Urban Outfitters, Inc. Business Information, Profile, and History

History of Urban Outfitters, Inc.

Urban Outfitters, Inc. is an American merchandiser, operating two chains of niche retail stores--Urban Outfitters and Anthropologie&mdash well the wholesale subsidiary Urban Outfitters Wholesale, Inc. Through its 20 Urban Outfitters stores in major U.S. metropolitan areas, the company offers casual clothing, accessories, and housewares aimed at the 18--30 age group. The three Anthropologie stores operating in 1995 cater to the over-30, upscale, suburban shopper, offering clothing, furniture, bedding, tablewares, and gifts. Urban Outfitters Wholesale designs, manufactures, and sells women's and men's clothing to over 1,000 specialty stores under four labels: Anthropologie, Co-Operative, Ecote, and Free People. Primary elements of the company's overall retail strategy include locating stores where their target customers are naturally concentrated; renovating and adapting existing structures to provide distinctive store environments; offering a broad mix of eclectic and fashionable brand name and private label apparel and home furnishings in the same store; and using innovative visual merchandising, striking store displays, and a distinctive mix of merchandise to present its wares.

Urban Outfitters was created in 1970 by two retail novices, anthropology graduate Richard Hayne and his former roommate at Lehigh University, Scott Belair. Hayne was just back from two years working with Eskimos in Alaska as a VISTA Volunteer; Belair was a second-year student at Wharton School of Business and needed a project for his entrepreneur workshop. Over beer one night, the two came up with the idea of a store for college and graduate students, selling inexpensive clothes and items for dorm rooms and apartments. Pooling $5,000, they opened the Free People Store in Philadelphia, near the campus of the University of Pennsylvania. The store offered inexpensive second-hand clothing, Indian fabrics, scented candles, T-shirts, drug paraphernalia, and ethnic jewelry, in 400 square feet decorated with packing crates and beat-up furniture. "I was that market," Hayne told Dan Shaw of the New York Times in 1994, adding that "everyone associated with the store was that market."

The store was a success. "Belair got an A on the project," according to Robert La Franco in a Forbes article, "and went on to Wall Street, where he [ran] his own bankruptcy workout business." Hayne stayed with the business, adding such merchandise as coffee mugs and glassware to the product line. In 1976 he moved to larger quarters near the university, changed the store's name to Urban Outfitters, and incorporated the company. In 1980, with sales around $3 million, Hayne opened a second store, in Cambridge, Massachusetts, close to several colleges.

In 1987 Hayne hired Kenneth Cleeland as chief financial officer. Cleeland, a graduate of George Washington University, had held financial positions with several wholesale and retail companies. At Urban Outfitters, he instituted financial controls to deal with shoplifting problems and Hayne's rather casual bookkeeping practices. Profits increased, and Cleeland helped Hayne borrow $3 million to open six new stores within three years.

New stores in the chain followed the original concept and were located in metropolitan areas near college students. By 1995, Urban Outfitters stores would be established in Madison, Wisconsin; Ann Arbor, Michigan; Boston; Minneapolis; Seattle; New York; Washington, D.C.; Chicago; and Portland. Moreover, the chain would also secure a presence in California, with five locations in college towns. Even when Hayne was tempted to drift from his original concept, store locations kept the company focused on its college-age market.

The new stores maintained Hayne's "counterculture" approach, and the company relied heavily on its buildings and interior displays to entice customers to enter, explore its stores, and buy its goods. "We always use renovated buildings," Hayne told The Washington Post in a 1993 feature. "Other stores will go into a mall and put their image into a space, where we use an existing space to enhance our image. None of our stores look alike. We go into these old buildings and adapt them for ourselves," he noted. In Washington, D.C., for example, the company took over a Woolworth's store, complete with worn wooden floors, exposed brick walls, and a steel staircase to the basement. The Ann Arbor store was established in an old theater, and other locations included a former bank and stock exchange. In 1993, Urban Outfitters stores averaged approximately 9,000 net selling square feet.

