Urban Outfitters, Inc.

1809 Walnut Street
Philadelphia, Pennsylvania 19103

Telephone: (215) 564-2313
Fax: (215) 568-1549
Web site: http://www.urbanoutfitters.com

Public Company
Employees: 6,200
Sales: $827.8 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: URBN
NAIC: 448140 Family Clothing Stores

Urban Outfitters, Inc., operates specialty retail stores under the Urban Outfitters, Anthropologie, and Free People banners. The company operates two business segments: the lifestyle merchandising retail segment, which oversees store operations, and a wholesale apparel business. Both Urban Outfitters and Anthropologie offer customers hip and trendy apparel and home furnishings through retail locations, catalogs, and Web sites. The first Free People store opened in 2002. The freepeople.com Web site soon followed. As of January 2005, Urban Outfitters Inc. operated 65 Anthropologie stores, two Free People retail locations, and 75 Urban Outfitter stores in the United States, Canada, and the United Kingdom.


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. In a 400-square-feet store decorated with packing crates and beat-up furniture, they offered inexpensive secondhand clothing, Indian fabrics, scented candles, T-shirts, drug paraphernalia, and ethnic jewelry. "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 started 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, Oregon. 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 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 27-year-old Susan Duckworth 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 Washington 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 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 andJ. 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 a departmental, assistant, 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 a 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.

Success Continues in the Early 1990s

In 1990, Urban Wholesale 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-era 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 wholesale 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 0.3 percent of Urban Wholesale's total revenue in 1992, according to the company prospectus. By 1994, goods from Urban Wholesale shipped outside the United States, particularly to Japan, comprised 6 percent of total sales. Merchandise made in the United States represented about 20 percent of the division's production.

Company Perspectives:

Our established ability to understand our customers and connect with them on an emotional level is the reason for our success. The reason for this success is that our brands—Urban Outfitters, Anthropologie and Free People—are both compelling and distinct. Each brand chooses a particular customer segment, and once chosen, sets out to create sustainable points of distinction with that segment. In the retail brands we design innovative stores that resonate with the target audience; offer an eclectic mix of merchandise in which hard and soft goods are cross merchandised; and construct unique product displays that incorporate found objects into creative selling vignettes. The emphasis is on creativity. Our goal is to offer a product assortment and an environment so compelling and distinctive that the customer feels an empathetic connection to the brand and is persuaded to buy.

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 "hard-goods" 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 Cooperative 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.

Urban Outfitters Goes Public in 1993

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 cents 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 on the retail side of the business and attracting new customers to the wholesale division while increasing sales to existing ones. 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 were planned to be located outside the United States, either in Canada, Europe, or both. 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. 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 20th 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.

Key Dates:

Richard Hayne and Scott Belair open the first Free People Store.
Hayne moves to larger quarters, changes the store's name to Urban Outfitters, and incorporates the company.
A second store is opened in Massachusetts.
Hayne creates the wholesale division to design, produce, and sell its own line of junior sportswear.
The wholesale division replaces its signature Urban Outfitters collection brand with three separate labels: Ecote, Free People, and Anthropologie.
The first Anthropologie store opens.
The company goes public.
Urban Outfitters opens in London.
The first Free People retail store debuts.

Late 1990s and Beyond

Urban Outfitters entered the late 1990s on solid ground. Despite having to close its first location near the University of Pennsylvania due to poor sales, the company forged ahead with is growth plans, buoyed by strong sales at its remaining outlets. In 1998, Anthropologie launched its direct-to-consumer catalog. Later that year, Urban Outfitters made its debut in London, opening its first store on Kensington High Street. During this period, Urban Outfitters' expansion was comparatively slower than many retail chains, however, despite the fact that it putting considerable effort into market research before deciding to open a store. Company officials called each location a "complete lifestyle" store and were diligent in making sure it knew what its target customers wanted. Hayne explained the lifestyle label in a November 1998 Retail Week article. "We have this concept where we have a unique and singular group of people that we are trying to service and we have a concept that emphasizes the lifestyle approach to servicing these customers. The product category to us is not particularly important, as long as we can make money, but the lifestyle is incredibly important."

Urban Outfitters continued its lifestyle strategy in the 2000s and experienced marked success. It expanded its store count while sales and profits increased. Fifteen stores were opened in 2000, 12 in 2001, and 15 in 2002. During 2003, approximately 20 Anthropologie stores opened their doors while 20 Urban Outfitters locations were added to the company's growing arsenal. The Urban Outfitters catalog was launched that year.

The company opened its first Free People store in the Garden State Plaza Mall in Paramus, New Jersey, in November 2002. A second location followed in December 2004 in Arlington, Virginia. During that year, Urban Outfitters was one of the most successful retailers, securing a revenue increase of nearly 50 percent while net income rose by 87 percent over the previous year.

With a solid financial record in place, Urban Outfitters planned to continue its expansion efforts in the coming years. Management hoped to increase store count by 20 percent per year, emphasizing that each location would continue to have its lifestyle focus. By 2005, there were over 75 Urban Outfitters stores in the United States, Canada, and the United Kingdom. Over 65 Anthropologie stores accounted for nearly 39 percent of net sales in 2005. Its success in recent years left it in a enviable position among its competitors. Indeed, Urban Outfitters Inc. had a strong following, a solid strategy in place, and years of success under its belt. Hayne was confident that the company would remain a retail powerhouse well into the future.

Principal Subsidiaries

Urban Outfitters, Inc.; Anthropologie, Inc.; Urban Outfitters Wholesale, Inc.; Urban Outfitters UK Ltd.; Urban Outfitters (Delaware), Inc.; Anthropologie (Delaware), Inc.; Urban Outfitters West LLC; Urban Outfitters Direct LLC; Anthropologie Direct LLC; Inter-Urban, Inc.; U.O.D. Inc.; U.O.D. Secondary, Inc.; UO Fenwick, Inc.; Urban Outfitters Canada, Inc.; Urban Outfitters Ireland Ltd.; Free People LLC; UOGC, Inc.; Urban Outfitters Holdings LLC; Anthropologie Holdings LLC; urbanoutfitters.com LP; anthropologie.com LP; Freepeople.com LLC.

Principal Competitors

Gap Inc.; Buckle Inc.; Limited Brands Inc.; Pier 1 Imports Inc.

Further Reading

Barrett, Amy, "Hot Growth Companies," Business Week , May 22, 1995.

"Company Chops Its Roots," Harrisburg Patriot , May 29, 1997, p. B9.

Gilstrap, Peter, "Not-So-Radical Chic," Washington Post Magazine , September 12, 1993, p. 31.

Gordon, Maryellen, "Urban Outfitters' New Route," Women's Wear Daily , sportswear report supplement, January 2, 1991, p. 4.

Greenburg, Cara, "For School, Romance and Ripped Seams," New York Times , September 5, 1993, Sec. 9, p. 14.

Hamner, Susanna, "Lessons from a Retail Rebel," Business 2.0 , June 1, 2005.

La Franco, Robert, "It's All About Visuals," Forbes , May 22, 1995.

Shaw, Dan, "For Yubbies (Young Urban Bourgeois Bohemians)," The New York Times , July 10, 1994, p. 31.

Sherwood, James, "Urban Warrior," Independent , October 18, 1998.

"Urban Lifestyle," Retail Week , November 20, 1998.

Zinn, Laura, et al, "Teens—Here Comes the Biggest Wave," Business Week , April 11, 1994.

—Ellen D. Wernick
—update: Christina M. Stansell

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