Is Pizza Always the Answer?

Honestly, it’s been a while since I’ve understood something that Urban Outfitters has done. Aside from, “where do you expect me to get $100 for shoes?” I’m often plagued by questions surrounding their business model. For those of you who don’t know, UO has been pretty consistently in hot water over the past few years, putting out clothes that are downright tasteless (and not in a fashion-type way). From blood-stained Kent State sweatshirts (eerily reminiscent of the shooting in 1970) to tops that say “depression” and “eat less”, Holocaust references, racial appropriation, EVEN briefly replacing the “black” option on their website (for color choices in clothing) with “Obama”, you name it, they’ve been there. I’m pretty much always asking, “who made this decision and why?”  Today, I’m asking it for a different reason.

The company is setting its sights on something new… Italian food? On November 16, 2015, Urban released a statement saying that it was to acquire The Vetri Family group of restaurants. The chain is based out of Philadelphia, which is also the location of UO’s headquarters. A direct quote from Richard A. Hayne (UO CEO) in the press release read, “Having known Marc (Vetri) for almost a decade and partnered with him through his charitable foundation, we are honored to have him, Jeff and the Vetri family join the URBN team.” That’s all well and good, sounds like fun to work with your friends… but I wouldn’t call that a valid reason for this decision.

Vetri Family of Restaurants Management Team

Urban stock (NASDAQ:URBN) has been plummeting since before the midway point of 2015. Is it because of their continuously poor business decisions, or simply a market trend away from clothing purchases? Hard to say. More likely the latter (even giants like Macy’s have seen sales slumps). Mr. Hayne explained that they were convinced to partner with the Vetri family’s business because of an upturn in spending on dining. I understand that you want to hop onto a hot ticket item; that doesn’t, however, mean you know enough about the restaurant industry, with your experience in retail, to operate a fruitful food chain.

URBN Stock

It’s not necessarily “weird” when a company branches off into something new. Hell, Warren Buffett’s Berkshire Hathaway sells everything from jewelry to candy to insurance. Unilever owns Axe, Ben & Jerry’s, and Slim-Fast (the last two quite playfully ironic). The focal point here is the WHO attached to the WHAT. Urban outfitters isn’t what I, or most, would see as powerful enough to venture out of their lane. It’s pretty bold of them to assume that they can handle two very different operations. The shareholders seem to think URBN is a bit too big for their britches, too. The day after the announcement, UO stock fell another 7.5%.  Analysts are calling it a laggard stockand understandably so.

Rumor has it, the company may be using this for a Target-type approach. Put the pizza joint in the stores themselves. Combine the apparel and food experiences into one. C’mon, who doesn’t want to spend money on pizza when you’ve just dropped hundreds on clothes?!

At this point, it merely feels like Urban Outfitters is grasping for straws, not even hinting at a real goal. Just saying, “Sales are down? Let’s buy something that IS selling!” doesn’t necessarily work. If it’s a completely new realm for your business, you’re going to have to hire a whole bunch of new employees who actually know a thing or two about it. This decision could absolutely cost them more than it’ll earn them. Guess we’ll just have to see. It’s not like they haven’t proved to be irrational before…

laggard stock: a stock that is under-performing in the market, yielding lower-than-average returns

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