Urban Outfitters group, A new way of thinking Brand Retail ?

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Urban Outfitters group,A new way of thinking Brand Retail?

July 2012

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Why Urban Outfitters group?

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Outstanding business results for many years facing the double challenge: - Gloomy Fashion Retail Industry - Saturated western markets

But Urban Outfitters group sales keep on growing +23% of CAGR over the past 10 years

Urban Outfitters group not only succeeds in increasing its sales it keeps on improving its operating margin (18,2% in 2010)

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Outstanding business results for many years facing the double challenge: - Gloomy Fashion Retail Industry - Saturated western markets

But Urban Outfitters group sales keep on growing +23% of CAGR over the past 10 years

Urban Outfitters group not only succeeds in increasing its sales it keeps on improving its operating margin (18,2% in 2010)

What is the secret of Urban Outfitters group?

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As an introduction:Urban Outfitters group at a glance

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Richard Hayne opened The Free People Store, located on the Upenn’s campus in Philadelphiafocusing on «funky» fashion and household products

Anthropologie was founded by a small group of innovators with a common goal: “inspire the imagination”

The Free People Store became Urban Outfitters

1970

1992

1976

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1st Terrain garden center in Glen Mills, a sophisticated outdoorliving and gardening concept

1st Free People store opened in Paramus, targeting young

contemporary women

1st BHLDN store opened in Houston, with a curated

collection for weeding

2008

2002

2011

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Urban Outfitters

group2011

urbanoutfitters

$b 1.2197 stores

free people$m 250

62 stores

anthropologie$b 1

168 stores

terrain~ $m 15

2 stores [test phase]

BHLDNNC (2011 launch)

1 store [test phase]

+15% CAGR (2006-2011)

430STORES

$b 2.5SALES

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Urban Outfitters,the historic pillar of the group

visionmission

targetstores & internet

Unique concept, funky mix of merchandise for both home and wardrobe

Not only a shop but a place to live

- Young adults from 18 to 28, men & women- “Metropolitan hipsters”, creative and tech-savvy- With a funky and unique sense of style

840 m² (in average) located in large metropolitan areas, 2011 : 187 stores - 161 North America, 26 Europe -Target: 350 stores - 300 North America, 50 Europe –Internet: US, UK, France and Germany, worldwide deli-veries

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Anthropologie,the precious gem of the group

visionmission

targetstores & internet

“Inspire the imagination”

High end luxury casual, unique assortment ranging from women’s apparel and accessories to home goods

Sophisticated & contemporary women aged 28 to 45

670 m² (in average) located in upscale street locations2011: 164 stores - 161 North America, 3 Europe -Target: 350 stores - 300 North America, 50 Europe –Internet: US, UK and Germany, worldwide deliveries

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Free People,the rising star

Nurture the young people who are looking for a little of their own freedom in the clothes they wore.

Offer a line of clothing for young women that catered to their intelligence, creativity and individuality,

Women aged 25 to 30, creative, confident, free and adventurous. Likes to push life to its limits, with traveling and hanging out and everything in between

130 m² (in average) located in upscale street locations2011: 62 stores (North America)Target: 200 stores (North America)Internet: US

visionmission

targetstores & internet

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Terrain,the future growth opportunity

visionmission

targetstores & internet

Transform the local garden center into a celebration of nature and create an experience for the senses,

Curated assortment for the home and garden in a compelling shopping environment inspired by the greenhouse.

Men and women Interested in a creative, sophisticated outdoor living and gardening experience

1860 m² of enclosed selling space 8000 m² of outdoor seasonal selling space2011: 1 store (North America)Internet: US

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BHLDN,the brand new concept

visionmission

targetstores & internet

A voice and inspiration that celebrates a woman’s most anticipated milestones, her wedding, and that gives tradition a twist.

Offer a curated collection of heirloom wedding gowns, bridesmaid frocks, dresses, jewelry, headpieces, footwear, lingerie and decorations

Bride that are looking to create an event that reflects her own unique perspective

340 m² of selling space Located in a specialty retail center2012: 2 stores (Houston and Chicago)Internet: US, worldwide deliveries

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Top business results in a gloomy market:Is Urban Outfitters group the new rising star

of Fashion Retail?

