October 3, 2012, 12:30 PM

Urban Outfitters counts on national fulfillment to drive big growth online

The retailer is investing $55 million in a new Reno distribution hub.

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Urban Outfitters Inc. has aggressive plans to generate 50% of all sales online within five years and is counting on a new national fulfillment strategy to help meet the goal.

At its recent annual investors meeting in New York, Urban Outfitters, No. 48 in the 2012 Internet Retailer Top 500 told Wall Street analysts and others that by 2017 the apparel retailer, which operates Anthropologie.com, UrbanOufitters.com, FreePeople.com, ShopTerrain.com and Leifsdottir.com, will count on the web to generate about one-half of all revenue. “There are a few of you who really got on my case for saying that direct-to-consumer would be 50% of our entire retail sales five years from now,” CEO Richard Hayne told Wall Street analysts and others. “Well, I'm going to say it again. I believe that Urban Outfitters’ retail sales will be 50%, direct-to-consumer within five years.”

Virtually all of Urban Outfitters’ direct-to-consumer business is generated online. In 2011 direct sales increased 16.4% to $504.9 million from $433.8 million in 2010. Direct sales accounted for 20.4% of total revenue in 2011 compared with 19.5% in 2010.

Urban Outfitters has a long way to go reach its aggressive direct sales milestone, and to get there is laying plans to build a better national fulfillment system with a new West Coast fulfillment center and a new ship-from-the-store program, Hayne told analysts and investors. Earlier this year Urban Outfitters had a single distribution center in South Carolina that fulfilled all U.S. direct orders. But in September Urban Outfitters completed a $55 million investment in a 500,000-square-foot distribution center in Reno, NV, with the capacity to expand to 1 million square feet. At its network of 380 stores, Urban Outfitters also has introduced a policy that if an item is out of stock at the distribution center but in stock at a nearby store, the customer can arrange to buy the item and pick it up at the store or have the store ship the parcel to her home or office.

With new ways to speed up fulfillment, Urban Outfitters will soon be able to ship online orders more quickly and efficiently to 80% of the country, Hayne told analysts. “We will be able to get to two-day delivery and less than two-day delivery to over 80% of our customers,” Hayne said. “Again, a big, big deal for us. And in fact, from this facility, we can get to one day, for next-day delivery, to seven western states, including all of California, which is an important market for us.”

With a fulfillment hub on each coast, Urban Outfitters now has the capability to pick, pack and ship up to 100,000 online orders daily. “We strategically believe that fast delivery is such a big deal that we invested $55 million to build a West Coast fulfillment center,” Hayne told analysts.

With its new program of shipping online orders from stores, which launched in June, Urban Outfitters is able to offer customers more diversified shipping options—and drive more sales, Hayne said. In a recent week web items fulfilled by stores generated sales of about $1.4 million. “A store doesn't only sell inventory within its four walls,” Hayne said. “A store now has access across the enterprise, the other entire store inventory and the web inventory. By exposing more inventory, we see an increase in demand.”

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