Urban Outfitters Stock Plummets After Vetri Deal

Experts wonder why it bought a pizza chain.

Urban-OutfittersIn the wake of Urban Outfittersstunning deal to purchase the Vetri Family of restaurants, many experts are asking the same question: Why did Urban just jump head first into the restaurant business?

Does it want to use gourmet food to attract customers to its physical stores? Does it want to ensure that newly planned Urban locations are surrounded by high-quality restaurants? Does it just think that Vetri is a solid side business?

Whatever the reason, it didn’t sit well with Wall Street. Shares of URBN closed down 7.43 percent on Monday afternoon and fell 10 percent in after-hours trading.

But plenty of department stores have restaurants. Malls have food courts. Maybe getting customers filled up with food (and alcohol) will lead them to buy more clothes? It’s important to remember that this isn’t Urban’s first foray into the food-service business. It introduced UO Café in a New York City location in June, selling coffee, sandwiches, salads and organic snacks. It also runs two Terrain Cafes.

On Monday evening’s earnings call, Urban CEO Richard Hayne said: “In recent years, casual dining has been one of the fastest growth categories and our involvement in the food-service business through our successful cafes … has taught us the potential synergies that can exist between retail and food operations.” He went on to tout Urban’s partnership with Vetri at shopping centers in Austin, Texas and Devon, Pa., saying that “with casual dining growing rapidly and pizza being one of the most popular foods in the country, we believe there’s tremendous opportunity to expand the Pizzeria Vetri concept.”

While the stock market hasn’t been kind to Urban, the media is still trying to wrap its head around the deal. The Street called it the “most interesting and surprising” acquisition Urban Outfitters has ever made and said “an underlying reason for the purchase seems to be the increasing threat of e-commerce.” In an era where retail stores are losing walk-in business, luring in customers with pizza could do the trick.

In fact, retail has been getting slaughtered recently. On Friday, Nordstrom Inc.Fossil Group Inc. and Kohl’s Corp. saw big declines. The news comes “amid signs that shoppers are steering clear of department stores as the holiday shopping season looms,” said the Wall Street Journal.

On the Vetri-Urban deal, the WSJ called it “a substantial pivot” for Urban Outfitters, which is “suffering from the slowdown in shopper traffic that has cast a dark cloud over the retail industry.”

“While other retail chains are talking about refreshing their brands or ramping up their online efforts to counter the slowdown, Urban Outfitters has a more radical idea in mind. It’s going into a business where the economics are actually improving,” the WSJ said. “(The acquisition comes after Urban Outfitters had already run an experiment where it added restaurants to some stores.)”

Lindsey Rupp of Bloomberg News said: “The issue is, is this your core business? And retail investors are saying ‘no, what are you doing buying an Italian food chain?’ ”

Meanwhile, Cory Johnson, a host for Bloomberg TV said frankly: “This seems bonkers.”

Restoration Hardware has a similarly batty plan to open up some cafes and restaurants in their big new mega stores,” said Johnson. “This just seems like it’s going so far against the core. I mean, restaurants are hard enough.”

Business Insider said the deal “signals a huge change in the American consumer” and said the acquisition “signals that clothes and shoes alone aren’t enough to boost sales and drive traffic to Urban Outfitters’ stores anymore. And unlike retail, the restaurant business — and especially fast-casual chains — is growing.”

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