Last week it was time once again to join Urban Outfitters CEO Glen Senk, new CFO Eric Artz and the analyst crew to partake in the 2009 Q4 Earnings Call (complete transcript here, results figures in this post). With a record quarter in-hand it was a positive call marked by a few impressive announcements and hints towards the future, plus the usual demurring. Interesting tidbits follow.
On the financial side, results from the press release were restated and a few new numbers were announced. Probably the most impressive yet simultaneously gross number for me was that Anthropologie’s average unit selling price (ASP) was up 14% for the quarter. In a recession. Translated into English that means that a dress that cost $188 in Q3 might have cost just over $200 in Q4. This allowed Urban to see profits at Anthropologie even though units per transaction were down 4%. They sold less per transaction but made more per item. The ASP number is just remarkable. It’s a testament to the designers that we consumers were so impressed by the available product that we were willing to spend more on it even with tighter budgets.
Speaking of which, during the call one of the investors asked about Mr. Senk’s impressions of consumers’ willingness to spend:
Roxanne Meyer – UBS
I was wondering if you could share your insights on your consumer and her ability, and more so her appetite to spend. Obviously you mentioned she’s seeking special and that’s what you”re all about, but I”m also wondering to what extent you think there”s pent-up demand versus your view of the opportunity for sustainable spending. And as part of that are you able to give us a progression of monthly average transaction size or metrics that would show as we moved from the fall through the holidays to February that her appetite is really coming back?
Glen T. Senk
Yes Roxanne, I think by and large, I don’t think we have returned to 2007 and everyone who is listening to this call probably knows much more about us than I do. So, I don’t think we are out of the woods.
I think the difference between today and a year ago is that there is much more stability. I mean none of us knew what was going to happen a year ago. Those of us with any kind of savings saw our savings account go down by 50%. We had property. Many of us had real estate issues, really underwater and I think that that has quietened down a bit. So I think people have more a sense of certainty but I don’t think that spending is going to return to 2007 levels.
I tend to think about things simply because I think it is easier to get things done when you simplify. I keep saying if a customer spent a 100 bucks on an average outing in 2007 she is spending 90 bucks today. So we have to be 10% or 11% better than we were in 2007 to be flat and I think we have to be 15% or 20% better to be comp positive and that’s how we think about it internally.
I can’t speak for the world as a whole but I know that in my circle of friends that rings accurate. My personal spending was down about 40% in 2009 and this year I anticipate similar levels, hopefully returning to previous spending levels in Q4 if my budget allows. Early in the call Mr. Senk noted that Urban Outfitters saw the hit from the Great Recession later than most retailers but seems to have recovered more quickly. If they have another quarter of steady profits I’d have to agree.
During the call Mr. Senk highlighted the four key initiatives and it was pretty exciting stuff! To summarize they were: gains in four-wall productivity, driving e-commerce and maximizing direct-to-consumer sales, international expansion and finally adding new brands. Let’s discuss these in reverse order.
For new brands, as you have hopefully heard Leifsdottir is emerging from the shadow of Anthropologie and growing from a wholesale-only brand to its own retail concept. This began with the launch of Leifsdottir’s dedicated website last month and will continue with a retail store opening this year in New York City. During the call it was revealed that Leifsdottir will be adding shoes and handbags to its portfolio and there were hints that an accessories concept for other Urban Outfitters brands is not far off the horizon. With so many internal brands (Schuler & Sons, Miss Albright, Deux Lux, Bica Cheia, etc.) I can only hope Anthro is next!
Weddings were the other big topic. Mr. Senk revealed that an Anthropologie-tied wedding brand will make its debut in spring 2011:
I am also pleased to announce that the company will be launching its next brand on Valentine’s Day, 2011 – a wedding lifestyle concept that we hope will be as innovative as our existing brands. We plan to sell an event-based assortment of heirloom wedding gowns; bridesmaid and special occasion dresses; shoes, bags and accessories; intimate apparel; invitations, décor and gifts. We also expect to offer a community for brides before, during and after the wedding. The brand will initially launch with a website followed by a store opening later in the year.
