Anthropologie's Q1 Earnings are in...and the feedback is still being missed

Wednesday, May 20, 2015

Urban Outfitters, Anthropologie's parent company, held its Q1 Fiscal 2016 Earnings call this week. Instead of the usual transcript breakdown (you can read the full call transcript here) I'd like to forego the Q&A analysis and spark some discussion instead.

After several quarters of consecutive expectation-beating growth, Anthropologie saw only a 1% gain in same-store sales for the quarter ending April 30, 2015. Considering the fate of some its similarly-sized competitors this is still great news. But reading some of the analysis, you'd think Anthropologie is dying! This article from Slate particularly bugs.

The media is quick to point out that sibling brand Free People has shown double-digit growth for the past eight consecutive quarters -- certainly nothing to sneeze at and I'm delighted by Free People's success. But it's a bit like being amazed that your six-year-old kid/sibling is growing at an exponentially faster rate than your 23-year-old kid/sibling. A six-year-old (symbolizing Free People in this example) is smaller, so double-digit growth seems bigger but represents a smaller amount of actual physical growth (money). Anthropologie is a business that's nearly three times the size of Free People. Any growth looked at strictly as a percentage is of course going to seem smaller.

Let's talk about some wins first. For Anthropologie, BHLDN has done gangbusters. Since BHLDN became part of Anthropologie instead of its own separate wing under the Urban Outfitters brand umbrella, the wedding brand has exploded, thanks in part to in-Anthro BHLDN sections. Likewise, Anthro's new wedding registry service is doing exceptionally well...beating internal expectations and symbolizing a new growth area for Anthro moving forward.

Unmentioned on the call, but also worth noting, is that Anthropologie is working to develop a specialty niche in event gowns. These are the dresses that Anthro is ordering in small quantities that retail for $500+. Most of these dresses sell out within three weeks of becoming available and as Anthro prepares to unveil its department store concept in the next few years, I'm delighted by this new niche! I recently purchased one of these gowns for a work charity event I attended at the New York Botanical Gardens and received countless compliments and praise for my dress. I would absolutely turn to Anthropologie for my next event.

Anthropologie realizes they have work to do...the comments from Anthropologie Group CEO David W. McCreight and Urban Outfitters Chairman/CEO Richard Hayne said as much. That's great!

What really puzzles me then is that the leadership still doesn't seem to realize what the problems actually are.

From the call, Mr. McCreight said:
"Dress shortfalls came from missed opportunities in a few key silhouettes, fabrics, and price points, as well as insufficiently addressing our more casual customer..."

Insufficiently addressing our more casual customer. Good lord. This is what I want to talk about. Sit down, Anthro, I'll grab you some coffee. And a croissant. We're gonna be awhile.

In the analyst spec sheet, Anthropologie labels its target customer range as being 28-45 years old. (If you're outside of that range don't worry, this spec range means absolutely nothing in terms of actual design goals. It's all marketing and business development.)

So here's my question: Why doesn't Anthropologie actually concentrate on designing for that age range? 

My guess is that a woman who is 28 to 45 years old is probably a working woman. She might be a stay-at-home mom, she might be working on an advanced degree, she might be a teacher or a lawyer or a nurse or a mechanic or in any sort of creative field or something else I haven't mentioned here. She's doing some kind of job. Unless of course she's a wealthy jet-setter...but that's pretty much taken care of by January's resort collection. ;)

And here Anthropologie is worrying about serving the casual customer. Does this make ZERO sense to anyone else? They are completely whiffing on their very own stated target customer! The target Anthropologie customer doesn't need casual wear. Casual wear makes up less than 15% of my wardrobe. I need WORKWEAR. I need DATEWEAR. I need MULTIPURPOSEWEAR. I do not need handkerchief hems or square boxy tops or eleven billion maxi dresses or teeny tiny mini skirts or tunics that are neither tops nor dresses nor do I need dresses that are neither tailored nor structured.

