Urban Outfitters, a popular brand that also owns Anthropologie and Free People, announced during its second quarter results call that it has appointed its first group Chief Digital Officer - David Hayne, whom was previously chief operating officer at Free People.
CEO Richard Hayne said that the appointment was owed to his “great track record” and that he will be working with all of the group’s brands to drive digital growth and “carve out that strategy”. Reading through Urban Outfitter’s results, it’s clear that the group is placing increased importance in the shift to online sales, as well as growing the company’s presence via social channels.
The group’s results delivered a surprise rise of 1% in comparable sales for the same period last year, boosting the company’s shares by 8% in after hours trading. For the period ended July 31st, Urban Outfitters reported a profit of $76.9 million, compared with $66.8 million a year earlier - beating analyst expectations.
And it was clear from Chief Financial Officer Frank Conforti’s comments, that this is being driven by the shift to online (or as the company calls it, direct-to-consumer). He said:
Within our retail segment comp, the direct-to-consumer channel continues to outperform stores, posting another double-digit sales gain, driven by an increase in sessions and conversion rate, which more than offset a decrease in average order value.
Negative comp store sales resulted from decreased transactions and average unit selling price, while units per transaction were flat. By brand, our retail segment comp rate increased by 5% at Urban Outfitters, was flat at the Free People and was down 3% at the Anthropologie Group.
Equally, Conforti added that expenses could grow at high single digit rates for the year, as growth is being driven by “increased investments in marketing and technology”. Conforti said that hopefully this will drive double-digit direct-to-consumer (online) sales gains for the year.
Urban Outfitters has had to adapt quickly, and has somewhat suffered in recent quarters, given the changing nature of retail - particularly apparel. Consumers are quickly shifting their buying habits to online, and when they’re buying in store it tends to be focused on fast moving brands such as Topshop, H&M and Zara.
However, given Urban Outfitters’ slightly higher price points, it has decided to differentiate by focusing on providing goods to its buyers that they aren’t able to purchase anywhere else. It hopes that this will drive demand both in store and online.
Trish Donnelly, CEO of the Urban Outfitters Group, said:
Now let me discuss in further detail the various initiatives contributing to the strong top line growth. The record volume in the quarter was driven by increases in regular price businesses across categories, geographies and channels. One of our biggest shift in strategy across all merchandize category has been our focus on exclusive products and offering our customer products he or she can't get anywhere but Urban Outfitters.
At the end of the quarter over 90% of our women's apparel assortment was available only at Urban Outfitters. Today more than ever product differentiation is critical not just as a traffic driver to both direct-to-consumer and stores, but more importantly it's an obligation we have to our core customer. Our customer looks to us for unique product and first to trend and exclusive product offerings ensure her she won't be wearing something offered anywhere else.
Urban is also making big investments in other areas of online, besides from the traditional e-commerce play, in the hope that more eyes on the brand will lead to more sales. For example, it is investing in online video streaming, as well as fast growing social media channels. Donnelly said:
This brings us to a new emerging category, music, which has always been part of Urban Outfitters DNA and product mix. In addition to the product side of the music category we're also committed to delivering the experience. Digitally we've been building out our music video series UO Live with tens of thousands of subscribers and views, it gives us another platform on which to connect with our customer while supporting our favorite artists and bands. Our Urban Outfitters Music Instagram is growing quickly with mixed tape previews and vinyl giveaways, our most engaged customer interactions.
Another area where we're seeing tremendous customer growth and audience engagement is in social medial. Our Instagram followers exceeded the 5 million mark during the quarter, increasing 65% over the prior year and we're now capturing over 200,000 new followers a month. In addition to our national Instagram accounts, our stores manage their local accounts, which accrued almost 700,000 followers and over 19 million likes in the quarter. Snapchat is important in our consumers' life and we're also seeing fast growth here with viewership increasing 25% month over month.
This channel has given us yet another relevant way to connects with our customers and engages in two way conversation. A great example of this occurred during LGBTQ pride month in June where our Snapchat stories garnered close to 130,000 views.
Stores are still important
Last week Macy’s announced that it was closing a further 100 stores. This isn’t an uncommon trend amongst retailers, that traditionally relied upon a physical footprint to get the products into the hands of their consumers.
However, whilst Urban Outfitters is likely to experience some of this too, CEO Richard Hayne was keen to argue during the investors call that stores will still continue to play a role, despite the shift to online. He said:
I think that Urban is definitely benefiting from a lot of the initiatives they're doing, not just the good fashion, but the social media work that they are doing and the marketing work they are doing. In July they actually saw a positive comp stores, sales in North America and in Europe they had positive comp store sales, so yeah I think you can make the difference.
I do believe that we shouldn't get too negative on stores I think that there is no question, there are too many stores in North American and we start to see some of those stores going away, our competitors are closing stores at a reasonable rate So I think that you will continue to see a lot of stores close and go away and I think that's a positive thing for the industry and a positive thing for all the people including the ones that are closing the stores.
But I don't think it's a problem with stores per say, I think the stores concepts are still valid, what I see happening overtime is just fewer stores but probably the store is larger and delivering more of a unique experience and which complements their direct consumer business and I think that that will be the winning combination.
A good quarter for Urban and the appointment of Hayne as Chief Digital Officer highlights the company’s commitment to becoming an online business. That doesn’t take away its stores problem, but it’s smart to see the company thinking about how it can use those stores to its advantage, and rethinking what role they will play. Physical assets don’t have to be a drain on resources, if the company can use them to complement their online business.