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Urban Outfitters group, exceptional results in a very challenging market

Exceptional growth rate in a gloomy market

Market sales growth: +1% of CAGR [2000 – 2010]

ANN: Ann, IncBEBE: Bebe Stores, Inc.CHS: Chico’s FAS, Inc

KWD: Kellwood Company TLB: The Talbots, IncCWTR: Coldwater Creek, IncLIZ: Liz Claiborne, Inc

EXPR: Express, IncGES: Guess, IncJCG: JCrew Group, IncJNY: Jones Group, Inc

0

9

8

7

6

5

4

3

2

1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

URBN

women’sindex

CAGR:+23%

CAGR:+1%

Urban Outfitters group has increased sales by 8x compared to Women’s index over the past 10 years

Source: Company data, Credit Suisse estimates

Women’s index :

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LULU L TD URBN ARO ANF AEO ANN EXPR GPS PLCE

An original model:few stores but highattractivity

L

LULU: Lululemon Athletica, Inc.LTD: Limited Brands, Inc.ARO: Aeropostale, Inc

ANF: Abercrombie & Fitch Co.AEO: American Eagle OutfittersANN: Ann, Inc

EXPR: Express, IncGPS: Gap, IncPLCE: Children’s Place Retail Stores

URBN sales per square foot compared to other specialty retailers, 2011e

Source: Wells Fargo Securities estimates, December 2011

0 $

200 $

400 $

600 $

800 $

1000 $

1200 $

1000

612

537

Top sales productivity compared to its peers

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-5%

0%

5%

10%

15%

20%

URBN ITX GES JCG CHS ANF JNY TLB ANN CWTR LIZ

Urbn Operating Margin compared to other women’s specialty retailers, 2010

ITX: Inditex. SAGES: Guess, Inc.JCG: JCrew Group, Inc

CHS: Chico’s FAS, IncANF: Abercrombie & Fitch Co.JNY: The Jones Group, Inc

TLB: The Talbots, IncANN: Ann, IncCWTR: Coldwater Creek, IncLIZ: Liz Claiborne, Inc

A more responsive and well-fitted approach to Fashion

Source: Company data, Credit Suisse estimates, December 2010

The highest operating margins in its peer group

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URBN sales breakdown by chanel, 2011e

Online business � 17 % in turnover

Source: Wells Fargo Securities estimates, December 2011, Helixa estimates

Wholesale Direct-to-consumerRetail stores

Ahead in online business

5%

21%

74%

e-commerce

catalogs20%

80%

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A sustainably more efficient business model:Is Urban Outfitters group the next Inditex?

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Highly attractive customer value proposition…

With an efficient cost structure…And a multi-profit formula

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“Fashion cycles are good for our business,we are early adopters merchants

selling to early adopters customers”

Glen Senk, ex-URBN group CEO data

driven process

designers to take risks

on new trends

Identify the next

successful trends

for 10 products:

Products Science and Art

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“We design products with the changing world in mind”

Assortment: constantly renewed collectionsUrban relies on small but frequent inventory flows Broad versus Deep: no large bets in a few select items but broad assortment across a range of categories and styles

Glen Senk, ex-URBN group CEO

1 week1 week 1 week 1 week 1 week 1 week

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Assortment: beyond apparel and accessoriesUrban Outfitters and Anthropologie sources and sells products matching their clients’ aspirations with no category boundaries

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“We want to create stores that exceedpeople’s expectations”

StoresDifferenciated and experience-enriched

Stockholm

Glasgow

Stockholm

London

London

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49,95 € 54,00 € 59,00€ 59,90€ 68,00€

Urban Outfitters: low-end price category ($10 - $100)Free People: mid range ($50 - $200) Anthropology: higher range ($100 - $400)

A well-fitted Pricing Strategy Each brand covers a distinct price category

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A peculiar Value PropositionHybrid between luxury and massmarket

mass marketfashion retailers

premium& luxury brands

mass uniqueProducts

basic exclusiveSelling proposition

low enrichedRetail experience

fonctionnal emotional &aspirational

Customer relationship

cheap expensivePrice range

URBN

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Highly attractive customer value proposition…

With an efficient cost structure…And a multi-profit formula

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Few storesUnited StatesUnited KingdomCanadaBelgiumDenmarkGermanyIrelandScotlandSweden

but international deliveries

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Encouraging impulsive shopping through a scarcity model

“Scarcitybreedsvalue”Richard HAYNE, URBN group founder and CEO

less markdowns and promotions

higher productappeal and sales

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Less markdowns thanks to a responsive approach to

Fashion

“At Urban, we have more tools and a rigorous approach to managing Fashion cycles”

Glen Senk, ex-URBN group CEO

demand

The company uses quantitatively driven processes to recognize and forecast...

Thanks to its flexible organization, it can adapt constantly its merchandise inventory and assortment to major

More accurate forecasting = a higher percentage of full price merchandise and less product markdowns...the next emerging patterns and so

limiting high-risk

merchandiseinventory

& assortment

100 %PRICE

shift in demand.