When I try to tap into their thinking, I believe it goes something like this: the powers that be see a natural progression between brands. In high school, you buy Urban Outfitters. In college, perhaps you've moved on to Free People. And then after college, you grow into Anthropologie. The problem with that thinking to me is, does anyone wear the same stuff as an adult that they wore in high school or college? There are certainly some styles that I've worn since I was a kid (breton stripes, denim, etc.) but my style has evolved and changed as I've grown.

Too often right now I walk through Anthropologie feeling like it's Free People-fancier. I don't want slightly nicer Free People at Anthropologie. I want ANTHROPOLOGIE at Anthropologie.

Two of my most favorite Anthropologie items serve about a billion purposes in my life. (Not an exaggeration.) One is my oft-mentioned Ferrous Flower Sheath from 2008. A dress which by the way is still in excellent condition 7 years and at least 20 dry cleanings after purchasing it. This dress has been a winner in every office I've ever worked in, from my most conservative client office where dresses had to be below my fingertips with little-to-no cleavage exposed to my fashion-forward tech company clients where anything officelike is looked upon as stodgy and old-fashioned. I felt great in the dress as a 25-year-old and I feel great in it now! It's a fabulous date dress that shows off my shape perfectly and has just a hint of sex appeal with its wide neckline and v-neck back; it's perfect for going to the theatre or ballet or dinner with the family or just about ANYTHING. It has flowers on it, it's got something a little special to it. It is, to me, quintessential Anthropologie.

Not that Anthro needs to 'put a bird on it' with everything. My other favorite Anthropologie item is the Empress Dress, which I purchased in the glorious sapphire blue color in 2013. This dress has no embellishments to speak of, just a nice texture and cut. And it does everything the Ferrous Flower Sheath mentioned in the paragraph above does for me.

I am not saying that everything at Anthropologie needs to do everything and anything for me. I am very much saying, however, that I want Anthropologie to focus on these kind of versatile items and stop trying to fill my weekend and vacation needs with 70% of their assortment. If I were running Anthro I'd aim for 70% workwear, 15% weekend wear, 10% special occasion including fancy events and vacations, 5% everything else.

Does Anthropologie perhaps think that competitors such as Ann Taylor/LOFT, J.Crew, Zara, or department stores are already taking care of women's work needs? I have to wonder...I think workwear and everyday sportswear is Anthro's biggest untapped opportunity at the moment. One they used to be much better at, even as their items were more precious and embellished. I'm all for pattern, I'm all for unique details, I'm all for vivid color.

I'm just not all for shapeless or overly casual crap that would make me look sloppy at work or with my guy. Why doesn't Anthropologie seem to get this?

It's so strange to me that quarter after quarter the trendy, overly boho, shapeless stuff fails to sell and Anthropologie decides this means their casualwear needs some work. Huh?!? Can't they see that their customer needs something else?

Another point mentioned in the media analysis is that Anthro's price points seem too high. Personally I disagree; I think that when the quality and design are there the price point is fine. But I know pricing has been a common point of feedback within the community, along with Anthropologie's strange insistence to continue charging shipping fees. For an interesting take on the shipping fees, check out this Wall Street Journal article.

Community, I'd love to hear your thoughts. On all of it! Design, price, your reaction to their earnings, whatever you'd like to chat about that's Anthropologie-related.

Further reading:
Urban Outfitters Q1 2016 Earnings Call Transcript (Seeking Alpha)
Urban Outfitters Plunges as Anthropologie Drags Down Results (Bloomberg)
Urban Outfitters Margins Hurt By E-commerce (Wall Street Journal)
Bridal Brand BHLDN's 'Skyrocketing' Sales Are Saving Anthropologie (Racked)
Anthropologie Knows You've Been Disappointed with Its Dresses and Accessories Lately (Fashionista)
People Will Only Pay So Much for Anthropologie’s Flowy, Boho Dresses (Slate)