About six years ago, I bought some shares of hipster retailer Urban Outfitters
Given my 2006 purchase, I've held my handful of Urban Outfitters shares through thick and thin. I held them during a recession. I held them while the company struggled through a serious fashion miss, and many thought it would never turn its fortunes around and regain its cool cred with shoppers. I even held when many social investors were getting on the company's case for lack of board diversity, and I counseled investors not to despair when CEO Glen Senk departed.
My final straw -- and I hinted that it was coming in May -- has been the litany of mean-spirited stunts and other public relations nightmares that have emanated from the retailer over the last year or so. Granted, Urban Outfitters has long gotten into some hot water for merchandise once in a while, but this year the barrage has resulted in a pretty constant stream of negative headlines. Urban Outfitters' latest controversy is a T-shirt line that celebrates alcohol and makes pretty awful implications, like that "beer goggles" make a fine fashion statement for teens.
I've had it. As I said, Abercrombie has usually been the teen retailer that somehow managed to weave meanness and sometimes even downright discrimination into its business and marketing. If Urban Outfitters plans on going from South Park-type satirical humor to being downright mean and low-down, then there's no good future for the retailer. I have a feeling its target clientele is a little smarter than that.
Speaking of public relations, founder and current CEO Richard Hayne has occasionally made the news for his campaign contributions to conservative candidates and causes. Of course he's free to hold whatever political beliefs he wishes, but there's a point where it's simply undeniable that his beliefs could cause customer defections, particularly at the core Urban Outfitters brand. Many youthful college-aged customers who probably don't share his political beliefs -- in other words, core customers -- could feel like profit-driven pandering is going on with the brand's attempts to seem "indie" or "hipster." They could also start to wonder if their purchases indirectly help such causes; Hayne is, after all, a billionaire.
Timing's not everything, but it helps
I wasn't above holding on to Urban Outfitters shares to get a better price despite my growing irritation, and I'm pleased I sold them last week after the stock surged on its earnings beat and investors' sudden euphoria. My shares had appreciated by about 23% from the time of my purchase, so I'm pretty content with the outcome.
If I decide to replace that stock with another teen retailer, I'd strongly consider The Buckle
Another possibility is Aeropostale
Both of these are now more reasonably valued than Urban Outfitters, which trades at 20 times forward earnings. But let's not forget, the American consumer, even the teenage one, is evolving with the times. Retail stock picking is going to become more difficult, and I'm glad I'm not hanging in with Urban Outfitters if it's going to react to tough times by getting mean and going for the low-hanging fruit in desperate bids for attention. There are more positive places to put one's investment dollars.
If the idea of investing in teen retailers sounds too risky, check out this relatively unknown international retailer our analysts have dubbed The Top Stock for 2012. The report is free, so click here to get your copy.