Retailing has never been more challenging and is only going to become more complex. While seemingly endless numbers of specialty fashion retailers have been relegated to the growing list of defunct brands, Urban Outfitters has been a survivor.
Imagine Reclectic rolling out special weekends of “make-tailing” events. Reclectic identifies local fashion designers and stylists with abroad social media presence to take center stage in the store. Customers are invited to collaborate with the stylists with a vision in mind to “reimagine” clothing.
Urban Outfitters Resilience in Action
Urban has had their share of missed quarterlies and fashion faux pas, but they’ve been able to regroup, identify problems, and fix them. I attribute this to the continuity and vision of their brilliant founder and CEO Richard Haynes, who is still very much in charge. Case in point: Contrary to the disappointing fourth quarter 2024 results reported by many retailers, Urban Outfitters Inc.is an exception. During their February 26th earnings call it beat analysts’ estimates on both top and bottom lines. But there’s more behind this story: Urban’s namesake flagship brand continues to be a drag on the P&L sheet although things are slightly improving. Meanwhile, Free People, its sub-brand FP Movement, Anthropology, and rental brand Nuuly have been doing the heavy lifting and profit earning. The total unit count of all flagship brands, Anthropology, Free People, and Urban Outfitters numbers 742 stores as of January 2025.
Identity Hinge Point
Urban Outfitters brand has been experiencing an identity crisis for quite some time. During an October 2024 earnings call, the company candidly admitted it didn’t know how to market to the demographic that made it a household name — young people, specifically Gen Z. That’ s a pretty dramatic smoke signal for help. Critics have noted that the brand lacks “cultural awareness” and did not adopt to the evolving shifts in attitudes with millennials, once their key cohort, and Gen Z.
The Elusive Next Gen
Gen Z is full of behavioral contradictions. Three years ago, TRR Gen Z expert Jasmine Glasheen pointed out, “Despite all the data supporting Gen Z’s overwhelming interest in sustainability, as well as their enthusiastic support of resale and the circular fashion, they (also) appear stuck on fast fashion, the arch enemy of sustainability.” And three years later, they are still pragmatic shoppers.
And, if that weren’t enough, retail brands are now dealing with “No Buy 2025” the social media meme promoting Gen Z’s “underconsumption.” Younger consumers, especially in the U.S., have been embracing this burgeoning movement which encourages people to buy as little new merchandise as possible. This is sure to increase C-suite antacid intake at Urban Outfitters and other fashion retailers.
Three-Prong Strategy
Urban Outfitters is now staging a turnaround, with the ambition of finding the success of Abercrombie & Fitch with three key strategies aimed at profitability. First, like many other retailers, Urban Outfitter believes their stores are too large and must be “right sized” from around 10,000 square feet down to the 6,000 to 7,000 square foot range. Second, Urban’s core demographic has been moving out of dense urban locations to outlying suburbs and exurbs. Further, Urban’s Outfitter’s founder and CEO Richard Hayne suggested that the brand is “now focused on acquiring new customers.” He elaborated by discussing strategies such as expanding product lines, improving store productivity, and leveraging their subscription service, Nuuly.
Brand Master and Merchant King
There are many factors that differentiate Urban Outfitters from other specialty retailers that went from becoming a sensation to ultimate elimination over time. They included some of the 20th century’s most revered retailers, founded by merchants who were passionate about what they sold, who they sold to, and how their customers were treated. Names like Ben Marcus, of Neiman Marcus, Charles Lazarus of Toys “R” Us, and Sid and Max Kohl, founders of Kohl’s come to mind. Many lost sights of their company’s missions or their founders’ visions. Some succumbed to over-expansion, changed ownership, or simply lost touch with their customers.
Building Success Incrementally
This has not been the case with Urban Outfitter’s Inc. Hayne has been the “brand master” from the start and remains so today. He opened his first apparel shop near the University of Pennsylvania in the 1970s with $4,000. Today, Hayne still controls nearly 60 percent of the URBN stock and is personally worth over $2 billion.
Hayne tends to his retail garden ecosystem with greater care than most. He is also very pragmatic and evaluates options carefully; Urban’s rental brand extension Nuuly being a fitting example. Now Urban’s fastest growing division, Nuuly debuted a decade after two digital-first pioneers embarked on the fashion rental business.
Learning From Other’s Mistakes
Rent the Runway was founded in November 2009 as a platform for renting designer apparel and accessories, revolutionizing how people access fashion. Seen as the newest shinny object by the venture capital community, RTR raised over $300 million in twelve rounds of funding but struggled to achieve profitability. The company has consistently reported net losses, with a net profit margin of -26.6 percent as of October 2024.
