Urban Outfitters Inc. sees shopper ‘bifurcation’

Urban Outfitters Inc – owner of Anthropologie, Free People, Nuuly, and its eponymous brand – is reorienting its strategy to accelerate growth in premium brands, where it is seeing more demand.

It’s hoped the strategy will offset spending drop-offs in its lower-priced brands, driven by inflation. 

Why it matters 

Companies with a portfolio of brands serving various price points may be able to hedge more effectively against downturn, while using real-time insights to identify consumer spending changes, and responding accordingly.

The ‘bifurcation’ of consumers

According to CEO Richard Hayne, the company has seen its target audiences – mostly younger women – “bifurcate” across its brand portfolio, mostly driven by affordability.

Brands offering higher price points and serving a more affluent customer – such as Anthropologie and Free People – posted better results in the latest quarter, he said on the company’s Q3 earnings call. 

But the outlook wasn’t so sunny across the portfolio of brands, Hayne revealed. 

“Not all our brands, however, serve an affluent customer. Urban Outfitters' customers are younger with less discretionary income and accumulated assets. The current elevated inflation around necessities like rent, food and energy has had a greater impact on them. These customers are transacting less often, and when they do shop, they’re looking for a deal.”

By the numbers

• Anthropologie – which offers premium fashion and homewares – delivered 13% growth (retail segment comp) in Q3. New customers in the quarter increased by 24%.
• This compares to a 9% decline for Urban Outfitters, which offers fashion and homewares at a lower price point. Urban Outfitters recorded double-digit negative store and digital comp sales. As a result, the brand in North America will need to be more promotional to clear through excess inventory in the holiday season.

Next year’s outlook

The impact of high inflation on Urban Outfitters shoppers has left the company less room to manoeuvre on pricing, the CEO said. 

“I think that we’ve made a couple of mistakes. I think that we probably raised our prices a little more than we should have. I think the customer is telling us loud and clear that she doesn’t like that. And she’s buying more when we offer her promotions,” he added. 

While these mistakes were likely an oversight, Hayne also judged it to be the “result of the macro-climate with that particular customer group who is a little bit more challenged economically”.

As a result, the company will lean on more marketing investment to further accelerate growth in its higher-end brands, Anthropologie and Free People.

“Given the inflation environment … I don’t think there’s going to be a lot of room to increase prices dramatically,” Hayne said. 

“So we are going to be spending more money on marketing to get new customers and we will hopefully convert those customers in greater numbers than we did this year.”