1809 Walnut Street

Philadelphia, Pennsylvania 19103

U.S.A.
Telephone: (215) 564-2313
Fax: (215) 568-1549
Web site: http://www.urbanoutfitters.com

Public Company
Incorporated: 1976
Employees: 6,200
Sales: $827.8 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: URBN
NAIC: 448140 Family Clothing Stores

Urban Outfitters, Inc., operates specialty retail stores under the Urban Outfitters,
Anthropologie, and Free People banners. The company operates two business
segments: the lifestyle merchandising retail segment, which oversees store
operations, and a wholesale apparel business. Both Urban Outfitters and
Anthropologie offer customers hip and trendy apparel and home furnishings through
retail locations, catalogs, and Web sites. The first Free People store opened in 2002.
The freepeople.com Web site soon followed. As of January 2005, Urban Outfitters
Inc. operated 65 Anthropologie stores, two Free People retail locations, and 75 Urban
Outfitter stores in the United States, Canada, and the United Kingdom.

Beginnings

Urban Outfitters was created in 1970 by two retail novices, anthropology graduate
Richard Hayne and his former roommate at Lehigh University, Scott Belair. Hayne
was just back from two years working with Eskimos in Alaska as a VISTA Volunteer;
Belair was a second-year student at Wharton School of Business and needed a project
for his entrepreneur workshop. Over beer one night, the two came up with the idea of
a store for college and graduate students, selling inexpensive clothes and items for
dorm rooms and apartments. Pooling $5,000, they opened the Free People Store in
Philadelphia, near the campus of the University of Pennsylvania. In a 400-square-
feet store decorated with packing crates and beat-up furniture, they offered
inexpensive secondhand clothing, Indian fabrics, scented candles, T-shirts, drug
paraphernalia, and ethnic jewelry. "I was that market," Hayne told Dan Shaw of The
New York Times in 1994, adding that "Everyone associated with the store was that
market."

The store was a success. "Belair got an A on the project," according to Robert La
Franco in a Forbes article, "and went on to Wall Street, where he started his own
bankruptcy workout business." Hayne stayed with the business, adding such
merchandise as coffee mugs and glassware to the product line. In 1976, he moved to
larger quarters near the university, changed the store's name to Urban Outfitters, and
incorporated the company. In 1980, with sales around $3 million, Hayne opened a
second store, in Cambridge, Massachusetts, close to several colleges.

In 1987, Hayne hired Kenneth Cleeland as chief financial officer. Cleeland, a graduate
of George Washington University, had held financial positions with several wholesale
and retail companies. At Urban Outfitters, he instituted financial controls to deal with
shoplifting problems and Hayne's rather casual bookkeeping practices. Profits
increased, and Cleeland helped Hayne borrow $3 million to open six new stores
within three years.

New stores in the chain followed the original concept and were located in
metropolitan areas near college students. By 1995, Urban Outfitters stores would be
established in Madison, Wisconsin; Ann Arbor, Michigan; Boston; Minneapolis;
Seattle; New York; Washington, D.C.; Chicago; and Portland, Oregon. Moreover, the
chain would also secure a presence in California, with five locations in college towns.
Even when Hayne was tempted to drift from his original concept, store locations kept
the company focused on its college-age market.

The new stores maintained Hayne's "counterculture" approach, and the company
relied heavily on its buildings and interior displays to entice customers to enter,
explore its stores, and buy its goods. "We always use renovated buildings," Hayne told
the Washington Post in a 1993 feature. "Other stores will go into a mall and put their
image into a space, where we use an existing space to enhance our image. None of our
stores look alike. We go into these old buildings and adapt them for ourselves," he
noted. In Washington, D.C., for example, the company took over a Woolworth's store,
complete with worn wooden floors, exposed brick walls, and a steel staircase to the
basement. The Ann Arbor store was established in an old theater, and other locations
included a former bank and stock exchange. In 1993, Urban Outfitters stores
averaged approximately 9,000 selling square feet.

The decor within each stores was also unique, although the atmosphere remained
similar throughout the chain—casual and fun. Much of this was due to the staff and
the company's policy of listening to its customers. Hayne hired staff within the
targeted age group and depended on their personal style to guide merchandising
strategies. Staff decided on the music to be played, even bringing in their own
compact disks, and department managers were made responsible for the look of their
sections. "We have to come up with creative inventions for fixtures and displays,"
housewares manager 27-year-old Susan Duckworth explained in the Washington
Post, adding that "It's the only place I've worked where you can bring an old crate to
work, make something out of it and [the bosses] love it."

