Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Retail chains turn their physical locations to their online advantage.
Back in 2003, Urban Outfitters Inc. management thought e-commerce was "interesting as a marketing idea," says Holly Devine, the retailer's director of e-commerce, who in 2003, was an e-commerce planner at Urban Outfitters.
There were a dozen employees on the retailer's e-commerce team and about the only thing they were sure of was that selling online would be very different from anything else the company was doing, Devine says. Even so, the company recognized the Internet's importance, she says, and the small team was tasked with building out the e-commerce channel. The merchant brought in an Internet Retailer-estimated $7.2 million in online sales in 2003.
Fast forward 10 years and Urban Outfitters now has an e-commerce team of about 75 and reported $663.3 million in online sales in 2012, up 31% from 2011. Moreover, the web accounted for nearly 30% of the retail chain's total sales in the fourth quarter, chief financial officer Francis Conforti told analysts in March. By 2017, the merchant expects that percentage to reach 50%.
For all the talk about how e-commerce threatens the existence of bricks-and-mortar stores, Urban Outfitters is an example of a retail chain that has found a way to succeed online. It has been able to use the web in concert with its stores, driving strong results in both channels over the last decade. Total sales increased from around $423 million in 2003 to $2.47 billion in 2012. Net income grew from $27.4 million in 2003 to $237.7 million last year—a 768% increase—and the stock price soared from around $3 in 2003 to $40 today—a 1233% increase.
As for online sales, the apparel chain, which also operates Anthropologie, Free People and others, has the largest 10-year growth rate of all 146 retailers listed in the Top 500 Guide that have been around since the inaugural edition published in 2004. Urban Outfitters, which ranks No. 48 this year, grew 9044.5% over the last decade, a compound annual growth rate of 65.2%.
Urban Outfitters isn't the only retail chain that has successfully withstood the competition from web retailers. An analysis of the 146 retailers in the 2013 Top 500 Guide that were listed in the guide 10 years ago—it was then called the Top 300 Guide—shows that retail chains increased online sales from 2003 to 2012 faster than their web-only rivals when excluding Amazon.com Inc. (No. 1). Of course, that calculation leaves out the one-time Top 500 retail chains brought down by either web competition or the deep recession of 2008 and 2009, or both, a list that includes Circuit City Stores Inc., Borders Group Inc., Blockbuster Inc., Linens Ôn Things Inc. and Fortunoff.
The 77 retail chains that have been listed all along grew sales 303.1% to about $64.61 billion in 2012 from $16.03 billion in 2003, a compound annual growth rate of 16.7%. The 26 web-only merchants, excluding Amazon, grew 268.1% to $10.38 billion from $2.82 billion, a compound annual growth rate of 15.6%.
Sure, the retail chains that have grown fastest on the web in the last 10 years—including Urban Outfitters and The Children's Place Retail Stores Inc. (No. 112)—grew from a smaller base than Amazon, which was already bringing in more than $5 billion in online sales in 2003. But they also had the foresight 10 or more years ago to know that e-commerce could potentially be a game changer for their businesses and for retail as a whole, says Nikki Baird, managing partner of research and advisory firm Retail Systems Research LLC. They invested in building e-commerce sites that would complement store shopping, and they adapted to technological advances that allowed them to connect with shoppers in new ways.
"While there are exceptions, most of the retailers that have succeeded in the last 10 years have been aggressive about cross-channel initiatives," she says. "Especially with Urban Outfitters, Ann Inc. and Macy's, these guys are making investments that enable them to connect online demand to inventory in the store. The stars of cross-channel happen to be on the top of this list." Ann Inc. (No. 88) grew online sales from an estimated $5.6 million in 2003 to $313 million in 2012—a 5589.3% increase, or a 56.4% compound annual growth rate. Macy's (No. 12), grew 2561.2% from $119.1 million to $3.17 billion, or compound annual growth rate of 44.0%.
One key to Urban Outfitters' success, Devine says, has been its focus on selling exclusive garments or those carrying its own label, which means it is not competing head to head on the same products with online retailers that don't carry the costs of physical stores. "We're not carrying the same products as Amazon so we don't experience showrooming like Target or Best Buy. A vast majority of our products are only available at Urban Outfitters and we've always made it a point to keep it that way," Devine says.
Urban Outfitters has also adapted by taking advantage of store inventory to fulfill web and other orders. The retailer in 2012 linked its store and web inventory in one order management system, so it can fulfill an order that arrives via its web site, a mobile device, call center or an out-of stock request from an in-store shopper in any location.
This has had a major impact on sales. During the third quarter of 2012, $23 million in direct-to-consumer sales were filled from store inventory, CEO Richard Hayne told investors in late 2012. "Without this initiative, we estimate that one-half of that demand would have been lost due to out-of-stock positions in our fulfillment centers," he says.
Not all retail chains have linked the web with stores to take full advantage of store stock or to offer in-store pick-up of online orders. Neither of Urban Outfitters' chief competitors, Abercrombie & Fitch Co. (No. 47) and AŽropostale Inc. (No. 111), show web shoppers local product availability, which Urban Outfitters does. Abercrombie is working on adding this feature, according to Billy May, vice president of e-commerce, digital and customer marketing. AŽropostale declined to comment.