Design as Differentiator

At the beginning of the year, most retailers looking out toward the coming 12 months warned of "economic headwinds" and "macro-economic factors." And quite rightly. The headwinds, they are a-blowing. As for the macro-economic factors — they blow, too.

In the dawning days of the new fiscal year, Urban Outfitters stood out from the crowd by predicting 2008 would be a very good year for picking up market share, despite the winds and roadblocks.

Last week, a preliminary verdict on the corporation's strategy arrived: total sales up 30% in the second quarter; direct-to-consumer sales up 42%; comps at Anthropologie, Free People and Urban Outfitters up 7%, 10% and 19%, respectively; and consolidated comps up 13%.

We'll find out how much profitability may (or may not) be attached to those revenue gains when Urban Outfitters releases its quarterly results this week. But bear in mind that back in January company execs focused on the opportunity to pick up share and acknowledged significant gains in profitability would be a challenge.

Upon what does Urban Outfitters stake this position? Two words: unique and branded. As the company's boilerplate says: "The emphasis is on creativity."

Independent retailers know this instinctively. They have the benefit of knowing their customers and regional environment first-hand. With low minimums on their orders, they can more easily pivot to address changing conditions at the local level.

Some chain retailers are addressing regional tastes. Walmart and Bed Bath & Beyond have long given their store-level people a measure of control over localized merchandising. Macy's is rolling out a similar program.

But among such national retailers, regionalization tends to take more of an item approach — beach themes vs. lodge looks, say — than a broader design responsibility. Granted, the risk of pursuing an aggressive, assertive design vision can seem to undermine the efficiencies demanded to make high-volume business profitable.

But here's the gist of it: Urban Outfitters and Ikea and myriad specialized internet retailers are steadily chipping away at the big pie — and they're going after the yummy parts. They're using design as a differentiator.

So Urban Outfitters runs about 280 stores under four nameplates. That's not like running 800 stores or 1,000 stores or 3,000 stores under one nameplate. True. This also raises the question of tipping point — just how many stores are too many for a company to maintain a distinct, fresh point of view?

Another argument: Urban Outfitters' formats are apparel-driven. Yes, they are. And this is a lousy environment for apparel sales, yet the company's businesses are bucking the trend.

Unique. Branded. We need more of both.