Market Overview

Urban Outfitters Reputation Clean-Up Necessary, Former CEO to the Rescue

For the average consumer, Urban Outfitters (NASDAQ: URBN) has become a special-occasion based retailer in terms of wardrobe and expense. With the introduction of H&M, Forever 21 and other highly affordable brands in recent years, it is no wonder that the luxury store was more successful in the pre-recession past.

Experiencing the pangs of a scorned economy and increased competition has prompted Urban Outfitters to reenlist former CEO, Richard Hayne, back to the frontlines. It is believed that with his experience in the industry, particularly with this brand, he will be able to turnaround the dismal future URBN is likely headed for. However, this quick fix may not be as instant as it sounds.

In a research report published today by ISI, women's fashion in the U.S. has become quite prevalent in recent years, more notably, fast fashion and off-price brands.

“While still relatively small in the U.S., fast fashion has evolved from a small blip on the radar to a truly formidable presence. We estimate that Forever 21, H&M, and Zara have grown to over $4.5B in U.S. sales (versus only ~$900m in 2002), while traditional women's retailers (ANN, CHS, JCG, URBN, and others) have grown at just a 7% CAGR,” ISI stated in the report. “The off-price channel has nearly doubled its market share over the past decade (from 6% to 11%), as consumers increasingly view stores like TJ Maxx, Marshall's and Ross as trustworthy resources for branded fashion at 40-60% below department store prices.”

Along with increased competition made more detrimental by the recession, Urban Outfitters is currently facing controversy in the Irish and political community. The retailer has released St. Patrick's Day merchandise that has left many people offended and peeved at the company.

“The store is selling hats that include the image of a stick figure vomiting shamrocks. Another item is a beer jug labeled “Leprechaun Piss.” A third display is an Irish T-shirt celebrating drunkenness,” the New York Post reported. “Signing onto the protest were New York Democratic Reps. Joseph Crowley, Carolyn Maloney and Eliot Engel and Republican Rep. Peter King (R-LI).”

Not necessarily known to be on the straight and narrow path, Urban Outfitters has yet to respond to the heated public. While rebellion has a certain cool-factor attached to it, can the luxury retailer afford to lose any customers at this point? Likely not the entire Irish community, which is threatening to boycott the clothing in a new post on irishemigrant.com.

“America's largest Irish organization, the Ancient Order of Hibernians (AOH) has called on the Irish community to rally together to have Urban Outfitters remove its offensive St. Patrick's Day line from stores, and apologize to the Irish people,” irishemigrant.com said. “The Irish Anti-Defamation Federation was similarly annoyed by the merchandise. Tim Wilson and John J. Ragen, chairmen of the group, sent a letter announcing their intent to have the merchandise removed from Urban Outfitters stores.”

As calls continue to go unanswered and the merchandise remains on the shelf, Hayne's truly has his work cut out for him in more ways than one, including what style of clothing is offered in-store.

URBN predicted a year ago that skinny pants would soon be a thing of the past, touting flared and bootleg pants as the leg of the future. This forecast was clearly unwarranted and incorrect, as skinny pants have become “a staple in women's closets. The skinny silhouette simply makes women look and feel better thanks to innovative stretchy materials that can flatter nearly any body figure. We hope that URBN is able to reverse its course a bit and re-embrace the skinny look,” ISI said, maintaining its Hold rating on the stock.

Recent indication that the recession is turning around is hopefully on Urban Outfitters' side, as the company has a lot of kissing and making-up to do in these tough, yet stylish times.

Urban Outfitters is currently trading at $29.53, down -23.05% YOY.

Posted-In: Forever 21 H&MNews Retail Sales Topics Management Analyst Ratings General Best of Benzinga

 

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