (AEO), Abercrombie and Fitch (ANF), and Aeropostable (ARO), Urban Outfitters is not alone in the general declining stock performance. Zooming out into the bigger picture with the rest of the competitors, URBN has been stable in its stock performance throughout market downturns and relatively keeping high-middle performance state. When Urban Outfitters outperforms the overall market (SP 500) significantly, the rest of the competitors in general are doing so too and vice versa and thus, in general Urban Outfitters’ stock performance has to do with the market conditions.
Graph 3 Stock Performance – Urban Outfitters (light blue) in comparison to its competitors Such stability in its stock performance can be attributed to URBN’s ability to adapt to price changes, and consistent and fairly steady long term plan execution. Historically, URBN has been able to adapt to any “generalized changes in …cost of goods” (URBN 10Q, April 2011) through price adjustment and so “commodity and other product risks
16 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
While Urban Outfitters’ risks are “fluctuations in the purchase price of merchandise, as well as other goods and services; the value of foreign currencies in relation to the U.S. dollar; and changes in interest rates” (URBN 10Q, April 2011), it has been able to adapt to changes and market fluctuations during the last few quarters. Some of its competitors such as Pacific Sunwear (PSUN) and Abercrombie and Fitch (ANF) have been having drastic ups and downs, while Urban Outfitters has been consistently outperforming the market, and even if it is facing losses, it is not a dramatic one. URBN’s expansion speed relies on its ability to maintain emotional bond with its customers – the biggest goal and direction of all the distinct sub-brands of the Urban Outfitters, Inc. In other words, rather than fast, massive expansions, Urban Outfitters brands have been building slowly upon its existing retail stores and brands and selectively pick marketable ones. In fiscal year 2011, there were 334 retail stores in USA, and including Canada and Europe, 372 Urban Outfitters, Inc. retail stores in total. Only in fiscal year 2012 has Urban Outfitters opened around fifty retail stores. Perhaps if applied to other brands such actions can be thought of as hesitation, however, keeping in mind that URBN’s key to success has been and is projected to be emotional bond with its customers, its steady, not-so-drastic plans have been working according to the plan.
17 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
C
A B
Graph 4 – Stock Performance – Urban Outfitters compared to S&P 500 from 2008 – 2011
Despite the recent down slopes in stock performance, based on URBN’s previously history of consistently outperforming the market and quick recovery from the major dip between 2008 and 2009 (region A), the relatively low performance cannot be immediately interpreted as a bad sign for investment looking at the steady outperformance in region C as it quickly started recovering in region B. Nonetheless, such dramatic change in region A should hold as a precaution to future investment possibilities.
18 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Graph 5: Last 1 Year’s Stock Performance Comparison with Competitors and S&P 500
Zooming into this year’s performance shows that between February and April Urban Outfitters drops significantly from 0% to -20% and since then has maintained negative stock performance. While many competitors are also facing negative results, According to the financial report for Q1 released by URBN, URBN has been performing well and improvements were made in its financial keepings. Nothing suggests any reason why the stocks should drop so significantly. In terms of its products, one significant news was its Spring 2011 collection which included Jewish Frum inspired lines – scarves that were meant for Jewish women to wear for modesty, similar to hijab in Islam. The controversy with Jewish inspiration dates back to 2006 and since then there have been rocky times when URBN provoked the Jewish community with its designs incorporating Jewish traditions or messages that have been interpreted as supporting terrorism. The other was the launching of BHLDN on February 14, 2011. While the launching of this brand may not seem negative, there may have been concerns for risk factor: can a upper end price brand survive
19 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC. in an otherwise tightly shut economy? BHLDN’s wedding dresses range from $1000-$4000 in price, which veers away from the generally middle to low high price range that Urban Outfitters brands were known for.
