Other insights from Urban Outfitters’ Earnings Call

Urban Outfitter’s quarterly earnings call was mostly about silver linings. The analysts on the call repeatedly congratulated the UO team for a strong quarter in an otherwise weak economy. I too was happy to see only modest in-store declines for Anthropologie coupled with impressive increases in direct-to-consumer sales. (Result figures in this post.)

I suppose we shouldn’t expect analysts to be 100% familiar with the brand but I was surprised how most of the questions were framed around inventory and pricing and less about the promotions and social media steps Urban has implemented in the last quarter. CEO Glen Senk had to bring up the Free People and Anthropologie website redesigns himself; worked the Facebook/Twitter presence into one of his answers and completely glazed over any factor free shipping for anthro members might have played in the increased ecommerce sales.

There was one disturbing exchange during the call:
Jennifer Black – Jennifer Black & Associates
Good morning and let me add my congratulations. I wondered if you could talk a little bit about Leifsdottir — the product looks great and I wonder if you are in a position to raise price points. And then I also wondered how much cross-over there is, and I realize it’s small at this point — there is in your own stores versus wholesale? Thank you.

Glen T. Senk
And with respect to Leifsdottir?

Jennifer Black – Jennifer Black & Associates
Mmmhmm, with respect to Leifsdottir.

Glen T. Senk
There’s not a lot of cross-over. Occasionally Anthropologie will buy a bit of Leifsdottir but it is a very, very small percentage of their assortment. The average price, selling price in Leifsdottir is about $240 and we feel comfortable with where that is right now. We are projecting that it will be roughly a $10 million wholesale or roughly a — call it a $22 million to $25 million retail business this year. And that is done largely through Neiman Marcus, Bergdorf Goodman, Nordstrom, Bloomingdales, and roughly 50 specialty doors. So again, it’s too early for me to make a statement about what it’s going to look like in the next several years but considering this is its first full year of business, I just think that’s a stellar result.

I don’t see the prices going up. I think that the great thing about all of our brands is that they are uniquely positioned. I call Leifsdottir Young Designer and it fits with Marc by Marc Jacobs, DVF, Milly, See by Chloe — but it really does something very different than any of those brands do just in the way that Free People, Urban, and Anthropologie do something different than their peer group.

Good lord Ms. Black! We’re in the middle of the Great Recession and you want to know when the price point of Leifsdottir might go up? Completely tone deaf in my opinion and I was glad to see Mr. Senk brush off the suggestion. Yeesh.

Speaking to international expansion and the idea of having flagship stores, Senk also had a great anecdote about the approach to the brand’s brick & mortar process:
As a company, we — for us, and I know the flagship strategy works for other companies — for us, we don’t really believe in the flagship strategy. You know, I think to have a flagship store in our own company is somewhat disrespectful to all the other locations. It’s like having a favored child and I think the brilliance of our model is that in North America, our stores work everywhere and they are profitable and they are highly profitable everywhere.

And you know, I remember when I interviewed with Dick I think 18 years ago, I said to him why did you open the first Anthropologie in Wayne, Pennsylvania? And he said because anybody could do a lot of business in New York City and if we could find a way to make it work in Wayne, Pennsylvania, then it will work anywhere.

And so our model is really based on everybody being equal and having a profound desire to please the customer wherever she lives.

I really liked this answer. Living in NYC I often luck out with respect to both the range of brands with a presence here and the amount of product they carry. Rarely does a store say, “oh, we don’t carry this line in New York City.” I was no less fashion-savvy when I grew up in Connecticut, lived in Colorado, or spent time in Ireland. Yet the choices were limited. So while Anthropologie varies their stock somewhat from store to store it’s nice to hear an approach that aspires to equal fashion regardless of physical location.

With regards to inventory — I’m paraphrasing now — the Urban Outfitters representatives on the call made it clear that they believe that their higher price points overall mean they need to be more competitive when it comes to any basics they offer. They know that other brands are out there offering tees, tanks, camis, etc. for under $10 so there has to be a compelling value proposition to get customers to open their wallets for something at a UO umbrella store. Also, they’re trying to be more competitive with price points for the basics they do offer. At one point Mr. Senk put it this way: the more distinct the fashion, the less price elasticity. The more basic the item is, the more price sensitive it is

As many retailers are doing these days Urban Outfitters has been closely watching for cues from the customer. It was interesting to hear the representatives allude to having flexibility in orders so that they can adjust to trends that take hold and those that flame out. They talked about managing their supply chain better to reduce the time from design concept to production to shipment to stores. They also mentioned having retail and direct work more closely together in both marketing and implementation. With a balance of about 50% in-house design, 50% partner brand I’m curious how much of that flexibility is internal vs. inventory bought from outside design houses. It is good to hear that they are watching how we spend our money at Anthropologie and adjust the offerings accordingly. They said that of all the brands they feel that Anthropologie’s line is currently closest to the bullseye in terms of product offering appeal. Do you agree?

One final note — at one point a UBS analyst on the call asked about growth potential in the online business, and it was revealed that Urban has been selecting customer names across all three brands to track in terms of how they respond to brand communications. They have selected 1,000,000 Anthropologie names. Not a huge surprise since every brand needs to do this now but I am certainly curious what the criteria is to become one of the “selected” and what exactly that means.

You can read a transcript of the call here.