The latest Urban Outfitters sales figures make for happier reading, coming after a string of poor results. A 3.5 per cent uplift in total sales in the third quarter is welcome, but it is the return of all brands to positive comparable sales that is most agreeable. This rise came despite the negative impact of the hurricanes on some stores: without this, comparable Urban Outfitters sales would have risen by 2 per cent rather than the reported 1 per cent. As good as the numbers are, there are stil
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l some weaknesses in Urban Outfitters’ performance. Foremost among these is the growing disparity between stores and the online operation. The latter continues to grow strongly, while the former is still in decline. Although the two trends balance each other out in sales terms, the impact on profit is negative because of the higher costs associated with fulfillment. This is not a new dynamic, but it is one that Urban Outfitters is still largely failing to address.
The impact of online joined with a couple of other trends in depleting gross margin by 142 basis points over the period. One of these was the higher proportion of lower-margin furniture products in the sales mix. The other was a higher percentage of lower-profit international sales. Taken together, these things contributed to the 4.8 per cent decline in net income over the prior year. While this is a lot better than the 31 per cent decline posted over the nine months to-date, it is still one that leaves Urban Outfitters in the red when it comes to profit growth.
Putting these issues to one side, the better performance was also delivered against a more positive backdrop for apparel where demand was stronger than it has been for most of the year. This is not to take away from some of the progress made by Urban Outfitters, but it does suggest that when put in context, the company still has some work to do to lift its performance.
While Urban Outfitters and Anthropologie stores are not unpleasant places to shop, they do not make the process of buying easy. The customer has to do a lot of work to find the right product, which is one of the reasons increasing numbers are opting to buy online where sorting and filtering options make it easier to identify items of interest.
Furthermore, while the fall and winter apparel ranges appear to have a little more cohesion, the overall clothing offer is too eclectic. That’s the reason Urban Outfitters, and to a lesser extent Anthropologie, are still dropping off the radar of some consumers. To remedy this, both brands need to develop a much clearer and more compelling handwriting that resonates with the core customer.
Free People does a much better job at creating a unique and interesting offer, which is one of the reasons its performance has been so much better. However, the Urban Outfitters’ over-reliance on this brand – where comparable sales rose by 5 per cent – is problematic. If it is to sustainably boost performance, the company needs to be firing on all cylinders, not just one.
Neil Saunders is MD of GlobalData Retail.