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Urbn inventory turnover compared to other specialty retailers, 2010

JNY : Jones Group, IncGES : Guess, Inc.ITX : Inditex

CWTR : Coldwater CreekCHS : Chico’s FAS, IncJCG : JCrew Group, Inc

LIZ : Liz Claiborne,IncTLB : The Talbots, IncANN : Ann, Inc

0.0xURBN JNY GES ITX CWTR CHS JCG LIZ TLB ANN ANF

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x Inventory turnoverAn outstanding inventory and supply chain managementURBN’s business model has two key features: lean inventories and high product turnover

Source: Company data, Credit Suisse estimates.

jan feb mar apr may jun jul aug sep oct nov dec

URBN delivery schedule Typical retailer delivery schedule

New collections’ arrivals

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“We spend the money that other companies spend on marketing and advertising,

to magnify our store experience”

Richard HAYNE, URBN group founder and CEO

No spend on marketing and advertising

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Urban Outfitters is uniquely positioned

thanks to its mix of own-label and

third-party branded assortmentsUrban not only sells its own

brand, but also

exclusive products and external

brands

A highly flexible assortment thanks to third parties

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An highly attractive customer value proposition…

With an efficient cost structure…And a multi-profit formula

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High margin x High volume

OwnBrands

ExclusivePartnerships

ExternalBrands

Low-end / Mid-range pricesInternal Production

= High Margin

Numerous BrandsFew categories= High Volume

Few PartnershipsFew categories= Low Volume

Numerous BrandsNumerous categories

= High Volume

High pricesInternal Production

= High Margin

Low-end / Mid-range pricesExternal Production

= Low MarginMar

gin

Volu

me

High margin x Low volume Low margin x High volume

Urban Outfitters group revenues: a multi-profit formula

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Is Urban Outfitters group the next Inditex?

Customer Value proposition

Profit Formula

Key resources

Give to a customer segment

the latest Fashion trends

at affordable prices

= Product Focus

high volume x low marginExternal Brands

X

X

low volume x high marginPartnerships

very high volume x high margin high volume x high marginOwn Brands

# 1. Trend chasing

# 2. Fast speed to market

# 3. Low cost structure

= Process Optimization

Give to a customer target

all the products associated

with their lifestyle

= Customer Centric

# 1. Customer Expertise

# 2. Lifestyle Development

# 3. Responsive approach

= Brand Building

From product focus to customer-driven approach

From maximizing profit to a multi - profit formula

From processesOptimizationto brand building

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From product focus to customer-driven approach:

A new way of thinking Brand Retail?

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“In my experience, retailers spend most of their time looking atthings from the company’s perspective or the marketer’sperspective…they talk about trends and brands but rarely about the customer in a meaningful way.

At URBN, we’re customer experts. Our focus is on always doing what’s right for a specific customer we know very well.”

Glen Senk, ex-URBN group CEO

A differentiated approach to

Fashion World

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Urban Outfitters group key pillar:Customer Expertise

“At URBN we see ourselves as customer specialists, with a collection of brands each one specializing in one particular customer group and lifestyle”

Richard HAYNE, URBN group founder and CEO

Create a relationship and that relationship then translates into sales

Interacting with their customers

Creating a special link

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URBN success relies on having brands so strong that they are today lifestyle symbols

More than just brands…“lifestyle symbols” !

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With more than just customers…“communities of soul-mates”

“I envisioned Urban as being a team of peers

looking for cool things to sell to their peers.”

Richard HAYNE,

URBN group founder and CEO

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Sourcing

Operations

Retail

e-commerce

International

Real Estate

Shared servicesLogisticsFinance

HR/Talent Management

own executive team / sourcing function

/ designers

own executive team / sourcing function

/ designers

own executive team / sourcing function

/ designers

The ability to build and manage brands independently...

Source: Company data, Credit Suisse estimates.

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... that allows Urban Outfitters group to innovate consistently

What’s next ? ?Source: Company data, Credit Suisse estimates.

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1ProductsDesign

2Raw materials

Sourcing

3Large Scale

Manufacturing

4High Investment in Marketing &

Ads

5Push

Selling

5Demand-fitted

Selling

4Large Scale

Manufacturing

3Products & Brands

Test Phase

2Products Design

& Brands Selection

1Customer Lifestyle

Analysis

USUALRETAILERS

URBN

From pushing products to adapting to cus-tomers, a new way of thinking Brand Retail

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To conclude

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Urban Outfitters group has deeply reshaped brand retail. It has opened the way for new modelling and operating

The very essence of Urban Outfitters group’s success is lifestyle

The lifestyle mission is to feed the aspirations and needs of a target group or community whatever product categories and distribution channels

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In a constantly changing world, companies can no longer do business in the same way as in the past. Indeed, companies now have to steer a course through a world where everything is changing at a high speed . It is forcing them to rethink their strategic choices along completely different lines. Those firms able to rapidly identify disruptive innovation and take up adequate strategies can gain the upper hand on competitors and become the next winners.

To build such strategies, Helixa has devised a series of new tools and proceeds by combining creativity with analysis to imagine for its clients what has as yet never seen light of day. With its wealth of experience in such sectors as luxury goods, media, retailing, chemistry, energy and internet and given its design thinking inspiration, Helixa can offer highly effective tailor-made solutions. Helixa’s team mixes engineers, strategists and designers.

Strategic Innovation to reinvent businesses

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16, rue Brey Paris 17ème

development@helixa.com(+33)1 45 72 55 89

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