Last week it was time once again to join Urban Outfitters CEO Glen Senk, new CFO Eric Artz and the analyst crew to partake in the 2009 Q4 Earnings Call (complete transcript here, results figures in this post). With a record quarter in-hand it was a positive call marked by a few impressive announcements and hints towards the future, plus the usual demurring. Interesting tidbits follow.
On the financial side, results from the press release were restated and a few new numbers were announced. Probably the most impressive yet simultaneously gross number for me was that Anthropologie's average unit selling price (ASP) was up 14% for the quarter. In a recession. Translated into English that means that a dress that cost $188 in Q3 might have cost just over $200 in Q4. This allowed Urban to see profits at Anthropologie even though units per transaction were down 4%. They sold less per transaction but made more per item. The ASP number is just remarkable. It's a testament to the designers that we consumers were so impressed by the available product that we were willing to spend more on it even with tighter budgets.
Speaking of which, during the call one of the investors asked about Mr. Senk's impressions of consumers' willingness to spend:
Roxanne Meyer – UBS
I was wondering if you could share your insights on your consumer and her ability, and more so her appetite to spend. Obviously you mentioned she's seeking special and that's what you''re all about, but I''m also wondering to what extent you think there''s pent-up demand versus your view of the opportunity for sustainable spending. And as part of that are you able to give us a progression of monthly average transaction size or metrics that would show as we moved from the fall through the holidays to February that her appetite is really coming back?
Glen T. Senk
Yes Roxanne, I think by and large, I don’t think we have returned to 2007 and everyone who is listening to this call probably knows much more about us than I do. So, I don’t think we are out of the woods.
I think the difference between today and a year ago is that there is much more stability. I mean none of us knew what was going to happen a year ago. Those of us with any kind of savings saw our savings account go down by 50%. We had property. Many of us had real estate issues, really underwater and I think that that has quietened down a bit. So I think people have more a sense of certainty but I don’t think that spending is going to return to 2007 levels.
I tend to think about things simply because I think it is easier to get things done when you simplify. I keep saying if a customer spent a 100 bucks on an average outing in 2007 she is spending 90 bucks today. So we have to be 10% or 11% better than we were in 2007 to be flat and I think we have to be 15% or 20% better to be comp positive and that’s how we think about it internally.
I can't speak for the world as a whole but I know that in my circle of friends that rings accurate. My personal spending was down about 40% in 2009 and this year I anticipate similar levels, hopefully returning to previous spending levels in Q4 if my budget allows. Early in the call Mr. Senk noted that Urban Outfitters saw the hit from the Great Recession later than most retailers but seems to have recovered more quickly. If they have another quarter of steady profits I'd have to agree.
During the call Mr. Senk highlighted the four key initiatives and it was pretty exciting stuff! To summarize they were: gains in four-wall productivity, driving e-commerce and maximizing direct-to-consumer sales, international expansion and finally adding new brands. Let's discuss these in reverse order.
For new brands, as you have hopefully heard Leifsdottir is emerging from the shadow of Anthropologie and growing from a wholesale-only brand to its own retail concept. This began with the launch of Leifsdottir's dedicated website last month and will continue with a retail store opening this year in New York City. During the call it was revealed that Leifsdottir will be adding shoes and handbags to its portfolio and there were hints that an accessories concept for other Urban Outfitters brands is not far off the horizon. With so many internal brands (Schuler & Sons, Miss Albright, Deux Lux, Bica Cheia, etc.) I can only hope Anthro is next!
Weddings were the other big topic. Mr. Senk revealed that an Anthropologie-tied wedding brand will make its debut in spring 2011:
I am also pleased to announce that the company will be launching its next brand on Valentine’s Day, 2011 - a wedding lifestyle concept that we hope will be as innovative as our existing brands. We plan to sell an event-based assortment of heirloom wedding gowns; bridesmaid and special occasion dresses; shoes, bags and accessories; intimate apparel; invitations, décor and gifts. We also expect to offer a community for brides before, during and after the wedding. The brand will initially launch with a website followed by a store opening later in the year.
You can read more here. This makes total sense to me and as someone who hasn't gotten married yet it's pretty exciting! I have purchased Bridesmaid dresses at Anthro and this is a logical progression. I can't wait to see photos of the concept.
With regards to store expansion there were hints that the USA expansion will continue but at a slower rate while Urban Outfitters concentrates on growing their brands in Europe and the Far East! Anthropologie wasn't mentioned specifically but their second London store will open on March 19 so one can only hope that they're ready to set their sights on the next country. Where would you like to see Anthropologie open next?
Direct-to-consumer sales seemed to hog the majority of the call, with analysts wondering about everything from catalog circulation (flat) to marketing databases and analytics. Mr. Senk and Mr. Artz specifically discussed Urban Outfitters' engagement with Merkle to improve customer analytics and targeted marketing.
What does mean for you? Two words. anthro card. This is the tool through which you can allow Anthropologie to market to you better. Right now Anthro's emails are slightly targeted and their catalogs uniform. Mr. Senk talked a lot about how the Urban customer utilizes cross-channel browsing and shopping: we look at an item on the website, we try it on in the store, we show a store associate the photo of the item we're looking for on our smartphones. The anthro card is the key through which you are tracked at stores, online or through catalog sales as a single customer. It's useful data that will help Anthro cater to your wants better. Or from a cynical view, market to you better for increased conversion.
Birthday coupons aside this is what that little yellow card is really all about. To me it would be really cool to receive a targeted catalog that has more dresses, or more boots, or more of the brands I love than not. Or emails that let me know every time a new Marimekko item makes it to the site. Or an email letting me know that Soho just rotated new products in. You get the drift. I wouldn't want every store to do this but since I love shopping at Anthro so much yes please market directly to me! (Just don't hound me, I hate that.) Surveys fit in here too. Innocuous but useful.
The first key initiative Mr. Senk spoke to (and the last topic of this post) was four-wall productivity. This includes a whole bunch of stuff but I'm most interested in the inventory management. During the call Mr. Senk spoke to this:
...We manage two weeks of supply not to absolute inventory levels. So, right now the total comp inventories were down 3%. They were down most at the Urban brand and least at the Anthropologie brand, kind of following the comps.
But, as I said in my prepared comments each of the brand presidents feel very, very comfortable with where the inventories are. Over the long term, meaning over the next three to five years, I’d like to see a continued reduction in weeks of supply as we get up and running with our TradeStone software system, as we continue to make improvements in our planning and allocation systems. And the reason why we all feel so strongly about that is because we think it will, as I said in my prepared comments, improve the customer experience. The less the store has to handle the product, the more time they can spend with the customer, the crisper, and cleaner and fresher the product is and so on, and of course the benefit of that is improved merchandise margins.
I think Anthropologie is at a very important crossroads in terms of inventory. Last year it made sense to conservatively stock items since net units sold were down across the retail sector. However as our spending budgets begin to recover there's nothing more frustrating than being told to wait. We consumers want our instant gratification. When so many items on the website are backordered it becomes a tease that drives me away. In my opinion Anthropologie needs to start upping production and stock levels slightly to keep up with demand. It's a guessing game to be sure and I know they produce low levels of some items on purpose but nothing is worse than wanting to buy something and not being able to because it's sold out/backordered/unavailable. That's opportunity lost for Anthropologie as a business and very hard to measure or quantify.
All in all the call left me excited for 2010. I can't wait to hear more about the new concepts Urban is launching and I hope the positive results continue throughout the year and beyond.
