Urban Outfitters Losing Fans With Fashions

By Ashley Lutz - Nov 19, 2011 12:38 AM GMT+0700

Urban Outfitters was Louis Redondo’s favorite store for fashionable hats and T-shirts five years ago. Today, he says he’d be embarrassed to wear its bright, striped sweaters and flared velvet pants for anything except a Halloween costume.

“I used to walk out of there with my bags stuffed full of clothing,” said Redondo, a 30-year-old technical writer from Jersey City, New Jersey, who now shops at Hennes & Mauritz AB stores. “It was definitely my primary source. Today I’d just look comical if I shopped there -- I’d be laughed at.”

“Bizarre” and “lackluster” fashions at its namesake stores may be why Philadelphia-based Urban, which also operates Anthropologie and Free People, is losing investors’ confidence, said Pamela Quintiliano, a New York-based analyst at Oppenheimer & Co. The shares have slid 27 percent this year, the biggest drop among U.S. specialty apparel retailers except for Aeropostale Inc. (ARO)

“This is a fashion issue, plain and simple,” Chief Executive Officer Glen Senk said on a conference call to discuss earnings Nov. 14. “We need more compelling product.”

The missteps come on top of accusations of style plagiarism and cultural insensitivity that have alienated some customers this year. The lowest consumer confidence since March 2009 is making it harder for retailers to get shoppers into their stores at all.

Senk, long considered an excellent judge of fashionable merchandise assortments, is shaking up his management team to reverse declining earnings.

Slow-Moving Inventory

Net income has dropped for the past four quarters and the chain has boosted discounts to clear slow-moving inventory. Comparable retail segment net sales at the Urban Outfitters brand, which accounted for 46 percent of revenue last year, were flat in the third quarter after gains of 1 percent in the first two quarters of the year. Total inventories jumped 27 percent.

Urban’s shares dropped 0.1 percent to $26.15 at 12:28 p.m. in New York.

“The fashions, once their greatest strength, are simply off, and their reputation as the trendiest place to go is sliding,” Quintiliano said in a telephone interview. “Urban is just throwing stuff at a wall and seeing what sticks with consumers.”

Urban’s earlier successes may have made the chain too bold in choosing fashions that have gotten ahead of shoppers’ tastes, offering bell-bottom pants while consumers still are seeking skinny styles, said Christine Chen, a San Francisco-based analyst at Needham & Co.

Style Resistance

“There will always be some resistance to new styles and most people don’t overhaul their wardrobes overnight,” Chen said in a telephone interview. “Most likely people will transition and adopt a boot-cut pant before they are comfortable enough to try a bolder style.”

Urban also has offered baggy tops, like tunics, which are better suited for skinny jeans, alongside loose bell bottoms, Chen said.

Many aspects of Urban Outfitters are “confusing,” such as the range of products and prices, said Vincent Quan, an associate professor at New York’s Fashion Institute of Technology who also consults retail chains on merchandising. At a recent trip to an Urban store, Quan saw a $150 dress displayed alongside a $59 one, he said.

Faux Pas

“This is a faux pas in today’s retail market,” Quan said. “Customers have come to expect that similarly priced items will be grouped together and that they won’t have to dig around to find out a cost.”

Adding to the earnings woes is a spate of bad publicity, triggering a backlash from many of its target shoppers in their teens and 20s.

In May, jewelry designer Stevie Koerner accused Urban Outfitters on her website of copying her “The World of Love Series,” which featured U.S. states cast in silver with cut- outs of hearts.

Users on Twitter, including singer Miley Cyrus, accused Urban of stealing and tried to start a boycott. Urban responded on its website that it would continue to sell the jewelry, saying that the idea of state-shaped necklaces wasn’t unique to Koerner and that several sellers on the craft website Etsy sold similar designs.

Navajo Nation

In June, the Navajo nation sent Urban a letter demanding that the company pull the Navajo name from a line of purses, t- shirts and underwear meant to evoke American Indian culture, and a petition on the website change.org asking the retailer to remove the clothing gathered more than 16,000 signatures.

A search of the word “Navajo” on the retailer’s website returns no items, and pieces previously in the collection are now simply labeled as “printed.”

The company said earlier this month that David McCreight, a former Under Armour Inc. executive, was appointed CEO of Anthropologie Group, and Charles Kessler, formerly of Coach Inc. and Abercrombie & Fitch Co., would be chief merchandising officer for the namesake brand. Stephen Murray, former global president of Urban Outfitters, left his post in April after a year on the job.

A spokeswoman, Sara Goodstein, said the company declined to comment.

Urban’s problems are more about the “headwinds” working against them, such as an overcrowded apparel market and a sluggish economy, than the company’s actions, said Linda Tsai, a senior analyst at ITG Investment Research. The chain’s net income has increased every year since its fiscal 2007.

“Fashion missteps happen to everyone sometimes,” Tsai said in a telephone interview. “While apparel has sometimes struggled, we’ve seen success in their accessories, outerwear and shoes.”

Needham’s Chen said Urban has “some of the best merchants” and is likely to rebound.

“They’ve had some mishaps, but this is not a turnaround situation,” Chen said.

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net