You can read more here. This makes total sense to me and as someone who hasn’t gotten married yet it’s pretty exciting! I have purchased Bridesmaid dresses at Anthro and this is a logical progression. I can’t wait to see photos of the concept.
With regards to store expansion there were hints that the USA expansion will continue but at a slower rate while Urban Outfitters concentrates on growing their brands in Europe and the Far East! Anthropologie wasn’t mentioned specifically but their second London store will open on March 19 so one can only hope that they’re ready to set their sights on the next country. Where would you like to see Anthropologie open next?
Direct-to-consumer sales seemed to hog the majority of the call, with analysts wondering about everything from catalog circulation (flat) to marketing databases and analytics. Mr. Senk and Mr. Artz specifically discussed Urban Outfitters’ engagement with Merkle to improve customer analytics and targeted marketing.
What does mean for you? Two words. anthro card. This is the tool through which you can allow Anthropologie to market to you better. Right now Anthro’s emails are slightly targeted and their catalogs uniform. Mr. Senk talked a lot about how the Urban customer utilizes cross-channel browsing and shopping: we look at an item on the website, we try it on in the store, we show a store associate the photo of the item we’re looking for on our smartphones. The anthro card is the key through which you are tracked at stores, online or through catalog sales as a single customer. It’s useful data that will help Anthro cater to your wants better. Or from a cynical view, market to you better for increased conversion.
Birthday coupons aside this is what that little yellow card is really all about. To me it would be really cool to receive a targeted catalog that has more dresses, or more boots, or more of the brands I love than not. Or emails that let me know every time a new Marimekko item makes it to the site. Or an email letting me know that Soho just rotated new products in. You get the drift. I wouldn’t want every store to do this but since I love shopping at Anthro so much yes please market directly to me! (Just don’t hound me, I hate that.) Surveys fit in here too. Innocuous but useful.
The first key initiative Mr. Senk spoke to (and the last topic of this post) was four-wall productivity. This includes a whole bunch of stuff but I’m most interested in the inventory management. During the call Mr. Senk spoke to this:
…We manage two weeks of supply not to absolute inventory levels. So, right now the total comp inventories were down 3%. They were down most at the Urban brand and least at the Anthropologie brand, kind of following the comps.
But, as I said in my prepared comments each of the brand presidents feel very, very comfortable with where the inventories are. Over the long term, meaning over the next three to five years, I’d like to see a continued reduction in weeks of supply as we get up and running with our TradeStone software system, as we continue to make improvements in our planning and allocation systems. And the reason why we all feel so strongly about that is because we think it will, as I said in my prepared comments, improve the customer experience. The less the store has to handle the product, the more time they can spend with the customer, the crisper, and cleaner and fresher the product is and so on, and of course the benefit of that is improved merchandise margins.
I think Anthropologie is at a very important crossroads in terms of inventory. Last year it made sense to conservatively stock items since net units sold were down across the retail sector. However as our spending budgets begin to recover there’s nothing more frustrating than being told to wait. We consumers want our instant gratification. When so many items on the website are backordered it becomes a tease that drives me away. In my opinion Anthropologie needs to start upping production and stock levels slightly to keep up with demand. It’s a guessing game to be sure and I know they produce low levels of some items on purpose but nothing is worse than wanting to buy something and not being able to because it’s sold out/backordered/unavailable. That’s opportunity lost for Anthropologie as a business and very hard to measure or quantify.
All in all the call left me excited for 2010. I can’t wait to hear more about the new concepts Urban is launching and I hope the positive results continue throughout the year and beyond.
