PRINT THIS STORY:

CHANGE TEXT SIZE:

URBAN OUTFITTERS DESPERATE TO KEEP FREE PEOPLE COOL

By Rodger Brown

How does a retail business that built its success on being edgy and surprising continue growing without compromising its cool? First rule: don’t talk about it.

Last August, Meg Hayne, the creative director for Free People, the third retail brand being developed by the $800 million hipster giant Urban Outfitters, told her hometown newspaper in Philadelphia that “Free People will be the growth vehicle for Urban.”

Hayne would know, being married to Urban Outfitters’ chairman and president, Richard Hayne. Free People was established in 1984 — well 1970 really, but more about that later — as a division that made young women’s casual clothes for Urban Outfitters’ stores. In 1990, the company began wholesaling Free People apparel to other retailers, and by 2005 the line was carried in more than 1,000 department and specialty stores. In 2002 Urban Outfitters opened the first Free People store in Garden State Plaza in Paramus, N.J., nicknamed “the analysts’ mall” by retail insiders because of its frequent role as a platform for new concepts.

The store was a hit. Sales there exceeded $800 per square foot, and three other Free People stores opened soon after in New Jersey, Pennsylvania and Virginia. The enthusiasm was contagious. When the fourth store opened last August, Urban Outfitters CFO John Kyees told reporters that he anticipated six to eight Free People stores in 2006, with the brand eventually operating 100 shops of about 2,000 square feet. The flagship Urban Outfitters brand currently only has about 75 stores in North America and the U.K., according to Dun & Bradstreet.

Recognizing it was holding a very hot hand, the company quickly pulled its cards close to its euro-vintage, all-natural-fabric vest. “At this time, our public relations program is suspended,” Urban Outfitters told SCT, rejecting requests for an interview. “We are not providing Free People product or information to external resources.”

Marshall Cohen, chief industry analyst at Port Washington, N.Y.-based consultant The NPD Group, says he understands their reticence. “They don’t want you to know how big it’s going to be, they don’t want you to know what the colors are going to look like, they don’t even want you to know how to spell the name,” Cohen said. “They want it to open up with the splash of surprise and sit there and do the ‘shock and awe.’ They don’t want to leak this out to try to do it just like any other brand trying to market to new segments. This is not about a ‘becoming’ campaign; this is about a secret. This is about ‘discovery.’ ”

The company’s challenge arises from the history and identity of its three brands: Urban Outfitters, Anthropologie and Free People. For three decades, Urban Outfitters has managed to keep its reputation straddling the line between mass market availability and counter-culture credibility by offering customers surprises and the unexpected in their product assortments. Publicity, ironically, negates the power of the ‘discovery’ experience, and it requires an artful marketer to maintain the balance.

Urban Outfitters began as a class project at the University of Pennsylvania in 1970, when Richard Hayne, now president, pooled a few thousand dollars with a friend and opened the Free People Store, selling psychedelic paraphernalia, used clothes and the random imports that characterized dorm rooms and off-campus apartments of the day: colorful fabrics and bedspreads from India, and posters. In 1976 the store was renamed Urban Outfitters, and by the 1980s sales were up to $3 million. A half dozen more stores followed by the late ’80s.

Urban Outfitters secured a niche by targeting the 18-to-30 demographic with an assortment of retro-vintage-inspired fashions and offbeat novelties and accessories presented in an open, bazaar-like space. In 1992, the company launched Anthropologie, targeting a more mature 30- to 45-year-old consumer, in a successful attempt to retain Urban Outfitters’ original base of punk-grunge kids as they grow up. Anthropologie offers an assortment of products such as distressed furniture and wedding albums of recycled paper.

Urban Outfitters opened its first mall location in 2001, and since then 14 more have opened in malls, with the rest in more dense, downtown markets. In 2004, the company said it would focus development of future Urban Outfitter stores in malls because they bring a faster return on investment.

As the chain expanded, its stores made their mark by retaining the self-consciously casual and cluttered look of its early beat bohemian origins. With eclectic merchandise and ambience, they appealed to the anti-consumer with a counter-cultural tendency, but sometimes the company pushed the edge a little too far. In 2003, Urban Outfitters stocked the game “Ghettopoly,” a Monopoly spoof featuring crack houses instead of tract houses, drawing fire for being politically incorrect. The chain pulled the game from shelves after a few months.

With Free People, the company returns to its origins, with both the use of its original name in a retail context, and also in trying to rekindle that excitement of “discovery” that made Urban Outfitters a success.

The company’s president expressed confidence that Free People stores could live up to the hype when he reported on its performance last August in a conference call with investors.

“We believe that all three of our brands are at an early stage of growth and that each one has multiple means to grow its revenues over the near and longer term,” said Richard Hayne. “The brand teams possess the talent and creativity to produce a shop experience both in the products offered for sale and the environments holding those products, that is differentiated and emotionally compelling. This, we believe, is the company’s primary competitive advantage.”

It won’t be easy, however, observers say. “Free People is critical for Urban Outfitters’ growth in the future because people are challenging the model,” said Cohen. “Urban Outfitters is a potpourri collection of really neat, you-never-know-what-you’re-gong-to-find lifestyle product. The formula is exciting, but it’s starting to get emulated elsewhere, and that starts to change the dynamic for them.”

All three of Urban Outfitters’ brands are based on the promise that, as Cohen says, “if you wanted to be unique, and you wanted to show your sense of style, you had the ability to go here and buy a product that wasn’t going to be plastered everywhere.” In other words, you wouldn’t have to worry about showing up at a party wearing the same outfit as the host or hostess. “It’s that concept that grew their business that is now being challenged,” said Cohen.

But Free People is giving Urban Outfitters the chance to get back on the edge and market to the consumer that wants to “discover” a lifestyle brand, rather than be sold one.

“If people hear about it in the media, if other brands and retailers find out enough about it, they can emulate it, and it’s going to lose a tremendous amount, of the equity that they are trying to establish,” Cohen said. “This is about discovery; this is not about popularity.”