20 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
A
B
C
E D
Graph 6: Last 6 Months’ Stock Performance Comparison with Competitors and S&P 500
The six months’ graph shows after the sudden dip in Feb-April, there was another rise and fall in region A, and after a period of consistent rate, started picking back up as can be seen in region B. Zooming in with the other competitors, the declining in region C and D is corresponding in similar direction however, in region C, URBN was outperforming the competitors clearly but fell in middle to low range, going down below as -30% in region D in around August). Another factor contributing to the
21 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC. depression – although may not be as significant in the one year scale – in URBN stock besides the overall market structure during the past six months may be the controversy arising from Urban Outfitters’ CEO Richard Hayne supporting “famously anti-gay” (Good Culture) Rick Santorum with over $13,000 and the accusation aroused by teen star Miley Cyrus supporting the hate against Urban Outfitters and the controversy with Stevie Koerner’s accusation of copying the artist’s designs without credit which immediately floated words of hatred on Twitter. Region D shows that URBN has been picking up since such incidents.
22 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
A
B
Graph 7: Last 3 Months’ Stock Performance Comparison with Competitors and S&P 500
The last three months’ performance graph shows that URBN stocks started picking up in mid October 2011, as can be seen in region A, which coincides with Urban Outfitters removing the items related to Navajo – which sparked controversy from the Navajo Nation. URBN was accused by the Navajo Nation of unrightfully using Navajo prints and also disrespecting the Navajo – mainly because of Navajo Hipster Panty, and Navajo flask which is insensitive considering Navajo’s long, straining history related to alcoholism problems. Although alone the increase in region A looks dramatic, comparison with other competitors shows that that has been the general market trend. However since region A, URBN once again started outperforming the market, as can be seen in region B.
23 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Although the process of using “Navajo” labeled products –according to specialists did not legally violate anything, it brought heated discussion among ethnic protectionists and the fashion industry. Thus when the chief of Navajo Nation responded to URBN’s removal of all Navajo lines as being more fitting with the responsibilities of URBN he has known previously and is positive about it, it brought relief in futures doubt and renewed URBN’s reputation.
24 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
A
B
Graph 8: Last 1 Month’s Stock Performance Comparison with Competitors and S&P 500
During the last month, URBN’s performance has steadily been on the decline as can be seen in region A. However, in comparison to the major competitors, this trend evens out and is almost a straight consistent rate as can be seen in region B. There were two major events that have negatively influenced URBN’s popularity. The first is the Navajo related products. The second is the controversy of infringing upon Freaker USA’s designs. Freaker USA which is known for its bottle warmers and gloves had been working with Urban Outfitters previously but declined the offer to collaborate for this season. Recently Freaker USA had discovered Urban Outfitters’ similar production and announced that
25 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
once its official patent procedures are finished, it will write a cease and desist letter to Urban Outfitters. While the former did not arouse much sentiment among the public, except for Navajo Nation, the latter has turned on some angry fans of Freaker USA against Urban Outfitters who are encouraging many others to attack Urban Outfitters on its Facebook and boycott it.
Graphic 4: Angry Freaker USA Fans on URBN’s Facebook Page
The strengths of having Facebook page also apply to the critical weakness of having open page on Facebook in times of such attacks. The attacks are public and one person’s attacks become visible to many others, and can move large numbers of people effectively in short period of time.
26 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Financial Performance Review Urban Outfitters, Inc. Financial Performance: 2009-2011 $ (in thousand dollars)
2,500,000 2,000,000 1,500,000 1,000,000 500,000 0
2009
2010
2011
1,834,618
1,937,815
2,274,102
Income from operations
299,435
338,984
414,203
Net income
199,364
219,893
272,958
Revenue (net sales)
Graph 9: Urban Outfitters’ General Financial Performance from 2009 to 2011 Urban Outfitters has been showing strong financial performance – with increasing revenue each year, there has been even stronger increase in profit as can be seen in income from operations and net income growth.
Annual Growth Rate of Net Sales Annual Growth Rate of Income from Operations Annual Growth Rate of Net Income
2010 5.6% 13.2%
2011 17.4% 18.2%
10.3%
24.1%
Graph 10: Urban Outfitters’ Annual Growth Rate of Net Sales, Income from Operations, and Net Income
In terms of revenue (see Graph 9), Urban Outfitters had net sales of $1,834,618 in 2009, $1,937,815 in 2010, and $2,274,102 in 2011 which translates to 5.6% growth rate of net sales in 2009 and 17.4% in 2010 – almost thrice that of the previous year (see Graph 10).
