Shares of the youth-oriented retailer Urban Outfitters ($URBN) fell sharply in pre-market trading on October 17 as a result of worsening back-to-school numbers. While we’re still a ways away from the earnings report covering that crucial time period, and thus the hard data that will give us a clear picture of exactly how bad the sales numbers were, it’s become clear that the company is in trouble. But Urban Outfitters itself isn’t necessarily to blame. The entire “mall retail” segment is suffering, and unless they are able to right the ship they look to be getting into even more trouble going forward.
What is this so-called mall retail segment? It’s the brands of a person who came of age in the '90s would recognize as the former powerhouses of teenage clothing. Abercrombie and Fitch ($ANF). American Eagle ($AEO). Delia’s ($DLIA). Al former stalwarts of the mall culture that flourished in the '80s, hit its nadir in the '90s, and has slowly begun dissipating ever since as more and more shoppers move online.
None of these stores existed exclusively within the friendly confines of the mall, but all owed a great deal of their success to that unique shopping phenomenon that every day looks more like a relic. Is this to say that a company like Urban Outfitters is a relic? It’s easy enough to dismiss them as such. Fashion companies are notoriously vulnerable to the whims of popular taste.
The mall retailer has two options. They can, as Delia’s has done, actively seek a “white knight” to come in and save them. Delias’s for their part hasn't anything to lose: their stock has tanked, touching a low of 12 cents a share on October 14. They are likely to be bought for literal pennies on the (stock price) dollar, and possibly even gutted and sold for parts.
The other option is radical turnaround. Urban Outfitters is in no way shape or form as vulnerable to insolvency as Delia’s. But they too are in need of a drastic about-face. It's too late in the game to transition completely online.
They then have to offer a more targeted niche, and capitalize on higher-scale brands like subsidiary Anthropologie. They can’t count on getting passersby foot traffic like they did in their glory days. If they’re sticking with brick and mortar, they need to become a destination location. Fewer customers, but bigger tickets. Otherwise they risk going out of fashion even faster than they already are.
Whatever the change, Urban Outfitters needs to act fast. Since September 4, shares of the company have dropped 25 percent.
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