During the recession Urban Outfitters (NASDAQ:URBN) was one of the few retailers that reliably outperformed the market, attracting legions of investors along with throngs of loyal customers. Yet somewhere along the way, the hipster retailer has lost its mojo, and in an attempt to regain its former glory has replaced snappy snark with bile. The faux pas are showing up not just in its advertising and clothing styles, but in its sales numbers. Indeed, one may be driving the other.
Urban Outfitters has long courted a sense of irascibility that at times would cross over to cringeworthy, but it was able to turn that attention into sales.
In the early part of the last decade, it sold a board game called Ghettopoly that upset black civil rights leaders; hawked t-shirts emblazoned with shopping bags and dollar signs that read, "Everyone loves a Jewish girl," which angered the Anti-Defamation League; and marketed another that read "New Mexico, Cleaner than Regular Mexico," implying the country was dirty. Through it all, the cheekiness churned sales.
Revenues jumped 30% in 2003, surged another 51% in 2004, and widened another 32% the following year as sales crossed the $1 million mark for the first time. While part of those sales were driven by new store openings, it was also largely due to customers flocking to its stores as comparable sales jumped 20%, 24%, and 11%, respectively.
When the financial collapse occurred, it was still able to thrive, growing revenues by 5% and per-share earnings by almost 10%.
Yet lately, sales aren't growing, consumers aren't responding, and it seems Urban Outfitters' marketing is getting more coarse. Rather than driving revenues, the retailer's edginess seems forced, a desperate plea for attention to get people to talk about it. But it may be driving customers away.
The latest offensive attempt at snark was a bloodstained Kent State University sweatshirt that recalled the killing of four students at the height of the Vietnam War protests. What may have been just as infuriating was Urban Outfitters sorry-not-sorry apology wherein it tried to suggest the obvious-looking bloodstains on the shirt were simply the effects of fading. Not even Kent State was buying it, saying it was "beyond poor taste" to try to profit from tragedy.
Although the retailer pulled the tasteless design, it simply smacks of desperation. Urban Outfitters' namesake stores have lost their cachet with the public, and revenue growth has stalled as comparable sales have plunged deeply into negative territory.
Even as consumers respond more to its two other concept chains, the Urban Outfitters stores themselves are becoming a wasteland.
Last quarter, Free People enjoyed its ninth straight quarter of double-digit comps growth -- eight straight have seen a 20% or better rise -- and Anthropologie has had a similar positive showing, even if growth isn't of the same magnitude. But it's still so much better than UO's run, which exhibits all the signs of accelerating doom, with double-digit declines in the last two quarters.
Over the past decade, consolidated revenues have grown at an impressive rate, just under 19%, according to Morningstar. Yet that strength is predicated on outsized outperformance early on; these days, growth is anemic.
In the second quarter, total revenues were up just 7% from the year-ago period, driven higher by a 32% jump in sales at Free People and a 9% rise at Anthropologie, which has now firmly supplanted the namesake stores as the retailer's biggest-selling concept, with revenues of $347.7 million.
In short, Urban Outfitters is trying to revive its fortunes by turning to marketing that shocks the senses.
How else can one interpret a string of offensive promotions? Beyond the Kent State sweatshirt debacle, it also partnered with the Hairroin salon, giving out pens shaped like hypodermic needles imprinted with "I Love Hairroin;" it sold shot glasses, flasks, koozies, and beer mugs that resembled prescription pill bottles; and has offered up a string of tees that seem to glamorize mental illness, including one that said "depression" over and over again. Naturally, Urban Outfitters issued the de rigueur apology expressing dismay over the consternation it may have caused.
At some point, investors need to realize that pattern of causing offense is purposeful. With its stock down from the all-time highs hit last year, it may be that even the markets are tiring of this pattern of offense.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.