Stitch Fix was founded in February 2011 as an online personal styling service, blending technology and human expertise with rental options for its curated clothing boxes. It experienced rapid growth and went public in 2017 achieving a valuation of over $1 billion. However, it too has faced declining revenues and customer losses in recent years. and its profitability remains a key challenge. It reported net losses in fiscal years 2023 and 2024.
Urban ‘s Nuuly “no buy” subscription rental service launched in May of 2019 and had a big advantage out of the box. A perfect complement to Urban’s brand family and ecosystem, it tapped into the growing demand for clothing rental services as well as aligning with Urban Outfitters’ focus on creativity and self-expression.
A Vertically Integrated Model
Nuuly rents subscribers’ apparel from its own brands as well as from over 300 third-party brands, including well-known labels, and emerging designers. It’s promoted across Urban Outfitters, Inc.’s portfolio of brands, including Urban Outfitters, Anthropologie, and Free People and is featured throughout the 700+ store chain and online.
As Urban’s fastest growing brand, Nuuly is experiencing a 56 percent sales jump in the fourth quarter. They also added 20,000 active subscription members, for a total of 300,000. Best of all, Nuuly celebrated its first profitable full year and is aiming for $500 million in sales by the end of 2025.
The key differentiator between Urban’s approach to rental and the others is that Nuuly is vertically integrated into the Urban ecosystem. Additionally, in contrast to digitally native Rent the Runway and Stitch Fix, Nuuly began life as a unified commerce (AKA omnichannel) brand, which contributed both traction and profitability that has illuded the others.
Challenges as Opportunities
However, Nuuly’s success is not without hiccups. It faced the challenge of finding an environmentally responsible way to dispose of goods once they are no longer rentable. In response, enter Reclectic, the retailer’s vertically integrated solution that pairs thrifting and resale. Reclectic offers eco-conscious solutions for products that can’t be sold at retail. Their tagline: “new/thrift. high/low. apparel/accessories,” is a clear attempt to future-proof the brand positioning.
The at-least 60 percent off retail merch mix includes “’gently used” products from Nuuly along with product samples, slightly damaged merchandise, and products that have not sold from the retailer’s other brands. Their first store debuted as a pop-up in the backyard of the retailer’s Philadelphia corporate headquarters. The 40,000 square foot “test concept” launched in August 2023 and received rave reviews, plenty of Tik Tok attention and sold out most of its merchandise in its first 24 hours.
A second larger 100,000 square foot store, the first to feature the Reclectic brand identity opened in Tempe Arizona in late October 2024, and the third unit opened in Gurnee Mills Mall outside of Chicago last November. In early February 2025, the newest Reclectic opened on the outskirts of Charlotte in Pineville, NC. Fueled by a ton of TikTok and Twitter social media buzz, hundreds of anxious shoppers arrived in the early hours and assembled in block-long Disney-like queues to become part of Urban’s newest brand phenomenon. Store number five is set to open soon in Dallas.
More to Come?
Reclectic is threading the needle in a novel way. It’s undeniable that it’s positioned somewhat like a factory outlet store but is doing it much better. It sidesteps the stigma of “blowout” sales in Urban’s flagship stores, which insures better margins. More importantly, Urban Outfitters is painting a sustainability scene in the process. Nuuly in tandem with Reclectic has the potential to become Urbans’ next big growth engine.
- They’ve got the goods. With over 700 stores and a vital ecommerce operation they will continue to be an endless supply of merchandise including past rentals, end of season and overstocks, as well as online sales returns to keep multiple Reclectics stocked.
- Growth on the cheap. In the retail scheme of things, Reclectic stores are inexpensive to open. Compared to the substantial and costly leasehold improvements required to fit out any of Urban’s flagship stores, opening a Reclectic is a low-budget affair. They also appear to be targeting less expensive real estate than their flagships occupy.
- Trending trifecta. 1.) At a time when companies like TJX seem unstoppable, Reclectic helps stretch budgets, while providing the irresistible “treasure hunt.” 2.) The brand provides Nuuly an eco-fashionable resale solution, and a vertically integrated “close-out” vehicle along with Gen-Z social media buzz. 3.) Color-coded tags identify items free of any defects, pre-loved, like-new, or in good condition, and merchandise with minor damage. No changing rooms, no returns. Reclectic recommends clothes to “hit your fit” because all sales are final.
A Little Retail Theater, Please
The internet has won the commodity retail sales race. For stores to remain viable they must provide customers with more than just merchandise to bring them in and keep them coming back.
Imagine Reclectic rolling out special weekends of “make-tailing” events. Reclectic identifies local fashion designers and stylists with abroad social media presence to take center stage in the store. Customers are invited to collaborate with the stylists with a vision in mind to “reimagine” clothing. Together, they create a truly personalized, one-off Reclectic original. And of course it’s all being livestreamed online to fashionista followers. It’s upcycling meets immersive retail theater.