I would love to meet these guys.:) Marketing strategies have depended so much on surveys & eclectic responsesthat such simplification & ultimately knowing who the customer is & what she wants is what profits are all about.And instead of fishing for new customers, building on each one, to expand on individual sales…$$ wise & product wise , while at the same time making her feel totally attended to & understood is ..just brilliant.I say there must be quite a few smart women up there in management……displaying such sensitivity to knowing who their core customer is & what she's all about .It is so fundamental , yet most retailers don't get it.Shalu
Wow, I got married way too early.
Thank you so much for this great summary. But I'm sorry to say that I really only got two things out of it:1. The Urban Outfitters Company will soon be offering more special occasion dresses and shoes and accessories.2. Leifsdottir will begin selling shoes and accessories! *bursts into tears of joy*
Shalu – completely agree, I love hearing tales of how Urban promotes from within. It's great that a company like that has many strong highly-placed female leaders, though their CEO is male.Amy JoGo – Aww, a few of my friends said the same thing. Vow renewal ceremony, maybe?AL – haha, well those are probably the two most interesting shopping-related things! 🙂
Thanks, Roxy, for providing the 'bid-ness' side of Anthropologies. I also really appreciated your gloss on the issues.
I totally agree with your opinion on stock/inventory. I would have purchased more this past season if my sizes had been in stock (especially with shoes in the under-$120 range).
Great post Roxy, I love hearing about the business side of Anthro. Also, going off of what you said about more targeted marketing, how cool would it be if Anthro card members got an "insider first look" at items and a chance to purchase first. Or maybe a first look at sales, that would be so awesome. 🙂
I'm with Roxy and Hillary on the inventory situation. I think it's ridiculous that 1/4 of my wishlist items are on backorder, but maybe that's just me being peevish–and maybe I should have purchased these items immediately when they were released!I have not been a snakebite belt devotee, but I have noticed from reading the Anthro blogs that there seems to be many people who have been waiting for that particular belt for a few months, either through an order online or at their stores. I can see why Anthro HQ would like to keep their inventory slim for cost-cutting measures, but I can't help but wonder how much cha-ching they've lost as a result. Well, not that they're hurting that much, according to this latest report…
I'm with the others about inventory. It really turns me off to have SO many things backordered. I get it from Anthro's side (and don't tell me that less stock means the consumer gets more time with the sales associates, ha! It is just more profitable to not hold/ship so much merchandise).One more thing – could they work some Swiffers into their budget? I have been in no less than 8 different Anthropologie stores and EVERY single one always has lint & thread & who knows what else on the floor. I always hate to take my shoes off in the dressing room.Thanks for the "insider" look, Roxy!
Thank you Roxy, finally we have the 'aha' moment in regards to the green card…and I agree w/ you I wouldn't mind more customer specific marketing from them, and updates on inventory from my local store would be absolutely amazing. I really appreciate your run-down of the conference…I'm not very business/sales savvy and some of the jargon trips me up. I was wondering if you could clarify what Senk was saying in regards to inventory management: "We manage two weeks of supply not to absolute inventory levels. So, right now the total comp inventories were down 3%."So they only have an estimated 2 weeks of stock available for immediate purchase online, and then it becomes back-ordered until the next 2 week stock period…until it sells out at 'absolute inventory levels'?? So they're actually never ordering more of the item even if they see it's very in-demand? Sorry if that was totally off as I'm very lost! Last Q.: What are 'total comp levels'? -feeling stupid, but curious.