27 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Comparison of Annual Net Sales Growth 50.00%
17.40% 18.40% 5.60%
7.00%
18.30% 7.60%
0.90%
0.30%
0.00% URBN
ANF
HMB
ARO
-50.00% 2009-2010
AEO -0.30%
GPS
PSUN -9.40%
2010- 2011
Graph 11: Comparison of Annual Net Sales Growth from 2009-2011 for URBN and its Major Competitors
Comparing to its major competitors (see Graph 11), including Abercrombie and Fitch, H&M, Aéropostale, American Eagle Outfitters, Gap, and Pacific Sunwear, URBN is among top performers in net sale growth rate. What is more positive is that it is on an even higher increase, unlike Aéropostale’s decreasing rate of increase. Especially in regards to the major changes brought to fiscal year 2012 – including launching of BHLDN – it is highly likely that net sales will continue to grow at a competitive rate for fiscal year 2012. In comparison to growth in net sales, Urban Outfitters shows an even stronger growth in profitability (see Graph 10). Urban Outfitters had net income from operations of $299,435 in 2009, $338,984 in 2010, and $414,203 in 2011 which translates to 13.2% in 2009 and 18.2% growth rate of income from operations in 2010.
28 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Comparison of Annual Net Income from Operations Growth 100.00% 50.00%
54.10% 18.20% 13.20%
13.90%
38.60% 2.20%
1.10%
9.30%
0.00% -50.00% -100.00%
URBN
ANF
HMB
ARO
AEO -18.90%
GPS
PSUN
-47.50% 2009-2010
2010-2011
Graph 12: Comparison of Annual Net Income From Operations Growth from 2009-2011 for URBN and its Major Competitors
Comparing to major competitors (Graph 12), URBN is on a steady pace to growing in net income from operations. With two years’ worth data to add stronger evidence to support this uprising trend, as compared to the significant ups and downs seen in Abercrombie and Fitch and Aéropostale, URBN is fairly stable for the reasons analyzed in previous section of stock performance for long run stability. Urban Outfitters had net income of $199,364 in 2009, $219,893 in 2010, and $272,958 in 2011 (see Graph 9) which translates to 10.3% growth in 2009 and 24.1% growth rate in net income for 2010 – twice that of the previous year (see Graph10).
29 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Comparison of Net Income Growth 53.60%
60.00% 40.00% 20.00%
24.10% 10.30%
14.00%
9.30%
0.80%
0.00% -20.00%
URBN
HMB
ARO
AEO -5.60% -16.80%
GPS
-40.00% 2009-2010
2010-2011
Graph 13: Comparison of Annual Net Income Growth from 2009-2011 for URBN and its Major Competitors *ANF was excluded from this graph because it marked 5600% increase which was too different to be compared to other companies.
Comparing against its major competitors, URBN once again proves to be on the positive trend, with stable increasing. From the previous graphs Aéropostale has been a generally huge outperformer in the market. However, Graph 13 shows that with a significant increase in 20092010 came a period of significantly level growth of 0.80% in 2010 – 2011. URBN’s steady yet consistent growth is positive in predicting that there will be steady increase.
In comparison to other competitors, Urban Outfitters’ growth in net sales, net income from operations, and net income are positive and have consistency. Its successful competitors include H&M and Aéropostale. H&M is a Swedish brand that has a larger international market, especially in Europe compared to URBN and Aéropostale has a larger scale of US market and like URBN is not as focused on the international market as is H&M. In comparison to the two, URBN seems to fit in the middle where compared to its relatively small size, it is spread between US, Canadian, European and Asian markets for a mostly US focused shop. In terms of future
30 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
financial performance because of past record demonstrating a steady growth, it seems unlikely that URBN will decrease significantly in the year 2012, if not continue growing more than the previous year. Having both feet in two different boundaries of size and spread of market and range of products is likely to help URBN’s financial profit performance in subsequent years especially in times of economic instability in Europe and generally tightened pockets. Although because of such moderateness it is difficult to expect a significantly high performance, it is expected that a safe, and moderate financial profit will continue growing.
