An Insight to the Business Strategies of Urban Outfitters - Case Study Example

An insight to the Business Strategies of Urban Outfitters This paper is focused on the business strategy used by Urban Outfitters, an American merchandising company. This company which was created in 1970 by two students as a project in school is now a multi-million dollar company. The strategies they used to muster the growth of their company will be a good example for those small companies who wish to start their own. Let me begin discussion of growth strategies first, in order to relate with the kind of approach the Urban Outfitters used in order to grow. As defined by Suttle Rick, 2014, common business strategies used by companies to sustain growth are the internal/organic growth and external/inorganic growth. Internal growth includes market penetration, market and product expansion, while external growth are diversification and acquisition. Suttle stated that these methods are dependent upon the financial conditions of the company, government regulations and competition. Accordingly, many small companies begin with organic growth of market penetration wherein an activity is done to increase the market share of a product, either thru promotions, discounts or lowering of prices. For example a starting company offering similar products may offer low prices to win customers. Urban Fitters offered an existing product, but gave it a new definition, lower costs and style. Companies may also use the market expansion strategy that calls for selling of current products to a new market. Oftentimes, companies refer to this as market development. This strategy is called for by companies when competition becomes too stiff, and there is no more room to grow; when the firm can no longer increase its sales and profits because of the mature market and it cannot find new markets; or it has discovered new uses for its existing products. In either case, companies may use product expansion, meaning adding supplementary line of products to existing customers. Product expansion, as Suttle advised, works well when product is getting outmoded, or when technology starts to change. For example, in the fashion industry, which our case belongs, needs to add new designs, accessories and color to make designs interesting and attractive to customers. Growth of business can also be acquired through external or inorganic growth. Diversification and acquisition are example strategies common in big companies. These two strategies, as I have noted entails deeper analysis, substantial financing, and plenty of research. Diversification requires a market research to determine if there is a market for the new product or whether consumer would like the new product. It is moving away from the core activities and developing new products for new markets. Recent examples are Gillette that moved to manufacture of felt-tip pens, John Deere, a tractor company, moved to snowmobiles. Company may also grow through acquisition, a method that requires a significant investment. Here, the company purchases another company to expand its operation, like the merger of Kraft and Cadbury. Acquisition is the fastest way to grow business as it immediately expands market presence of the company. It can also take advantage of the technology and talents of the new business and increase assets and income. Background of the Urban Outfitters Urban Outfitters is a U.S. based company, with principal office in Pennsylvania, USA. It started as an entrepreneur workshop project where two friends came up with an idea of selling reasonably priced clothing and items to college and graduate students staying in dorm room and apartments. To be near to their target markets, they established the store near the campus. As a starter, the store sold inexpensive second-hand clothing, Indian fabrics, scented candles, T-shirts, drug paraphernalia, and ethnic jewelry, in 400 square feet space decorated with packing crates and beat-up furniture. The store was an instant success, and after getting a high grade from the university, one of the partners decided to continue with its operations. Today, it employs over a thousand employees, earning consistent high revenues yearly. From then on, several marketing strategies were plowed in to make the business grow more. Urban Outfitters found its niche in the market by being different. It is founded with a view of an eclectic lifestyle retailing dedicated to inspiring its customers through a unique combination of product, creativity and understanding. Its mission is “to help our customers express and their individuality and connect with their interests, needs, passions and each other.” (Jobbook,2014). Its goal is to create experiential retail environments and curated assorted products. Their business holds music, fashion, art, architecture and technology, while introducing the company’s unique approach to life. Company believes that their customers are constantly evolving, bring new ideas and outlooks and new expectations. In response, company is committed to go forward with them while retaining its fundamental values of creativity, irreverence and authenticity. Discussion Goals and strategies Let us now discuss the strategies the store used to grow. Let’s assume that the overall goals and strategies of Urban Outfitters is to grow the core business and that growth will be achieved through the strategy of increased market penetration of existing products. What are the drivers of its growth, or how was it able to transform its mission/vision into realization? Growth drivers of Urban Fitters as shown in its history is an organic and internal growth derived from market penetration, market development, alternative channels, and product development (Funding Universe). Its process of growth started with identifying growth opportunities that begin with knowing the products, services, customers and geographical areas that will generate the revenues and profit. Organic growth is arrived at when there is strong management, effective planning, and knowing the business fully well. As such, managers can move quickly and take advantage of the changes in the marketplace. Organic growth allows managers a choice of when and where to move its business at the pace he deems suitable.(Kevin, J.2014) Market penetration In our case study, the drivers of growth of Urban Outfitters started with market penetration. Web definition of Market penetration is the activity of increasing the market share of an existing product, promoting a new product, through strategies of advertising, lowering of prices, and discounts. Upon identifying their product, next thing the Urban Outfitters did was to know their markets which were the college students with age brackets of 18-30. In so doing, the two students implemented the market penetration strategy using demographic segmentation. As we all know, clothing industry is saturated, so they thought of differentiation that will make its store stand out. Knowing that budgets of students are limited, the store, originally named Free People, offered imported second-hand inexpensive clothes and accessories and displayed the goods in a simple yet elegant style from crates and furniture. Students liked the idea, and it was a hit. From then on, from the simple $5,000 pooled resources, business grew up to $110.1 million in revenues today. (Funding Universe, 2014) Market and product expansion. After the graduation of partners and a sales hit, the store continued operation, this time pursuing