"We try to appeal to the mainstream and those who want to cross the line every once
in a while; we do stay abreast of fashion trends," Sala Patterson, an 18-year-old sales
associate explained in the Washington Post article. According to a 1995 Forbes story,
Hayne spent $4 million a year on salaries and expenses for over 75 young fashion
buyers who checked out neighborhoods in the United States, London, and Paris to
report on hot trends. The chain's unconventional atmosphere, merchandise, and
music attracted students younger than 18 as well. As one 15-year-old explained to the
Washington Post, "It's such a down-to-earth place, it's not a chain like the Gap andJ.
Crew. Everything's really different."

Urban Outfitters prepared its management, merchandising, and buying staff by

recruiting recent college graduates and qualified store employees and sending them
through a six- to nine-month "Management Development Program." While in the
program, participants had a series of rotations between stores and the home office. A
"Manager-in-Training" program offered the on-the-job experience needed to become
a departmental, assistant, or store manager.

As the company grew, it took steps to keep its organizational structure relatively
stable. Employees were eligible for profit sharing and stock options and took turns
producing Urban World, a quarterly in-house newsletter. Articles in the newsletter
included reports from various branches and profiles of employees and customers,
providing market research as well as internal communications. In 1993, the company
initiated it "Shared Fate" program, designed to increase team management and give
every employee the responsibility and authority to make decisions to increase
productivity.

Recognizing that private label merchandise generally yielded higher gross profit
margins than brand name merchandise, Hayne created a wholesale division in 1984
to design, produce, and sell its own line of junior sportswear. Michael Schultz joined
the company in 1986 as president of Urban Wholesale, Inc. Schultz had previously
served as president of Andrew Fezza International Division of Levi Strauss &
Company and as a vice-president of merchandising at Pierre Cardin.

Success Continues in the Early 1990s

In 1990, Urban Wholesale replaced its signature Urban Outfitters collection brand
with three separate labels: Ecote, Free People, and Anthropologie. The three apparel
labels each targeted a different audience. Ecote produced solid and printed casual
rayon dresses in styles ranging from baby dolls to A-lines and made up about 60
percent of the business in 1991. The Free People label produced sixties-era inspired
designs and hip casualwear, while Anthropologie made young women's casual wear,
primarily cotton, wool, and silk sweaters. Schultz expected Anthropologie to become
the wholesale division's biggest label because it was the most adaptable. As reported
in Women's Wear Daily, before the change, 70 percent of the division's sales were to
department stores and 30 percent to specialty stores. In 1991, it was just the opposite,
as wholesale volume had grown 50 percent, from $10 million in 1989 to $15 million
in 1990.

In 1993 and 1994, the Urban Wholesale division had revenue gains in excess of 76
percent and 56 percent, respectively. The company attributed this growth primarily
to more and larger orders for the Anthropologie line from small and medium-sized
specialty apparel stores. It should be noted that while much of the inventory of the
company's stores was from the three labels, buyers for Urban Outfitters and
Anthropologie did not automatically buy from the wholesale division. Urban
Outfitters and Anthropologie accounted for 28.8 percent and 0.3 percent of Urban
Wholesale's total revenue in 1992, according to the company prospectus. By 1994,
goods from Urban Wholesale shipped outside the United States, particularly to
Japan, comprised 6 percent of total sales. Merchandise made in the United States
represented about 20 percent of the division's production.

Company Perspectives:

Our established ability to understand our customers and connect with them on an
emotional level is the reason for our success. The reason for this success is that our
brands—Urban Outfitters, Anthropologie and Free People—are both compelling and
distinct. Each brand chooses a particular customer segment, and once chosen, sets
out to create sustainable points of distinction with that segment. In the retail brands
we design innovative stores that resonate with the target audience; offer an eclectic
mix of merchandise in which hard and soft goods are cross merchandised; and
construct unique product displays that incorporate found objects into creative
selling vignettes. The emphasis is on creativity. Our goal is to offer a product
assortment and an environment so compelling and distinctive that the customer
feels an empathetic connection to the brand and is persuaded to buy.