31 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Future Stock Performance Excluding the general market conditions, the biggest factor determining the success of URBN’s stock is whether it can keep up its brand name and fashion trend marketable. The result of last third quarter’s performance reveals that except for Free People, all retail segments have decreased between 5~10% while direct-to-consumer and wholesale segment both increased 15% and 13% respectively. However, Urban Outfitters has within the last three and nine months opened up a total of 36 new stores and plan to have opened up around sixty by the end of fiscal year 2012. When it previously had less than 400 retail stores, by increasing the number of stores may bring unexpected trends or problem in the management. Currently there are pros and cons of Urban Outfitters’ decisions and uncontrollable situations. On the one hand, Urban Outfitters does not seem to make the most out of its greatest strengths – which may imply strategies that would not necessarily work for other companies. It may be taking a risk by copying what other companies generally do, opening up new retail stores without coming up with different plans under the director who previously worked at Coach and Abercrombie and Fitch – the epitome of the average, “norm” brand – a danger considering that the nature of Urban Outfitters is everything against general trend. On the other hand, the changes previously mentioned throughout Strategy Identification, Stock Performance Review, and Financial Performance Review – including management changes, enlarging both domestic and international market through more retail stores, investment in direct-to-consumer shipping lines and websites, and strengthening stock supply in Nevada and England may bring a big boost to Urban Outfitters. This put together with the consideration that most of the year’s profit comes at the second half of the year, especially after the Black Friday
32 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
when consumers open up for Thanksgiving, and subsequently for Christmas season, it is likely that Urban Outfitters is up for an increase. The neutral situations include – BHLDN and the new retail stores’ turn out, and the effectiveness and efficiency of the newly hired management. So far there has not been news of particular success or failure. With the shopping season about to set off, one needs to watch the performance more closely for the next one or two months.
While most of the analysis has been on what URBN’s situation and conditions, in the end, URBN’s performance will be determined by the future market conditions – including fluctuations in currencies, changes in interest rates, and consumer behavior. Currently with increasingly de-stabilizing European market, it is likely that US market will be negatively influenced by it and for the next few years, it would be difficult to expect better profits. If this may be the case, URBN would be negatively influenced because it is based on largely fashion/lifestyle products, and functions more as a luxury brand rather than inferior good. If Urban Outfitters is able to open up to the Asian market as it slowly is approaching South Korea directly through direct-to-consumers, and also to China and Japan, despite the market conditions it may face significantly accelerated growth in profit. Just with China which has exponentially growing middle-high class population who is looking for something new and worthwhile buying, if URBN is able to grasp such customers, then it will have a new market with billions of people. As of now, there is no particular indication that such trend is set. All this considered there can be two conclusions. For the short term, because URBN has been showing steadily increasing performance – which will highly likely continue going up because the outside market conditions, although
33 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
worsening, is still holding up not yet a severe crash down in Europe –with Black Friday just passed, and Christmas season coming up, and most of the controversies concerning its reputation and copyrights has been settled or at least leveled, URBN could be a good investment if one is looking for a safe, moderate outcome. However, for the long term investment, there are still many things that need to be closely observed before one can determine its effects or results. To reiterate the major ones: general market trend, especially in Europe, and effects of expanding the market – with BHLDN, and investing in the different types of selling for USA, Canada, Europe and Asia, URBN stock will be on hold. With few cues that determine the direction of where it is heading, how the consumers are receiving, and how the plans are unfolding as they are being executed will further help come up with a conclusion.