Roxy-loved reading about the business side, but I would really love to hear more about this new "flagging" system a reader commented on a few weeks ago. At the time I laughed it off and said I probably was flagged. Well this week I was notified by my store that I AM! I'm flagged for making too many returns. This may sound hypersensitive, but I felt like I I'm in grade school again and just found out one of my best friends has been talking smack about me behind my back! If they think I'm making too many returns, why don't they reach out and find out why rather than flagging me? It made me feel for a second like I'd done something wrong. Then I got ticked and thought: this is bad business practice to go around flagrantly "flagging" loyal customers who buy way more than the casual anthro shopper, and therefore have more returns, is just bad business. I'm in a second draft of a letter I have on it's way to Anthro, but I just wanted to hear if others out there had been told they'd been "flagged". Like you said Roxy, I will not be made to feel guilty for returning items I bought with my hard earned money. I return items when I've changed my mind, or I ordered them online sight unseen and the quality isn't up to snuff, or i'm afraid the item will sell out too fast to wait for it in store so I buy online and the fit is wrong, etc. (this is a direct result of low inventory mind you). And I always know I can return my items because of my ANTHRO CARD. So yes, the anthro card is great in helping them know what we're buying for direct to consumer marketing, but for now they're also "flagging" those of us with anthro cards because they can track it so easily. The manager in store said this is a new policy because there's been SO many returns lately – company wide- and her explanation was if this person is returning so much, perhaps she needs more assistance in store to help her find the right fit. hmm. I NEVER flat-out return. I can count on one hand how many times that's happened. I always either exchange, or get it on a merchandise card to turn around and spend on something else in their store. I would just really like to hear if any of you have been informed of this too? Or your thoughts on the matter. Sorry this was long-winded.
p.s. Katie- I totally second the swiffer thing. Seriously, dust-bunnies everywhere in the dressing rooms. I actually thought about asking if I could come in and clean at night, if I could get the discount. It's nasty. okay, I'll shut up now.
How soon is too soon for a vow renewal ceremony, anyway? We just got married in November. Maybe we'll have to hit Vegas at our 5 year anniversary. 😀
Molly, what does being flagged entail? Are you no longer able to return items or are the SAs simply more discouraging of it when you try to return something?
Thanks for sharing this, Roxy! I think it's wonderful that you include the business side of Anthropologie in your blog. I feel like a much better-informed consumer thanks to posts like this one. It definitely helps me to put some of my purchases into perspective. I have to wonder if the ASP increase has had an impact on the number of items that move to sale. I assume that the earnings report isn't including items that sell at sale price when they talk about the decline in the number of units sold?
Molly – I'm sorry to hear that you've been flagged! I'm disappointed that Anthro would engage in such practices. I realize that it's a pain for them to deal with so many returns, but I really don't think that they should take it out on individual customers (unless a customer has a history of really sketchy returns, like buying items and holding onto them until sale and then returning them and re-purchasing them at sale price… or wearing an item and then trying to return it). Does anyone know if this flagging practice only occurs for people who do a lot of in-store returns or whether it also applies to online returns? I probably return at least 50% of the items that I order online because they don't fit properly or because they wind up being different from what I was expecting. I think it would be really unfair for Anthro to blacklist online shoppers for this reason.
To Anonymous @ 2:54As far as I understand it, the SA's are just more discouraging of it. I guess I'm asking if anyone knows what else "being flagged" actually entailsxLola-Thanks for your message. I understand shady people ruin it for the rest of us, but why can't they find a way to differentiate between the two?
kikki cee – bidness — I love it! I am all up in Anthro's bidness.hillary – amen, sister. You are preaching to the choir. :)GinaBean – that is a great idea, I hope Anthro is taking notes! I'd happily hand over all of my anthro spending habits in exchange for sneak previews. Glenda – I think any hits related to the inventory would show up in Q2. So we'll see. Not that I'm in any way hoping for Anthro's results to be down; I only want them to go up!!!Katie – *nods* Yes, the floors of the dressing rooms here in NYC are often kinda nasty. I hate to say it but there are HUGE dust bunnies in there. Not cool.Anon @ 2:00 – I'll hit these one at a time. Basically what Senk is saying is that they are carrying 3% less inventory at their warehouses right now than they were during the last quarter. This doesn't mean the items aren't available, they are just taking smaller deliveries from up the chain. Last quarter Senk mentioned that they were focusing on faster turnaround from purchase orders to delivery and this number reflects that. The two-week figure doesn't mean they only have two weeks available to buy. That's just how much they have in-house at a given time, and it's a relative figure, not a concrete one.Total comp levels is total comparative levels, meaning levels now measured against levels last quarter. :)Molly – I unfortunately have little information to give on the subject, I'm not familiar with the policy or its intent. I'm so sorry to hear that you got flagged. I think a letter to Anthro is a great idea though and I hope that you get a satisfactory response.Amy JoGo – my friend who was married 11/08 wants to know the same thing. ;)Lola – in my eyes it's absolutely had an effect on how much makes it to sale. High-demand items sell out at full-price, medium-demand on first cut and so on. I just think about all the items that are page redirects, etc. Or of all the items that are added to sale at overnight on the site that are gone by the time East Coasters wake up.
