CLASS / COURSE: Business Case
Urban Outfitters Continuing Case Study Creating a Business
Innovation distinguishes between a leader and a follower.
–Steve Jobs, CEO, Apple, Inc.
Businesses can start in small ways: a child with a lemonade stand, or a teen summoning up the courage to knock on that first door to ask for lawn work. Businesses can happen in a grand and premeditated way: General Motors rolling out the Saturn division, or former employees of AMD and Intel founding a new Silicon Valley start-up.
Creating a new business starts with an idea. Sometimes the idea takes hold and a business succeeds. Sometimes the idea is good, but the application falls short and the business fails. Urban Outfitters’ original concept was that of a small shop full of unique objects that simply couldn’t be found anywhere else. The trick was turning that idea into a series of stores, each with the same unique feeling.
A “niche market,” by definition, is a small subset of a much larger market that is not (or cannot) be served by larger or mainstream providers. Generally niche markets are difficult to serve because the numbers of customers are so small, too spread out, or are looking for something difficult to reproduce. Therefore, starting a niche business like Urban Oufitters has its own unique challenges, particularly because the product or service is difficult if not impossible to mass produce.
Like nearly every niche business, when Urban Outfitters began it ran no risk of being mainstream. Richard Hayne, his wife Judy, and an old college roommate, Scott Belair, opened their first store in 1970. It was called The Free People’s Store, and was located near the University of Pennsylvania. Belair was a graduate student and interested in starting the store because the work would count as credit towards his degree. Hayne and his wife were archetypes of counter culture; they had just spent a year doing volunteer work in a Yupik village in Alaska. Very much in touch with their market, The Free People’s Store sold used clothes, bohemian knickknacks, and “found objects” to the college crowd. The original store operated without debt, with a great deal of personal effort by everyone involved, and with no lack of entrepreneurial ingenuity. Richard and Judy lived in the back of the store and took showers at a friend’s place. They went dumpster diving for packing crates and other found items to decorate their store. They bought cheap T-shirts and did the tie-dying themselves. They resold used clothes they purchased from the local ragman. And sometimes they would drive to New York and bring back cheap, imported incense burners or Madras bedspreads to sell in the shop. True to the college experience of the time and Hayne’s activist tendencies, the store was also a focal point for various events and causes.
Roughly a year after the first store opened, Judy and Richard divorced and went separate ways; Scott Belair graduated from school and left the enterprise for Wall Street. Richard Hayne, however, stuck with his concept. Six years later, in 1976, he moved the store to a new, larger location, changed the name to Urban Outfitters, and incorporated. Until he purchased a nearly bankrupt, similarly themed store near Harvard in 1980, Urban Outfitters only had one store.
Stores were added slowly, until there were roughly half a dozen by 1987. Their locations were all concentrated near colleges. In 1984 a wholesale arm was added — the Free People brand — which developed a line of apparel for wholesale distribution. Growth continued apace. In 1987 Kenneth Cleeland was added as chief financial officer, accounting practices were tightened up, and cash was raised for three more stores.
Growth has been consistent, even impressive at times, but steady and careful have been the operative words when taking on debt and adding stores or new concepts. Urban Outfitters’ debt has been minimal — Hayne is said to be adverse to it. As for growth and concept, early on Hayne decided to stay with his original concept, only branching with new stores after firmly establishing that original presence. New stores are placed near their markets, and two stores never have the same design. Instead, the look and feel of each store is unique and oriented to its specific location.
When Richard Hayne established Urban Outfitters, he virtually invented a new niche in the retail apparel market. In the early 1990s the company realized that the over-thirty demographic was leaving (aging out of) the market that Urban Outfitters serviced. A new series of upscale stores, called Anthropologie, was launched to target this group. The first store opened in 1992 in a suburb of Philadelphia. In 1998 Urban Outfitters opened its first London Anthropologie store. Gradually new concepts and product lines have been introduced. In 2002 the Free People clothing line was introduced and sold through upscale retailers such as Macy’s in addition to Urban Outfitters stores. In 2008 the company introduced Terrian, a home and garden line. Hayne seems to have understood his market early on. He has shrewdly managed not only to hold on to it, but has pushed open his original market’s age bracket by 10 years on the lower end and nearly double that on the upper end. Urban Outfitters took the look and feel of a small, niche shop and crafted it into a series of stores and product lines, each uniquely different but united in spirit. In many ways, Urban Outfitters took conventional thinking, that to be successful an idea must be mass produced, and turned it on its head. What Urban Outfitters “mass produced” was a unique look and feel. And it is that unique idea and approach to the market that led to success.
Q2 FY 2009 Urban Outfitters Earnings Conference Call, Thursday, August 14, 2008 11:00 a.m. ET, http://phx.corporate-ir.net/phoenix.zhtml?c=115825&p=irol-EventDetails&EventId=1908465
Urban Cowboy by Heidi Brown, 2004, Forbes 174, no. 9: 154-162, Academic Search Premier, EBSCOhost, accessed October 31, 2008.
1. Identify at least three challenges when setting up a business. Explain why they are challenges.
2. Define what a “niche” product is. Give at least three examples of niche products.
3. Explain why a niche company might have an advantage in a market. Would price necessarily
be an advantage? Explain why or why not.
4. Identify and explain three reasons why customers would pay more for exclusivity.
5. Explain how a niche player “chips away” at a larger competitor’s base. Give three examples of
retailers who have done this.
The format of the report is to be as follows:
• Typed, double spaced, Times New Roman font (size 12), one inch margins on all sides, APA format.
• Type the question followed by your answer to the question.
• In addition to the 5 pages required, a title page is to be included. The title page is to contain the title of the assignment, my name, the instructor’s name (Linda Henry), the course title, and the date.
Minimum 250 words each question
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SUBJECTS / CATEGORIES:
2. Human Resource
3. Operations Management
4. Business and Finance Case Studies
5. Strategic Business Management
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