Urban Outfitters Shop Front, Covent Garden, London, England, BritainLondon, Britain - 03 Apr 2013

Urban Outfitters Inc. is winning online and through wholesale accounts, but can’t make its own brick-and-mortar work in an extremely tough retail environment.

The answer?

Cutting costs at its stores and muddling through for now, while doubling down on e-commerce, expanding internationally, wholesaling more of its offering out to other retailers and building up its smaller brands.

After weighing in with disappointing first-quarter results that showed a sharp decrease in profits and slower sales, Richard Hayne, chief executive officer, sketched out a much broader and significantly different vision of the company’s future.

Before Urban Outfitters gets to that future, it has to get through the present.

“This is a difficult period for U.S. fashion apparel retailers and [Urban Outfitter’s] first-quarter results reflect that difficulty,” Hayne said.

The Philadelphia-based company’s net income decreased 60 percent to $11.9 million, or 10 cents a share, from $29.6 million, or 25 cents, a year earlier. Sales for the three months ended April 30 slipped 0.2 percent to $761.2 million from $762.6 million as comparable sales declined 3.1 percent despite double-digit growth e-commerce.

By brand, including the company’s own stores and web operations, first-quarter comps rose 1.5 percent at Free People, but fell 3.1 percent at Urban Outfitters and declined 4.4 percent at the Anthropologie Group. Wholesale sales, through the Free People brand, rose 14 percent.

The overall sales weakness was attributed wholly to the company’s North American stores, where foot traffic was “sluggish.”

“This issue is impacting virtually all U.S. brick-and-mortar retailers,” Hayne said. “There are simply too many stores at too many malls in North America. We expect to see more closures and brands disappear until a healthier balance is reached.”

The ceo said the company was working to keep store expenses under control, an effort that he said would require “cooperation from our landlords.”
But the company’s future lies elsewhere.

Hayne said e-commerce would be expanded and could see sales double in five years, while sales outside of America, currently less than 10 percent of the total, could be revved up. The company is also looking to build up its Bhldn and Terrain businesses.

Those are relatively pedestrian avenues for growth. The increasing interest in wholesale is something else and relies more on the company’s design chops.

Hayne noted: “One of the primary strengths of our brand teams is their ability to create compelling products and experiences. In other words, to create content. Free People has grown its wholesale revenues at a double-digit pace for five consecutive years. This has accomplished our combination of enlarging the brand’s reach geographically and in expanding the product categories offered. And while Free People is our model, this content capability exists within each of our brands. We believe we can better leverage and modify as our talent by offering more of our content through the wholesale channel.”

All together, Hayne said growth initiatives could add “many hundreds of millions if not billions of dollars to our top line.”

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