As the number of stores grew and the wholesale division was revamped, company
sales increased. In 1990, net sales amounted to $37.4 million. In 1991, sales increased
17.3 percent to $43.9 million. Most of the increase, 75 percent, was due to new stores
opened in 1990 and 1991. The largest selling product category in Urban Outfitters
stores was women's apparel. In 1992, it accounted for one-third of total sales,
followed by footwear and accessories at 27 percent, men's apparel at 22 percent, and
apartment wares and gifts at 18 percent.

In October 1992, Hayne opened the first Anthropologie store in a renovated

automobile dealership in Wayne, Pennsylvania, outside Philadelphia, and named
Glen Senk president. After 16 years of selling T-shirts, jeans, and work boots, and
with his original chain doing well, Hayne thus took the company's strategy to older,
more established shoppers living in the suburbs of major metropolitan areas.
Anthropologie targeted customers who were focused on family, home, and career,
with interests in travel, the arts, gardening, and reading. The Wayne store featured an
espresso bar and placed greater emphasis on "hard-goods" such as furniture and a
variety of home, garden, and tabletop products, including books and ceramics.
The decor of Anthropologie tended to be rustic and ecologically conscious. Product
lines were intermixed and arranged in a variety of displays. For example, an antique
bed might serve as the anchor for a section containing linens, towels, nightgowns,
lingerie, soap, bath oils, picture frames, and mirrors. Another small area might
feature children's clothes, books, toys, and note cards, while birdhouses and diaries of
handmade paper might be found alongside men's sweaters and pants.

During 1992, company sales grew to $59.1 million, a 34.7 percent increase. The
wholesale division introduced the Cooperative product line of fashion basics,
consisting mostly of lower-priced cotton knit tops and sweaters. Profits also increased
with the successful expansion of the company's higher-margin private label program.

Urban Outfitters Goes Public in 1993

During 1993, Hayne opened two more Urban Outfitters stores, in San Francisco and
Costa Mesa. Comparable store sales increased by 18 percent and total sales exceeded
$500 per selling square foot for the first time. The wholesale division opened a large
sales office in New York. Prices at Urban Outfitters stores during 1993 ranged from 75
cents for greeting cards to $450 for a World War I-style leather bomber jacket. At the
Anthropologie store, prices ranged from $1.00 for a greeting card to $1,500 for an
antique Mexican cabinet. The company implemented its "Shared Fate" program for
employees and initiated a company-wide profit-sharing plan. Total sales for the year
grew at 43 percent. In November, Urban Outfitters went public at $18 a share, raising
over $13 million in capital through the initial public offering.

Hayne used the capital to continue his strategic plan of growth by adding new stores
on the retail side of the business and attracting new customers to the wholesale
division while increasing sales to existing ones. In 1994, he opened three new Urban
Outfitters stores, two in Chicago and one in Pasadena, and indicated that he planned
to open three or four new stores each year for next three years, some of which were
planned to be located outside the United States, either in Canada, Europe, or both.
Based on the success of the Wayne, Pennsylvania, store, two more Anthropologie
stores were opened in 1994, in Westport, Connecticut, and Rockville, Maryland, just
outside Washington, D.C. In the company's annual report that year, Hayne indicated
he hoped to open three to four additional Anthropologie stores each year and that the
company would invest heavily in expanding the Anthropologie division. Overall
company sales grew by 30 percent from 1993. Recognizing that high rates of growth
would be difficult to maintain, the company set a goal of 20 percent annual growth.

In 1995, an Urban Outfitters store opened in Portland, Oregon, and lease signings
were announced in Austin, Texas, and Tempe, Arizona, moving the company into the
Southwest. With steadily increasing sales during this time, the company gained a
ranking as number 76 on the Business Week list of hot growth companies. As it
neared the end of the 20th century, the Urban Outfitters and Anthropologie chains
appeared to be going strong, and, after a quarter century, Hayne and his staff were
still successfully anticipating and responding to shifts in fashion trends and the
changing tastes of their customers.

Key Dates:

1970:
Richard Hayne and Scott Belair open the first Free People Store.
1976:
Hayne moves to larger quarters, changes the store's name to Urban Outfitters,
and incorporates the company.
1980:
A second store is opened in Massachusetts.
1984:
Hayne creates the wholesale division to design, produce, and sell its own line
of junior sportswear.
1990:
The wholesale division replaces its signature Urban Outfitters collection brand
with three separate labels: Ecote, Free People, and Anthropologie.
1992:
The first Anthropologie store opens.
1993:
The company goes public.
1998:
Urban Outfitters opens in London.
2002:
The first Free People retail store debuts.
Late 1990s and Beyond

