Last week, Urban Outfitters reported that comparable same store sales were flat from the year prior.
It's surprising for a couple reasons: revenues were up, and the e-commerce business saw healthy growth.
The culprit of Urban's flat comps this quarter?
Customers returned too much stuff.
Urban CFO Francis Conforti explained on the conference call last week:
"I believe it is important to note that if it were not for direct-to-consumer returns at stores which we currently charge against store sales, our store sales comp would have been low-single-digit positive," Conforti said.
The admitted dent in business because of returns is unusual, said Brian Sozzi, chief equities analyst at NBG Productions.
Some culprits could include buyer's remorse on purchases, a poor return policy, poor quality of merchandise, or people buying stuff online then returning it to stores, Sozzi said.
"I can't recall a specialty retail mentioning something like this before," Sozzi said.
Urban is known for its eclectic fashions , which can be risky. Offering clothing that's too conservative can keep shoppers from coming back, while selling obscure stuff can drive them away.
Last year, Urban's CEO acknowledged that the retailer had a fashion problem.
It's possible that Urban's customers are taking risks on items like a patchwork dress or neon shirt and then realizing that the items have no place in their daily wardrobes.
Eric Beder, an analyst at Brean Murray Carret and Co., explained that Urban Outfitters needs to make clothing that's more relatable.
"There is more work to be done in reworking the in-store collection to connect with a wider teen group," Beder said in a note.
If Urban does a better job of making its trendy items more appealing to a broader set of consumers, its hipster customers are less likely to suffer from buyer's regret.
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