Urban Outfitters, Talbot's & Ann Taylor: Adverse Retail Conditions Are Breaking Records Both Ways

“Circumstances do not make the man, they reveal him.” – James Allen

Talbots announced yesterday that its second-quarter losses were $18.32 million, which is almost twice as much as it lost in the same quarter last year. CEO Trudy Sullivan cited “a difficult macro environment” as part of the reason why. The company plans to close 78 stores and reduce its cost structure by $100 million.

Ann Taylor’s same store sales were also down 14.3% in the second quarter of 2008. CEO Kay Krill said the sales results were good “despite the impacts of significant macroeconomic softness and a deteriorating consumer environment, both of which continue to weigh on the retail sector.” The company announced in January that it plans to close 117 stores.

Chico’s had $38.7 million in profits last year in its second quarter. This week it announced a $6.7 million profit for Q2 this year, which is a staggering 83% same-quarter drop. Scott A. Edmonds, chairman, president, and CEO said, "The retail environment continues to be challenging as customers remain increasingly cautious in their spending across the entire retail sector.”

“Adversity causes some men to break; others to break records.” – William Ward

Bucking all the retail industry trends, Urban Outfitters posted a 79% jump in second quarter profits, which included a 19% increase in sales, and a same store sales increase of 13%. After outperforming all its competitors and beating market estimates, CEO Glen Senk stated simply, "All of our brands and channels produced exceptional results during the period. The Company executed superbly throughout the quarter, and we believe we are appropriately positioned for the second half of the year."

Inventories grew by $25.6 million. Selling, general, and administrative costs fell. Merchandise markdowns decreased. Since the beginning of 2008 Urban Outfitters has opened 24 new stores and plans to open 21 more by the end of the year.

“Adversity reveals genius, prosperity conceals it.” – Horace

Could we possibly be talking about the same quarter? The same retail sector? The same economy? The same gas prices? The same consumers with the same wallets? Yes, yes, yes, yes, and yes. How could Urban Outfitters conjure such magical results from the same muck of circumstances that its competitors point to as the root of all their troubles?

When the economy itself is creating good results for retailers, every strategy is a good strategy because they all seemingly result in profits. Now that the economic supports have been kicked out from underneath the retail industry, it’s starting to become apparent which retailers can stand on their own good strategies without being propped up by external circumstances.

“Big is the enemy of cool.” – Richard Hayne, founder and chairman of Urban Outfitters

Don’t saturate the market. Instead of opening more stores, develop a new concept. It’s okay to fail. Never look in the rearview mirror. Give the stores a long leash. Be creative. No two stores should be the same. Know your customers and give them what they want. Look to efficiency improvements to boost profits.

These are the inside secrets that Urban Outfitters has revealed to the retail world over the last 38 years. But the simple philosophies and slow-moving strategies have been easy to ignore while more aggressive, high-flying retail operations were grabbing the headlines. Urban Outfitters' quiet success is screaming loudly now. And I think James Allen would agree that economic conditions do not make the character of a retail operation. They reveal it.