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Urban Outfitters Convinces Regulators It Shouldn’t Have To Report Store And Web Sales Separately

A smart move given the recent industrywide drop in store traffic.

Urban Outfitters / Via facebook.com

With store traffic on a well-documented web-driven decline, Urban Outfitters made the prescient decision last year to stop breaking out how much of its sales increases are tied to the internet — and managed to get the Securities and Exchange Commission’s approval for the move.

Urban Outfitters, which also owns Anthropologie and Free People, grouped together sales at its websites that have been operational for at least one year, as well as stores open for a year or more, in its regulatory filings last year — a relatively unorthodox reporting tactic among retailers. The SEC started a correspondence with Urban Outfitters on July 29 asking it to quantify the effect of its e-commerce and catalog sales in future filings, which the retailer uploaded late last week, Seeking Alpha noted on Jan. 19. (Urban separately reports sales driven by new stores and websites it’s operated for less than a year.)

Urban and the SEC have exchanged a series of letters since then, with the retailer ultimately convincing the agency that it’s largely irrelevant for it to distinguish between in-store and online sales because the two are so blended. Urban Outfitters made about 24% of its $2.8 billion in revenue last year from the web and catalogs, and most of the rest from its more than 500 brick-and-mortar locations.

“We believe that customers are adapting to technology advancements at a record pace and many are embracing the alternatives available to traditional brick and mortar shopping methods,” Urban Outfitters Chief Financial Officer Frank Conforti said in a Sept. 20 letter to the SEC. “In light of these changes, the quantification of the distinction between direct-to-consumer channel and store sales is becoming less meaningful…for example, a customer might identify a product through social media, order it in person at a store and have it shipped from a fulfillment center. Such a transaction could be classified as a store sale, although it is impacted by the marketing and fulfillment resources that might typically be associated with a direct-to-consumer channel sale.”

While the SEC noted in an Aug. 29 letter that given Urban’s comments about the “much faster rate” of growth online vs. in stores, “separate quantified information about these two sales channels would provide investors relevant information” on sales trends, Conforti is saying that it wouldn’t make a difference.

The retailer, according to the letters, started adjusting the way it reported sales last year after “several technological advancements,” including creating single SKUs for products regardless of whether they’re available online or in stores, offering home delivery for products ordered in stores and giving customers the option to pick up merchandise in stores after ordering either online or on site from a handheld device.

While Urban has been notably savvier than many other retailers in developing its e-commerce capabilities, the revised disclosure might also help the company conceal drops in traffic and sales at physical locations. (Other retailers like Target and Wal-Mart have also been queried on web sales by the SEC, but their online sales are a much smaller piece of the pie.)

The Wall Street Journal reported last week that retailers got only half the holiday foot traffic in 2013 than they did three years earlier, spurring aggressive discounts and perhaps portending store closures in coming years. The productivity of a retailer’s real estate has traditionally been a key metric for investors in valuing such companies, given it’s such a tremendous expense.

“Our brick-and-mortar stores are designed to create a customer experience that we believe builds a connection between our customers and our brands,” Conforti said in an Oct. 21 response to the SEC. The company’s websites and stores don’t “compete with each other to generate sales. Rather, they have become interdependent on each other to drive the results of the operating segment.”

Ultimately, Urban Outfitters said on Dec. 4 that it would revise language in its regulatory filings to better describe its results as “omni-channel.”

As per its final letter to the SEC, the company said: “We have substantially integrated all available shopping channels, including stores, websites and catalogs (online and through mobile devices.) Our investments in areas such as marketing campaigns and technology advancements are designed to generate demand for the omni-channel and not the separate store or direct-to-consmer channels…as a result of changing customer behavior and the substantial integration of the operations of our store and direct-to-consumer channels, we manage and analyze our performance based on a single omni-channel rather than separate channels, and believe that the omni-channel results present the most meaningful and appropriate measure of our performance.”

On Dec. 17, the SEC said it had completed its review of Urban Outfitters’ filings.

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Sapna Maheshwari is a business reporter for BuzzFeed News and is based in New York. Maheshwari reports on retail and e-commerce.
Contact Sapna Maheshwari at sapna.maheshwari@buzzfeed.com
 
 
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