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Urban Outfitters' Grow-Slow Strategy in Europe


By studying local fashions first, it hopes to succeed in Europe where others have stumbled

European retailers from Ikea to Zara have found plenty of shoppers by coming to America, but U.S. chains have had a harder time going in the other direction. Gap's (GPS) sales have been sliding in Europe since 2005, while Wal-Mart Stores (WMT) simply gave up in Germany, the Continent's biggest market, in 2006.

Now Philadelphia-based Urban Outfitters (URBN) is intensifying its push across the Atlantic and hopes its designed-in-Europe strategy will beat the odds.The retailer will open its second Anthropologie women's apparel store in London in March, followed by five more Urban Outfitters clothing stores across Europe by yearend. The company, which already has 18 Urban Outfitters in Europe, then intends to pick up the pace to get to 100 European stores for each chain within the next decade, says John E. Kyees, chief investor relations officer. If that goal seems modest—Gap already has 180 European sites—that's the point. "We're not one of these companies that think rapid growth is really great," Kyees says.

Urban Outfitters began its European venture differently, too. U.S.-based chains such as Abercrombie & Fitch (ANF) stock their European stores with the same merchandise they sell at home. But before opening its first store in Europe in 1998, Urban Outfitters set up a separate design and merchandising unit in London so it could tailor its goods to European tastes. The duplicate operation increased overhead and delayed profitability in Europe, but the mix of American and European styles helps Urban Outfitters stand out. "It's hard to find a company that offers something similar," says Kimberly Picciola, a retail analyst with Morningstar (MORN).

Urban Outfitters could use the euro-growth. After increasing worldwide revenue an average of 22% annually from fiscal 2003 to 2009, the company said sales expanded just 6% in the year ended Jan. 31, to $1.94 billion. While per-store revenue rose 10% at Anthropologie and 18% at the newer Free People women's clothing subsidiary, sales at the namesake chain slipped 1%. Urban Outfitters' shares, which closed at 31.20 on Feb. 16, nonetheless have outperformed the Standard & Poor's 500-stock index over the past two years.

Europe is known as a crowded and high-cost market for retailing, and competition from other U.S. clothing chains is growing. American Apparel (APP) has 51 stores across 11 countries, and Abercrombie has 12 Hollister stores in shopping malls in the United Kingdom and Germany, with plans to triple that number this year. On a per-unit basis, though, Urban's European stores have the same healthy results as those in the U.S., Kyees says. Europe now accounts for nearly 10% of total revenue.

The company's wanderlust doesn't stop on the Continent. Senior managers recently scouted locations in China, Japan, and South Korea for what eventually could be 100 stores in Asia. The first, Kyees says, might open in 2013, giving the company plenty of time to study local tastes.

Arndt is editor of BusinessWeek's innovation and design coverage, overseeing its Innovation channel as well as the magazine's quarterly IN: Inside Innovation section.

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