Urban Outfitters, Inc

A Progressive Digital Media business

REFERENCE CODE: 1676A203-98F5-4532-9D01-AE7E85D9900C PUBLICATION DATE: 13 Jan 2016 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED. Urban Outfitters, Inc. TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview...... 3 Key Facts...... 3 SWOT Analysis...... 4

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COMPANY OVERVIEW

Urban Outfitters, Inc. (Urban Outfitters or 'the company') is a lifestyle specialty retailer.The company offers a range of lifestyle merchandise under Urban Outfitters, Anthropologie, Free People, Terrain and Bhldn brand names. Urban Outfitters has operations spread across the US, Canada and Europe. It is headquartered in Philadelphia, Pennsylvania and employed about 24,000 people as of January 31, 2015.

The company recorded revenues of $3,323.1 million in the financial year ended January 2015 (FY2015), an increase of 7.7% over FY2014.The operating profit of the company was $365.4 million in FY2015, a decrease of 14.4% compared to FY2014. The net profit of the company was $232.4 million in FY2015, a decrease of 17.7% compared to FY2014.

KEY FACTS

Head Office Urban Outfitters, Inc. 5000 South Broad Street Philadelphia Pennsylvania 19112 1495 USA Phone 1 215 454 5500 Fax Web Address http://www.urbanoutfittersinc.com/ Revenue / turnover 3,323.1 (USD Mn) Financial Year End January Employees 24,000 NASDAQ Global URBN Select Market Ticker

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SWOT ANALYSIS

Urban Outfitters is a lifestyle specialty retailer. The company has strategically positioned each of its brands which enable it to successfully cater to the clothing requirements of different age groups. The company's focused approach to cater to the requirements of various customers through well-structured brand strategy helps it to strengthen foothold in each of those customer segments. However, intense competition in the market could limit the growth opportunities for the company.

Strengths Weaknesses

Strategic brand positioning Geographic concentration Presence in multiple sales channels Improving efficiency through information technology

Opportunities Threats

Growth opportunities offered by online retail Intense competition channel Rising minimum wage rate in the US Acquisition of the Vetri Family of Restaurants Growing apparel industry in the US

Strengths

Strategic brand positioning

The company operates its business through five major brands: Urban Outfitters, Anthropologie, Free People, Terrain and Bhldn.The company has strategically positioned each of its brands which enable it to successfully cater to the clothing requirements of different age groups. The Urban Outfitters brand caters to young adults aged 18-28 through its unique merchandise mix and compelling store environment. The Urban Outfitters stores are located in large metropolitan areas, select university communities, specialty centers and shopping malls.The brand's merchandise mix comprises women's and men's fashion apparel, footwear and accessories. The Anthropologie brand caters to women aged between 28 and 45. Its stores are primarily located in specialty retail centers, upscale street locations and shopping malls, and offer women's casual apparel and accessories, intimate apparel, shoes, home furnishings and a diverse array of gifts and decorative items.

Free People brand caters to young women aged 25-30.The Free People stores are located in malls, upscale street locations, and specialty retail centers.These stores offer a merchandise mix of casual women's apparel, intimate apparel, shoes, accessories, and gifts. The Terrain brand's merchandise

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includes home furnishings and decorative items, garden products, outdoor living furnishings and entertainment products and a wide variety of gifts. The Bhldn brand offers a collection of wedding gowns, bridesmaid frocks, party dresses, assorted jewelry, headpieces, footwear, lingerie and decorations.

The company's focused approach to cater to the requirements of various customers through well-structured brand strategy helps it to strengthen foothold in each of those customer segments.

Presence in multiple sales channels

Urban Outfitters enjoys a wide spread market presence through its retail stores and online channels. The Urban Outfitters and Anthropologie brands operate retail stores in North America and Europe. The Free People and Terrain brands operate retail stores in the US market.The company also offers its merchandise through the direct-to-customer route which comprises catalog and online retail sales. Currently, the company sells merchandise through Urban Outfitters, Anthropologie and Free People catalogs. During FY2015, the company circulated nearly 27.9 million catalogs across all brands. Urban Outfitters has online presence through its retail websites and mobile applications. The e-commerce websites offer similar collection of merchandise as offered by the company's brick-and-mortar stores.Thus, presence in different sales channels increases the company's customer base, enhances its brand popularity and leads to incremental sales revenue.

Improving efficiency through information technology

Urban Outfitters is improving its operational efficiency through increased technological up-gradation of its supply chain management and store management. The company utilizes point-of-sale (POS) register systems and mobile POS devices that are connected to its home offices. These systems enable the company to register efficiencies, timely customer checkout and also provide instant back office access to register information, as well as daily updates of sales, inventory data and price changes. The company maintains a separate software system to integrate the merchandise and customer information for its in-house customer contact center and fulfillment functions. It also caters to its customer needs and plans its order entry and allocations, production planning and inventory management through a separate software system. The company has a second fully redundant data center located in its Reno fulfillment facility that acts as a disaster recovery site for its direct-to-consumer, data communication and all other business critical systems.

Thus, focusing on technology development allows Urban Outfitters to enhance its operational efficiency as well as offer better service to customers.

