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Sozzi: Why Urban Outfitters Isn't Dressed for Success

Stocks in this article: URBN ANF AEO ARO

NEW YORK (TheStreet) -- Ring the alarms, one brand that continues to open cool-looking bi-level stores with a hipster feel in busy towns is failing. That brand: Urban Outfitters (URBN). Sales growth turned negative during the holidays for the first time in 16 quarters. Execs have shuffled up the team responsible for the brand, yet are unsure when the situation will turn brighter.

What is going on here? The Urban Outfitters brand isn't suffering from "Too Many Stores Syndrome" as are rivals Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), and Aeropostale (ARO). From far away, the clothes appear snazzy and on trend, similar to those found at the hot fast fashion retailers Forever 21 and H&M.

In under two minutes, we will share four reasons, gleaned from a walkthrough of a new store, as to why brand Urban Outfitters is failing.

Number One

Fast Fast-Like Quality, Nordstrom-Like Prices

Bottom line is that Urban Outfitters remains badly overpriced in the marketplace given: (1) its product quality; and (2) the lack of versatility of the merchandise. A 25 year old could scoop up three head to toe outfits at H&M for the price of one at Urban Outfitters. CEO & Founder Richard Hayne acknowledged this on the March earnings call by shouting out improving fashion and quality as key areas of focus in 2014.

Number Two

The Losses are Killing the Wins

Urban Outfitters wins when it's releasing new fashions customers won't see anywhere else, and actually want to plunk down a good chunk of digital cash to wear that fashion. The reality: Urban's creative magic has been stifled by a lack of internal communication between teams, and that will take time to correct.

Number Three

The Customer Challenge

Fashion obsolescence is a key issue for Urban Outfitters...including a sustained focus on product and design innovation. Consumer taste and preferences are always changing. So the challenge has been laid down by customers for the brand to revamp its assortment. If it isn't able to rise to the occasion soon it should fear losing more of its market share against other big players.

Number Four

The Next Phase

Looking forward, the company is trying to focus on increasing customer count, store expansion, online and mobile marketing endeavors, along with direct-to-consumer business. Will this work? Most likely it will put a Band-Aid on the issue. The company has been portraying a downtrend since it posted its fourth-quarter earnings.

You're welcome.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, Sozzi held no position in the stocks mentioned.

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