I've been hugely disappointed with the Anthro card so far. Apart from the birthday month discount, it's had no value for me, and the card's been around for what, two years now? It's good to hear they hope to be able to tailor catalogs to our purchases, but I was hoping for something more: early sale nights once a quarter perhaps, or percentage off mailers. Little things like that instead of weekly emails that give almost no info at all. Just comparing their emails to Borders or Sephora who pack in so much info about new arrivals, gifts with purchase, and sale items shows how far Anthro still has to go to engage their customers.
hmmm if Anthro changed their policy to flag customers I might really hesitate to order stuff. I don't live near an Anthro so I buy online a lot and most of the time especially for shoes I order two sizes just to make sure I get the right fit therefore I tend to return often. Does anyone know what happens if you are flagged?
I also agree with the dust comment when I do visit an Anthro in Philly or Miami they are pretty dusty 🙁
This flagging business is frightening to me. I've always values Anthro for their superb customer service and return policy. I rarely ever return items if I purchased in store (which most of my Anthro buying entails), but I do returns a lot of online orders. And what does being flag even do? Are you no longer able to return items?
I'm the same way w/ returns, most everything that I've returned has been from online orders. After learning about their flagging policy, I've kept my purchases to in-store only, which usually means I just need to be more patient for the my store to get the item weeks, in some cases months later, however there are also a handful of items that I can't seem to find at my stores. Buying shoes from anthro sucks in particular b/c none of my local stores carry them, the one store in my state that does carry them has a VERY limited selection, and shoes are always either a hit or miss in terms of fit.
Are there any Anthro employees out there who might shed some light on the "flagging" phenomenon?
flagging? not cool, anthro.i agree about the floors. i always have my kids with me in the fitting rooms, and my son has put some pretty questionable things in his mouth (oops!).the #1 thing i got out of this, too is LEIFSDOTTIR IS MAKING SHOES!
From experience, I have noticed that their CS has improved tremendously in the past years. They have grown by leaps and bounds so it's nice when I receive a response from an actual human! Have you guys seen their old annual reports? I have a few hard copies but their online review from 2007 is awesome. check it out Click on anthropologie-the behind the scenes interviews are great and the music is amazing!
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Molly – Yikes! Flagged?! I have done some returns lately (exchanges, really), but like you said, when you do a majority of your shopping at one store a majority of returns will reflect that. So glad you are writing a letter! You are representing all of us so thank you!
I heard about Anthro's new wedding endeavor last week and is still slightly surprised it. Honestly, I feel that they may be a little late on it. The influence/inspiration that Anthro's aesthetic garners in the wedding blogosphere is unparalleled with any other brand. I see their clothing, accessories, and home goods in many wedding-related activities. I can see them doing well in the BM dress department, as long as they stay true to their aesthetic and not try something generic but wedding dresses? Oy, I don't know. With the projected price range, if I were a bride again (still my Anthro loving self) I would pass on paying that kind of money for one of their dresses especially knowing what's out there. I think they would fair better if they focused under $2,000. Regarding the flagging issue, as a person whose size can rarely be found out the 3 stores that are available to me (XL/14) not only does it ruffle my feathers but it me second guess my next purchase.