Weaknesses

Geographic concentration

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Urban Outfitters is largely dependent on its domestic market for a major chunk of its revenues. The US accounted for 86.4% of the total revenues in FY2015 and foreign operations accounted for 13.6% of the total revenues. The company's business is highly concentrated in the US which makes it susceptible to the economic conditions in the country. Given an uncertain economic conditions in the US, sales and revenues of the company might take a hit. Thus, concentration of business operations in a particular geography makes the company vulnerable to demand fluctuations and downturns in that region. It also increases Urban Outfitters' business risk and deprives it of the growth opportunities that its competitors enjoy because of their wide spread geographic presence.

Opportunities

Growth opportunities offered by online retail channel

The online channel as a means for shopping has been gaining popularity among customers in the US. According to the US Department of Commerce, online retail sales (adjusted for seasonal variation) in the US increased from $169.3 billion in 2010 to $297.2 billion in 2014, representing a compound annual growth rate (CAGR) of 15.1%. e-commerce sales increased 14.4% in 2014 over the previous year. Total retail sales, on the other hand, grew by only 3.6% during 2014. e-commerce sales accounted for 6.4% of total retail sales in 2014, compared to 4.4% in 2010. Furthermore, e-commerce sales for the third quarter of 2015 totaled $87.5 billion, an increase of 15.1% compared to the third quarter of 2014. A similar trend is noticed in Europe. According to industry estimates, the online retail sales in Europe are expected to grow at a CAGR of nearly 11% from 2013 to 2018.The growing trend among shoppers to research products prior to purchase is also benefitting the online market. The online channel provides operating cost benefits which can be passed on to customers, who are more frugal as the discretionary spending continues to be pressurized. Also, online shopping offers convenience to consumers as they can shop from their homes, and save on travel time.

Urban Outfitters offer its various brands directly to consumer through its e-commerce websites. These websites offer apparel, accessories and household merchandise found in the company's stores. By leveraging its online presence, Urban Outfitters can expand its presence to various international markets. Online presence can also increase the company's sales and profits faster than its brick-and-mortar stores as the web-based stores are open round the clock. Additionally, online presence increases the Urban Outfitters' recognition among the target customers, and also helps to support the customer traffic at the company's stores.

Acquisition of the Vetri Family of Restaurants

In November 2015, Urban Outfitters entered into an agreement to acquire substantially all The Vetri Family group of restaurants. The acquisition includes five restaurants, including Osteria, Amis, Alla Spina, Lo Spiedo, and Pizzeria Vetri. Vetri Family owns and operates a chain of casual dining Italian restaurants in the US. This partnership is likely to create a potential synergy between both the companies. Urban Outfitters seeks to explore the growth opportunities in the casual dining, one of the fastest-growing markets in the US.Therefore, strategic acquisition such as this helps the company in strengthening its market share by diversifying its revenue sources.

Growing apparel industry in the US

The US apparel retail market has been growing in the recent times. According to MarketLine, the US apparel retail market grew by 1.9% in 2014 to reach a value of $375.1 billion. Womenswear was the largest segment of the apparel retail industry in the US, accounting for 51% of the market's total value in 2014. The US accounted for 28.5% of the global apparel retail industry value. By 2019, the US apparel retail market is forecast to have a value of $457.6 billion, an increase of 22% since 2014. The growing online spending is also expected to contribute to the growth of the US apparel market.

Urban Outfitters offers a variety of merchandise under its clothing category, including dresses, tops, bottoms, wedding gowns, sweaters and sweatshirts for women, and jackets, blazers, tops and bottoms for men. Therefore, positive outlook and growth in the apparel industry can help company's business, and improves its revenues.

Threats

Intense competition

Urban Outfitters operates in a highly competitive environment. It competes with bebe stores, Abercrombie & Fitch, American Eagle Outfitters, The Wet Seal, Ascena Retail Group, Gap, The Buckle, Aeropostale, H&M Hennes & Mauritz and Guess. Some of the company's competitors are large in size and well-established. The company's Anthropologie, Free People and Bhldn stores compete with various small boutiques that offer personalized shopping experience similar to the company's offerings. Apart from that, the company's direct-to-consumer channel competes with various websites and catalogs that have a greater volume of circulation, web traffic and more effective marketing through online media and social networking sites. Therefore, intense competition puts pressure on the company to reduce prices to attract consumers and meet the competitors' levels. It could also impact the customer retention ability and profitability of Urban Outfitters adversely.

Rising minimum wage rate in the US

There has been an increase in labor costs in the US in the recent years. The federal minimum wage rate in the US, which remained at $5.15 per hour since 1998, increased to $5.85 per hour in 2008. It further increased to $6.55 per hour in 2009 and to $7.25 per hour in 2010. Many states and municipalities in the country have minimum wage rates even higher than the federal minimum wage rate due to the higher cost of living. For instance, in California, the minimum wage rate increased from $9 in 2015 to $10 in 2016; in Connecticut, the minimum wage rate grew from $9.15 in 2015 to $9.6 in 2016. The minimum wage rate increased from $8.23 in 2015 to $8.31 in 2016 in Colorado. Similarly, in Alaska, the minimum wage rate increased from $8.75 in 2015 to $9.75 in 2016; in Arkansas, it increased from $7.5 in 2015 to $8 in 2016; and in Massachusetts, the minimum wage rate increased from $9 in 2015 to $10 in 2016. Rising labor costs can increase the company's operating cost and affect its margins.

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