The decor within each stores was also unique, although the atmosphere remained similar throughout the chain--casual and fun. Much of this was due to the staff and the company's policy of listening to its customers. Hayne hired staff within the targeted age group and depended on their personal style to guide merchandising strategies. Staff decided on the music to be played, even bringing in their own compact disks, and department managers were made responsible for the look of their sections. "We have to come up with creative inventions for fixtures and displays," housewares manager Susan Duckworth, 27, explained in The Washington Post, adding that "It's the only place I've worked where you can bring an old crate to work, make something out of it and [the bosses] love it."

"We try to appeal to the mainstream and those who want to cross the line every once in a while; we do stay abreast of fashion trends," Sala Patterson, an 18-year-old sales associate explained in the Post article. According to a 1995 Forbes story, Hayne spent $4 million a year on salaries and expenses for over 75 young fashion buyers who checked out neighborhoods in the United States, London, and Paris to report on hot fashion trends. The chain's unconventional atmosphere, merchandise, and music attracted students younger than 18 as well. As one 15-year-old explained to The Washington Post, "It's such a down-to-earth place, it's not a chain like the Gap and J. Crew. Everything's really different."

Urban Outfitters prepared its management, merchandising, and buying staff by recruiting recent college graduates and qualified store employees and sending them through a six- to nine-month "Management Development Program." While in the program, participants had a series of rotations between stores and the home office. A "Manager-in-Training" program offered the on-the-job experience needed to become departmental, assistant store, or store manager.

As the company grew, it took steps to keep its organizational structure relatively stable. Employees were eligible for profit sharing and stock options and took turns producing "Urban World," a quarterly in-house newsletter. Articles in the newsletter included reports from various branches and profiles of employees and customers, providing market research as well as internal communications. In 1993, the company initiated it "Shared Fate" program, designed to increase team management and give every employee the responsibility and authority to make decisions to increase productivity.

Recognizing that private label merchandise generally yielded higher gross profit margins than brand name merchandise, Hayne created the wholesale division in 1984 to design, produce, and sell its own line of junior sportswear. Michael Schultz joined the company in 1986 as president of Urban Wholesale, Inc. Schultz had previously served as president of Andrew Fezza International Division of Levi Strauss & Company and as a vice-president of merchandising at Pierre Cardin.

In 1990, the division replaced its signature Urban Outfitters collection brand with three separate labels: Ecote, Free People, and Anthropologie. The three apparel labels each targeted a different audience. Ecote produced solid and printed casual rayon dresses in styles ranging from baby dolls to A-lines and made up about 60 percent of the business in 1991. The Free People label produced sixties-inspired designs and hip casualwear, while Anthropologie made young women's casual wear, primarily cotton, wool, and silk sweaters. Schultz expected Anthropologie to become the division's biggest label because it was the most adaptable. As reported in Women's Wear Daily, before the change, 70 percent of the division's sales were to department stores and 30 percent to specialty stores. In 1991, it was just the opposite, as wholesale volume had grown 50 percent, from $10 million in 1989 to $15 million in 1990.

In 1993 and 1994 the Urban Wholesale division had revenue gains in excess of 76 percent and 56 percent, respectively. The company attributed this growth primarily to more and larger orders for the Anthropologie line from small and medium-sized specialty apparel stores. It should be noted that while much of the inventory of the company's stores was from the three labels, buyers for Urban Outfitters and Anthropologie did not automatically buy from the wholesale division. Urban Outfitters and Anthropologie accounted for 28.8 percent and .3 percent of Wholesale's total revenue in 1992, according to the company prospectus. By 1994, shipments of Urban Wholesale outside the U.S., particularly to Japan, was six percent of total sales. Merchandise made in the United States represented about 20 percent of the division's production.