a growth strategy of market and product expansion. Expansion and diversifications are encouraged when the core business has reached its potentials, operating efficiently, and has substantial cash for reinvestments. The company chose the internal and organic approach for its growth strategy. Urban Outfitters expanded its business internally by increasing the range of its products and locations of its stores. Components of this approach are market and product developments Market development For market development, in the following years, we see Urban Outfitters operating in a new dimension. It was incorporated, went into public and joined the stock exchange in 1976. From a single store, it has opened up chains of stores in other geographical areas, changed its name from Free People to Urban Fitters, modified original concepts, but kept its stores closed to colleges, with store designs in counter-culture approach, but each one unique. Company purchased and renovated old buildings and converted it to stores, designing it differently from its other stores. Urban Fitters still used Segmentation. Company offered three labels, the Ecote, Anthropologie, and the Free People which are adaptable to different customers depending again on age brackets. In Anthropologie, the stores introduced women’s casual apparel and accessories, shoes, home furnishings and a range of gifts and decorative items. The home furnishings range from furniture, rugs, lighting and antiques to table top items, bedding and gifts. It has 168 Anthropologie stores in North America and Europe as of January 31, 2012, as well as two Websites and the Anthropologie catalog. The Free People Label sells a merchandise mix of casual women’s apparel, intimates, shoes, accessories and gifts. As of January 31, 2012, it operated 62 Free People stores in the United States, as well as a Website and the Free People catalog. Its Terrain garden center operates approximately 20,000 square feet of enclosed selling space, as well as approximately two acres of outdoor seasonal selling space used for its offering of lifestyle home and garden products, antiques, live plants, flowers, wellness products and accessories. Terrain also offers a range of landscape and design service solutions in addition to operating a Website. As of January 31, 2012, it operated one Terrain garden center. In August 2011, it opened its first BHLDN store in Houston, Texas. BHLDN offers a collection of heirloom quality wedding gowns, bridesmaid frocks, party dresses, assorted jewelry, headpieces, footwear, lingerie and decorations. As of January 31, 2012, it operated one BHLDN store. All of these stores represent market changes and developments of Urban Outfitters. Alternative channel. The Urban Fitters manages websites for its particular operating center and an omni-center that directs customers to the product needed. This is a new strategy that requires pursuing customers in a different manner. Omni-channel retailing is the latest evolution of shopping that could be done thru computers, mobile devices, and others. This allows consumers to research and be informed of the product, order, and provide other services anywhere 24/7. Urban Fitters, according to Forbes Magazine (2014) was among the first retailers in the U.S. to adopt Omni-Channel. Product development In product development, company kept personnel highly trained, sending them to various places to check fashion trends, hired fashion experts to establish its own brand and design, and trained people to become competitive. Company provided personnel bonuses, opportunities for advancement and benefits to motivate them to give their best performances. Staff are trained to listen to suggestions of customers, empowered with responsibility and authority to make decision to increase productivity and were given a free hand on management. Urban Outfitters has retained its concept of reinventing designs of vintage remnants, renewing and giving them a new look, and a rare find, under one of its labels (Funding Universe 2014). Other practices that are not done yet by Urban Fitters are the integrative approach or horizontal, backward or forward integration. Horizontal integration, accordingly, is the buying of a competing business; backward integration: the buying of one the company’s suppliers to be assured of the supply; and the forward integration, which is buying of component companies to be a part of the company’s distribution chain. Buying of competing business is a growth expansion, and a way of eliminating barriers in competition (Dahl, Darren 2010). An example of a forward integration is when for example, Urban Fitters, who is in Pennsylvania, buys a retail store in California to push only UF products. Going Forward As Urban Outfitters contemplates growth strategy, it can further take its market expansion to UK and Germany. According to Trellis Team of Forbes, UK and Germany are lucrative options for expansions. UK, despite of economic downturn, remains to be a large market worth $59billion, and has shown positive growth. Analysts expect that this market will grow at “ a compound annual rate of 3% to 2017, which means it will bring $97 billion. Trellis suggested that Urban Outfitters can take duplicate efforts of a number of brands in UK using websites. Urban Outfitters should update its websites to accommodate more traffic and make on line shopping a convenient experience. Urban Outfitters has presence in 27 cities in UK that offers various items. Its items could be browsed on the internet, and an order system is also provided for convenience of customers. Urban Outfitters had opened 6 stores in Germany since 2013, and it is expected that the company will see a better response when it gains popularity. In Trellis’ observation, Germany’s market is promising since there is a rising interest in high end clothing, which UF provides. Annual sales of apparels in Germany, according to Trellis, amounts to more than $75 billion, and this are definitely a market possibility. . In pursuing a business, much more, when one is a start up and relatively small, owners should be prepared with a strategy and should be willing to change course in response to market feedback. Starting companies should take one step at a time, as figured out by Urban Outfitters in their operations. Who would ever think that a small school project could turn out to be a big business today? A business fails because of lack of planning and plunging without taking into consideration the steps into growth. The steps of growth learned from Urban Fitters could be replicated by small businesses if they want to succeed. Works Cited Dahl, Darren 2010. How to develop a business growth strategy. INC. ww.inc.com/guides/small- business-growth-strategies.html Funding Universe, 2014. Urban Outfitters, Inc., History. http://www.fundinguniverse.com/company-histories/urban-outfitters-inc-history/00 . Jobbook. History. About Urban Outfitters. https://www.jobbook.com/en/employers/urban- outfitters/about Johnston, Kevin. Organic vs. Inorganic Growth in Business. Demand Media. Small Business at Chron http://smallbusiness.chron.com/organic-vs-inorganic-growth-business-37311.html Suttle, Rick, 2014. Growth Strategies in Business. Demand Media, Small Business at Chron. http://smallbusiness.chron.com/growth-strategies-business-4510.html Trellis Team (2014) Whats The Outlook For Urban Outfitters In Its Biggest European Markets? Forbes. http://www.forbes.com/sites/greatspeculations/2014/05/14/whats-the-outlook Read More