You may want to sit down for this one. Yesterday Anthropologie’s parent company Urban Outfitters held its quarterly conference call with analysts to discuss its Q1 2018 Fiscal results, and those results were downright dismal. Anthropologie had its worst quarter since 2011! 2011, which just so happens to be the last time Anthropologie mistook itself for a West Coast casual chic company. Coincidence? I think not.
Inside, full coverage of the call, questions, and my thoughts.
Let’s begin as always with the hard numbers, provided by an Urban Outfitters press release:
“The operator of brands including Anthropologie, Free People and Terrain, Urban Outfitters reported Q1 sales of $761.2 million compared with $762.6 million last year. Wall Street forecasts averaged $769.8 million. Net income for the three months ended April 30, 2017, was $12 million, according to a company press release. Earnings per share were 10 cents versus 25 cent last year; analysts had expected 16 cents. URBN said that its higher tax rate in the first quarter chipped off about 2 cent per share.
The Philadelphia-based specialty retailer said comparable sales fell 3.1% in the latest period. By brand, comparable Retail segment net sales increased 1.5% at Free People, but decreased 3.1% at Urban Outfitters and 4.4% at the Anthropologie Group. Comparable Retail segment sales were driven by strong, double-digit growth in the direct-to-consumer channel, which were offset by negative retail store comparable net sales. Wholesale segment net sales increased 14%. Total inventory was flat year-over-year.
“During the first quarter we continued to see strong double-digit growth from our direct-to-consumer channel and our wholesale business,” said Richard A. Hayne, Chief Executive Officer. “We believe we have significant opportunity to continue to grow both of these channels at all of our brands,” finished Mr. Hayne.
Within URBN retail segment comp the direct to consumer channel [the brands’ websites] continues to outperform stores posting a double-digits sales increase driven by increases in sessions and conversion rates which more than offset a decrease in average order value.
Ick. I doubt anyone here in this community is the least bit surprised but it’s not as though I enjoy seeing Anthropologie in this turmoil. 4.4% is a huge loss of sales and reading that made my stomach drop. What does that number mean? Basically it means that the brick and mortar stores (the physical Anthropologie stores, as opposed to their website) are down by 4.4 % in sales since last quarter, and this is the largest drop in an overall down period that started a year ago.
Here’s what the leadership team had to say.
David McCreight, President, CEO of the Anthropologie Group:
“Staying finely tuned to our customer has always been an important aspect of our brand. Its this internet awareness that has helped us shape a brand experience and offer that is resonated with many extending through multiple stages of her life. So where did Anthropologie apparel miss the fashion mark and why is it taking so long to correct?
Unfortunately, the assortment over the past several quarters do not properly reflect the established archetypes. The star references became less identifiably Anthropologie outside of our unique aesthetic lanes. Additionally, the assortment architecture followed the momentum of her increasingly casual life style, but as a casual assortment built nicely the merchants over-corrected and missed some of the other dresses occasions in her life, such as appropriate styles for social gathering and work.
So we will continue to adopt her more casual attitude, but we’ll maintain a better balance across the spectrum of her apparel occasion needs. Am I confident it will be corrected, in a word, yes. We’ve heard from thousands of customers who have shared their prospective, encouraging us to take the necessary steps to course correct. The apparel archetypes initially outlined are attractive to our customer. We have a team gaining brand experience and hope to see progress this fall.”
Barrons published a hilarious article yesterday appropriately titled, “Urban Outfitters Chased the Onesie Trend and Lost.” I mean, does any more really need to be said?
On the Home side, Mr. McCreight shared the Home category experienced double-digit growth for the quarter and has for the last nine consecutive quarters, which is very impressive since so much of their Home stuff is online only! He also mentioned that Anthropologie is now exploring wholesaling their home offerings as several department stores have expressed interest in selling it. That’s a huge win for Anthro and something worth cheering for the brand, even if it doesn’t help me as a clothing lover over a home lover.
BHLDN, Beauty and Terrain also experienced growth which you can read about in the full transcript (although the transcriber, clearly not familiar with UO or its brands, calls BHLDN “The Holden.” Ha!) Since apparel and accessories are my main loves I’m going to keep this post centered on those two categories.
Here is one thing I’m sure Anthro lovers will cheer, direct from Mr. McCreight’s mouth to my typing fingers:
“…I want to share a few specific digital updates for Anthropologie. This year we plan to continue to grow our digital store across categories increasing digital SKUs by 25%. As with our sister brands enhance our digital storytelling by leveraging our customers creativity and passion to inspire each other and in an effort to reduce friction from shopping digitally with Anthro we’re introducing a new perk for our loyalty members, a permanent path to free shipping.“
Free shipping! Free shipping!! FINALLY, finally, FREE MUTHERLOVING SHIPPING! Grateful for small miracles today. Beginning next week, Anthro members will permanently receive Free Shipping on orders of $150+. Not an Anthro member? Sign up for free here.
Over on the digital side, the leadership seems somewhat in the dark about the user experience.
“With this implementation, all major brands now share a common platform. The new platform has better user speed and navigation and has resulted in double digit basis point improvements in bounce rates and conversion. It along with the new digital structure should enable URBN to leverage digital investments across all brands and make improvements to our sites at a greatly accelerated pace.