As the number of stores grew and the wholesale division was revamped, company sales increased. In 1990, net sales amounted to $37.4 million. In 1991, sales increased 17.3 percent to $43.9 million. Most of the increase, 75 percent, was due to new stores opened in 1990 and 1991. The largest selling product category in Urban Outfitters stores was women's apparel. In 1992, it accounted for one-third of total sales, followed by footwear and accessories at 27 percent, men's apparel at 22 percent, and apartment wares and gifts at 18 percent.

In October 1992, Hayne opened the first Anthropologie store in a renovated automobile dealership in Wayne, Pennsylvania, outside Philadelphia, and named Glen Senk president. After 16 years of selling T-shirts, jeans, and work boots, and with his original chain doing well, Hayne thus took the company's strategy to older, more established shoppers living in the suburbs of major metropolitan areas. Anthropologie targeted customers who were focused on family, home, and career, with interests in travel, the arts, gardening, and reading. The Wayne store featured an espresso bar and placed greater emphasis on "hardgoods" such as furniture and a variety of home, garden, and tabletop products, including books and ceramics.

The decor of Anthropologie tended to be rustic and ecologically conscious. Product lines were intermixed and arranged in a variety of displays. For example, an antique bed might serve as the anchor for a section containing linens, towels, nightgowns, lingerie, soap, bath oils, picture frames. and mirrors. Another small area might feature children's clothes, books, toys, and note cards, while birdhouses and diaries of handmade paper might be found alongside men's sweaters and pants.

During 1992, company sales grew to $59.1 million, a 34.7 percent increase. The wholesale division introduced the Co-operative product line of fashion basics, consisting mostly of lower-priced cotton knit tops and sweaters. Profits also increased with the successful expansion of the company's higher-margin private label program.

During 1993, Hayne opened two more Urban Outfitters stores, in San Francisco and Costa Mesa. Comparable store sales increased by 18 percent and total sales exceeded $500 per selling square foot for the first time. The wholesale division opened a large sales office in New York. Prices at Urban Outfitters stores during 1993 ranged from $.75 for greeting cards to $450 for a World War I-style leather bomber jacket. At the Anthropologie store, prices ranged from $1.00 for a greeting card to $1,500 for an antique Mexican cabinet. The company implemented its "Shared Fate" program for employees and initiated a company-wide profit sharing plan. Total sales for the year grew at 43 percent. In November, Urban Outfitters went public at $18 a share, raising over $13 million in capital through the initial public offering.

Hayne used the capital to continue his strategic plan of growth by adding new stores in the retail business and adding new customers and increasing sales to existing ones in the wholesale division. In 1994 he opened three new Urban Outfitters stores, two in Chicago and one in Pasadena, and indicated that he planned to open three or four new stores each year for next three years, some of which might be located outside the United States, in Canada and/or Europe. Based on the success of the Wayne, Pennsylvania, store, two more Anthropologie stores were opened in 1994, in Westport, Connecticut, and Rockville, Maryland, just outside Washington, D.C. In the company's annual report that year, Hayne indicated he hoped to open three to four additional Anthropologie stores each year and that the company would invest heavily in expanding the Anthropologie division. Overall company sales grew by 30 percent from 1993. Recognizing that high rates of growth would be difficult to maintain, the company set a goal of 20 percent annual growth.

In 1995, an Urban Outfitters store opened in Portland, Oregon, and lease signings were announced in Austin, Texas, and Tempe, Arizona, moving the company into the southwest for the first time. With steadily increasing sales during this time, the company gained a ranking as number 76 on the Business Week list of hot growth companies. As it neared the end of the century, the Urban Outfitters and Anthropologie chains appeared to be going strong, and, after a quarter century, Hayne and his staff were still successfully anticipating and responding to shifts in fashion trends and the changing tastes of their customers.

Principal Subsidiaries: Urban Outfitters Wholesale, Inc.; Anthropologie, Inc.