No-Moat Urban Outfitters’ Sales Have Recovered From the Pandemic Disruption but Competition Abounds

We believe Urban Outfitters lacks a brand intangible asset that would provide an economic moat and pricing power. While we think its three major apparel brands--Anthropologie, Free People, and Urban Outfitters--remain enticing to their primary demographic of women 18-45 years old, we also think competition has taken a toll. Urban Outfitters grew to be one of the larger specialty apparel retailers in the United States on the strength of its distinctive styles. However, although sales and profits have recovered nicely as the economy has reopened, same-store sales growth and profit margins were inconsistent in the years before the pandemic. While this is partly due to shifting fashion trends, we think fragmentation in apparel retail is the primary factor. Urban Outfitters, like many others, has had to resort to markdowns and promotions to compete with wide-moat Amazon and other e-commerce, outlet stores, discount stores, and key vendors’ direct-to-consumer efforts.