Other enhancement to side functionality and convenience scheduled for implementation this year include full inventory availability by store, pickup in store, greater site personalization, search and browse improvements, custom order furniture capabilities, improved customer communication and better service levels like faster, less expenses and more reliable delivery options.”
Firstly I do need to recognize that double-digit gains in conversion is huge and worthy of applauding! That’s an amazing result and the teams deserve major kudos for that. Well done!!
However, does anyone else in the community agree that the new uni-platform is resulting in better speed and navigation? How about reviews not working on product pages on Anthro’s site for days at a time as one example?
For the 10,000 foot view, here are some of CEO Richard Hayne’s comments:
“Thanks David, and good afternoon folks. This is a difficult period for U.S. fashion apparel retailers. And URBNs first quarter reflect that difficulty. Total retail segment comp sales registered a disappointing 3% decline, well below plan. This drove increased promotional activity and more margin pressure than we had anticipated. As in previous quarters the company saw extreme variability in results by channel.
The sales short-fall in Q1 was wholly attributable to weaker than expected store channel performance in North America, where all three brands have encountered sluggish customer traffic and sales. This issue is impacting virtually all U.S. brick and mortar retailers there are simply too many stores and too many malls in North America. We expect to see more closures and brands disappear until a healthier balance is reached.
I believe our brand delivered some of the best most creative store experiences in the world. However, it is clear that this experiences currently aren’t enough to overcome the decline in traffic and a tepid interest in apparel and stores. We intend to continue to treat our stores like the important part of the omni shopping experience they are, and equipped them in our associates with the technology they need to please the omni-channel shopper.
In the quarter demand for women’s apparel in stores was particularly weak. Besides the traffic problem all brands had an assortment issue, execution in the dress category. Each brand planned as dress business down from the very robust spring ’16 level. To belief was that in spring ’17 some of those sales would migrate to other categories like bottoms or to the newer fashion looks of Onesie and Rompers. Thus, the brands planned, ordered and therefore sold fewer dresses during the period.“
I really cannot believe that someone thought it strategically wise to order rompers and onesies over dresses. I’m aghast!
Look folks, this is what I do for my day job. I go into companies — usually young companies but not always, my last contract was at a large international well-known fashion conglomerate for example — and fix their operations that have gotten strategically and organizationally off-track or need help growing. I give them a path to short and long-term success through operational excellence, strong strategic vision and ingenious marketing ideas.
If I were contracted with Anthropologie I would have laughed in the face of anyone there who thought ordering fewer dresses for SPRING (let me make that pink so it stands out and is obvious) and going ever more casual was the right idea. This is clear evidence that Anthro’s leadership has totally lost sight of who their customer is as well as the competitive market around them.
I’m giving that strategy the serious side-eye. Look at your most successful quarters Anthropologie! What was that success built on? Could it be…oh I don’t know…DRESSES? Maybe? Spring dresses perhaps? Does anyone in this place even look at their historical performance for reference?
I want to pull my hair out just reading this. Let me think of other competitors who specialize in casual clothing for women…let’s see…J. Crew, Banana Republic, Old Navy, Zara, H&M, Lucky Brand, Sundance Catalog, Cuyana, Nordstrom, Everlane, White House Black Market, Garnet Hill, Amour Vert, Splendid, Ralph Lauren…and that’s just 15 off the top of my head!
Now let’s think about some of the retailers that specialize in feminine DRESSES and workwear with smaller assortments of casual and resort wear for the classic and vintage-minded…ok, we could probably list J. Crew again here, ModCloth, Boden, Banana Republic, maybe Calypso St. Barth.
So, to review, you have an insta-list of 15 retailers (and I could make that list much, much longer) competing in one space vs. 5 or so in another. Now tell me again which direction you want to go in for clothing success???
It’s nice to see that Anthropologie is taking steps in the right direction with their upcoming Free Shipping incentive and acknowledging that customers are crying out for something better. I can only hope that their Fall assortment includes:
– Work-ready dresses of an appropriate length, with mixed sleeve types.
– CARDIGANS. Like, ones with buttons, Anthropologie.
– Separates that easily mix and match. Calm down a bit on the patterns and flourish, and no one needs 50 striped tees or 192 things with tassels. (Those numbers are actual item counts by the way, not exaggerations.)
– The kind of casualwear that can double as workwear, for at least 60% of your casual assortment.
– Less assortment. Yes, I can’t believe I’m saying this, but Anthropologie has too much stuff right now. Your tops section should ideally be 3 pages, not 5. Do you really need 9 variations of raw-hem jeans or fringed jeans? Cut it down and make it more complementary.
– An emphasis of quality over quantity. To really drive the point above home.
– A ban on boxy, cropped crap. Just say no Anthro. You’re addicted and it’s not healthy.
– Emphasis on clothing that works on multiple body types. This used to be your jam!! Your bread and butter.
– Adult clothing. No more of these juvenile patterns or maternity-ready clothing disguised as fashionable. No one is buying it.
What are you hoping Anthropologie does to turn things around?
Urban Outfitters Q1 2018 Earnings Call Transcript — Seeking Alpha
Urban Outfitters Chased the Onesie Trend and Lost — Barrons
Urban Outfitters plots 4-point pivot to curtail sales tumble — Retail Dive
With Stores Slipping, Urban Outfitters Looks to Wholesale, International — WWD