34 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
Appendix A: Financial Performance Data Net Sales URBN ANF HMB ARO AEO GPS PSUN
2009 1,834,618 2,928,626 101,393 1,885,531 2,948,679 14,197 1,027
2010 1,937,815 3,468,777 108,483 2,230,105 2,940,269 14,664 930
2011 2,274,102 N/A N/A 2,400,434 2,967,559 N/A N/A
Percentage Net Sale Growth 2010 5.6% 18.4% 7.0% 18.3% -0.3% 0.3% -9.4%
URBN ANF HMB ARO AEO GPS PSUN
2011 17.4% N/A N/A 7.6% 0.9% N/A N/A
Net Income from Operations URBN ANF HMB ARO AEO GPS PSUN
2009
2010
2011
150,283 21,644 248,299 382,797 1,102 70
78,953 24,659 382,685 310,392 1,204 97
386,794 317,261
Growth Rate of Net Income from Operations URBN ANF HMB ARO AEO GPS
2009-2010 13.2% -47.5% 13.9% 54.1% -18.9% 9.3%
2010-2011 18.2% N/A N/A 1.1% 2.2% N/A
35 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC. PSUN
38.6%
N/A
Net Income URBN ANF HMB ARO AEO GPS PSUN
2009 199,364 254 16,384 149,422 179,061 1,102 -
2010 219,893 150,283 18,681 229,457 169,022 1,204 -
2011 272,958
231,339 140,647 -
Annual Growth Rate of Net Income URBN ANF HMB ARO AEO GPS PSUN
2009-2010 10.3% 59066% 14.0% 53.6% -5.6% 9.3%
2010-2011 24.1%
0.8% -16.8%
36 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC.
WORKS CITED
Carmeli, K. (Feb. 22, 2011). “Urban Outfitters visits Tel Aviv”. Mondoweiss: http://mondoweiss.net/2011/02/urban-outfitters-visits-tel-aviv.html
Good Culture. (Oct. 9, 2011). “Miley Cyrus: Urban Outfitters is ‘against gay equality’”. Huffington Post – High School: http://www.huffingtonpost.com/2011/10/09/miley-cyrus-urban-outfitt_n_1002080.html
Google Finance, “Urban Outfitters, Inc. (Public, NASDAQ: URBN)” http://www.google.com/finance?q=NASDAQ:URBN
Israel: What happened to You. (Jan. 24, 2011). “Urban Outfitters Finds Frum Inspiration?” http://www.israeltrauma.org/urban-outfitters-finds-frum-inspiration/
Lutz, A. (Nov. 19, 2011). “Urban Outfitters Losing Fans With Fashions.” Bloomberg: http://www.bloomberg.com/news/2011-11-18/urban-outfitters-losing-investors-with-failingfashions-retail.html
Kettle, J. (Nov. 8, 2011) “Urban Outffiters, the Navajo Nation, and Another Reminder of the Need for Greater Traditional Cultural Expression Protections.” Intellectual Property Brief: http://www.ipbrief.net/2011/11/08/urban-outfitters-the-navajo-nation-and-another-reminder-ofthe-need-for-greater-traditional-cultural-expression-protections/
37 COMPANY ANALYSIS PROJECT – URBAN OUTFITTERS, INC. Moschina, A. (Feb 9, 2011) “Why Do Stock Analysts Hate Urban Outfitters?” Investment U: http://www.investmentu.com/2011/February/why-do-stock-analysts-hate-urban-outfitters.html
Urban Outfitters, Inc. (2011). Form 10-K. Washington, DC: United States Securities and Exchange Commission
Urban Outfitters, Inc. (April 2011). Form 10-Q. Washington, DC: United States Securities and Exchange Commission
Urban Outfitters, Inc. (September 2011). Form 10-Q. Washington, DC: United States Securities and Exchange Commission
WECT. (Nov 26, 2011). Local company says Urban Outfitters stole product idea. WECT: http://www.wect.com/story/16123586/local-company-says-urban-outfitters-stole-product-idea
Worzella, M. (Nov. 17, 2011). “MBeze Natural Skin Care & Cosmetics Now Available Online at Urban Outfitters: A leader in innovative retail adds MBeze to its niche beauty department mix.” PRWEB: http://www.prweb.com/releases/2011/11/prweb8969192.htm