Urban Outfitters entered the late 1990s on solid ground. Despite having to close its
first location near the University of Pennsylvania due to poor sales, the company
forged ahead with is growth plans, buoyed by strong sales at its remaining outlets. In
1998, Anthropologie launched its direct-to-consumer catalog. Later that year, Urban
Outfitters made its debut in London, opening its first store on Kensington High
Street. During this period, Urban Outfitters' expansion was comparatively slower
than many retail chains, however, despite the fact that it putting considerable effort
into market research before deciding to open a store. Company officials called each
location a "complete lifestyle" store and were diligent in making sure it knew what its
target customers wanted. Hayne explained the lifestyle label in a November 1998
Retail Week article. "We have this concept where we have a unique and singular
group of people that we are trying to service and we have a concept that emphasizes
the lifestyle approach to servicing these customers. The product category to us is not
particularly important, as long as we can make money, but the lifestyle is incredibly
important."

Urban Outfitters continued its lifestyle strategy in the 2000s and experienced marked
success. It expanded its store count while sales and profits increased. Fifteen stores
were opened in 2000, 12 in 2001, and 15 in 2002. During 2003, approximately 20
Anthropologie stores opened their doors while 20 Urban Outfitters locations were
added to the company's growing arsenal. The Urban Outfitters catalog was launched
that year.

The company opened its first Free People store in the Garden State Plaza Mall in
Paramus, New Jersey, in November 2002. A second location followed in December
2004 in Arlington, Virginia. During that year, Urban Outfitters was one of the most
successful retailers, securing a revenue increase of nearly 50 percent while net
income rose by 87 percent over the previous year.

With a solid financial record in place, Urban Outfitters planned to continue its
expansion efforts in the coming years. Management hoped to increase store count by
20 percent per year, emphasizing that each location would continue to have its
lifestyle focus. By 2005, there were over 75 Urban Outfitters stores in the United
States, Canada, and the United Kingdom. Over 65 Anthropologie stores accounted for
nearly 39 percent of net sales in 2005. Its success in recent years left it in a enviable
position among its competitors. Indeed, Urban Outfitters Inc. had a strong following,
a solid strategy in place, and years of success under its belt. Hayne was confident that
the company would remain a retail powerhouse well into the future.

Principal Subsidiaries

Urban Outfitters, Inc.; Anthropologie, Inc.; Urban Outfitters Wholesale, Inc.; Urban
Outfitters UK Ltd.; Urban Outfitters (Delaware), Inc.; Anthropologie (Delaware),
Inc.; Urban Outfitters West LLC; Urban Outfitters Direct LLC; Anthropologie Direct
LLC; Inter-Urban, Inc.; U.O.D. Inc.; U.O.D. Secondary, Inc.; UO Fenwick, Inc.;
Urban Outfitters Canada, Inc.; Urban Outfitters Ireland Ltd.; Free People LLC;
UOGC, Inc.; Urban Outfitters Holdings LLC; Anthropologie Holdings LLC;
urbanoutfitters.com LP; anthropologie.com LP; Freepeople.com LLC.

Principal Competitors

Gap Inc.; Buckle Inc.; Limited Brands Inc.; Pier 1 Imports Inc.

Further Reading

Barrett, Amy, "Hot Growth Companies," Business Week , May 22, 1995.

"Company Chops Its Roots," Harrisburg Patriot , May 29, 1997, p. B9.

Gilstrap, Peter, "Not-So-Radical Chic," Washington Post Magazine , September 12,

1993, p. 31.

Gordon, Maryellen, "Urban Outfitters' New Route," Women's Wear Daily ,

sportswear report supplement, January 2, 1991, p. 4.

Greenburg, Cara, "For School, Romance and Ripped Seams," New York Times ,
September 5, 1993, Sec. 9, p. 14.

Hamner, Susanna, "Lessons from a Retail Rebel," Business 2.0 , June 1, 2005.

La Franco, Robert, "It's All About Visuals," Forbes , May 22, 1995.
Shaw, Dan, "For Yubbies (Young Urban Bourgeois Bohemians)," The New York
Times , July 10, 1994, p. 31.

Sherwood, James, "Urban Warrior," Independent , October 18, 1998.

"Urban Lifestyle," Retail Week , November 20, 1998.

Zinn, Laura, et al, "Teens—Here Comes the Biggest Wave," Business Week , April 11,
1994.

—Ellen D. Wernick
—update: Christina M. Stansell

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