Okay. Are we ready? Welcome. Welcome to URBN's 2014 Investor Day. Thank you all for coming today. I can't tell you how excited we are. We have what I believe is a fantastic day planned for you. As promised, a day with a heavy dose of brand leadership, small dose of the CFO, which is why I suspect we've had such a strong turnout here today. I'm going to talk to you just for a quick couple of minutes, talk about our agenda, a couple of administrative items, and then I get to sit back for most of the day and enjoy the show with you. It worked much better in the dress rehearsal. Okay. That is our disclosure statement. General Counsel's in the back. I will get in trouble if I don't share it with you.
This statement covers all of my remarks as well as everything you're going to see and hear today. Okay? One more. Thanks, Meredith. All right, on to the agenda. Leading off the day will be Dick Hayne, who's going to talk to you a little bit about our goals for the next several years through fiscal 2020 and our strategic initiatives that we're setting in place in order to achieve those goals. Following Dick will be Calvin Hollinger, our Chief Administrative Officer, who's going to talk to you about several of our shared service investments that we currently have going on, primarily to support the brands and support their growth. Not to slight Calvin and Dick too much, when they're done, that's when the real fun begins and we begin our brand presentations.
Each brand will present to you today for roughly 30 to 45 minutes, followed by about 15 to 20 minutes of Q&A with brands and a few of their leadership team. I will ask you one favor today. The focus of today is the long term. The focus of today and why we wanted to bring everybody down here, in addition to giving you guys the opportunity to have exposure to our leadership team, the teams that make it work here and not just myself and Oona, is to really talk to you about what we believe we can execute over the next several years, to talk to you about our growth opportunities, to talk to you about the longer term. I know it's hard not to think about the short term and not to think about the quarter, I will ask that we try and keep the questions focused on the longer term initiatives. That's where we want to live today. That's what we're really excited about, we hope that you leave here today as excited as we are.
Leading off brand presentations will be the Free People team. After Dick and Calvin's presentation, which will happen right here in this room, we'll move over to Building 3, which is down here along the water, for the Free People presentation. Oona and myself will do our best job to be tour guides and escort everybody from building to building. Following the Free People brand presentation will be the Urban Outfitters brand.
We'll actually stay in the same building, move to a different section of the building for Urban's presentation. At the completion of Urban's presentation, we are then going to move to a courtyard that we've had set up for you right outside Building 17. In that courtyard, we'll have a lunch. That lunch was prepared by Terrain Cafe. Hopefully, everybody enjoys it. As you're starting to complete your lunch, David McCreight will kick off the Anthropologie presentation with his prepared remarks. At the conclusion of his remarks, you'll then have the opportunity to tour a prototype large-format Anthropologie store. We're extremely excited about this. At the conclusion of your tour of the Anthropologie store, we'll have Q&A within that prototype store with Anthropologie and their leadership team. Conclusion of that Q&A. There's a lot going on today.
Conclusion of that Q&A, we're going to come back out to that common area that we have set up, and we'll have Q&A with Dick, myself, Calvin, and the three brand leaders, David, Meg, and Ted. Hopefully, at that time, you will then be as happy and as excited as we are about the future of URBN. Some other quick administrative items. We should be finishing up right around 3:00 P.M. or just before 3:00 P.M. We have a shuttle for those of you going back to 30th Street Station . We do have a shuttle running at 3:00 P.M. to offer you a ride back to 30th Street Station . I believe there's a 3:30 P.M. Acela heading back to New York and Boston. Should be plenty of time. Now that I said that, there will be an accident, and there won't be plenty of time. Hopefully it works out.
We also have reserved cabs for everybody. We've reserved several cabs for anybody who's going somewhere else. Anybody needs help with transportation, please see Oona, which everybody should be able to find and recognize, or Meredith. Wave your hand and they'll help you with transportation. Additionally, you'll see throughout the day, there'll be people in black and white shirts wearing that says URBN Vision 2020. They can also help you get from building to building. They'll tell you where refreshments are, tell you where the restrooms are. Basically, they're there because Meredith didn't believe I had any capability to execute being a tour guide today. That's it. I told you, low dose of CFO, heavy dose of brand leadership. That's what we're about. It's now my pleasure to introduce a man who needs no introduction, Dick Hayne.
Thank you, Frank. I think we've all had the experience of recognizing the difference between formal and informal organizational structures, and we know what that's about. Every once in a while, you get a shock. This morning when they handed out name tags and mine said, "Dick Hayne, Meg's husband." It sort of put everything in perspective. Anyway, good morning, everyone. It couldn't be a nicer day out there. We're excited Second day or first day of autumn? I think it's the second day, right? It couldn't be a more beautiful day. Welcome to the Urban Campus. Our brand leaders, as Frank said, are very, very excited to share with you what they've been working on. First, let me say a few words about Vision 2020.
As that name suggests, we believe that we have a very clear sight line into our customer and to the industry in general. We have used that vision or that sight line to build a strategy that we believe will allow the URBN Group to double its sales by the year 2020 while remaining very profitable. This morning, I'll review that strategy with you, then you'll have the opportunity to visit with our three brands and hear how each team has used the strategy to fit their specific customer and their specific opportunity. Our strategy consists of three distinct but interrelated components. The first component is expanding our product and service offerings. The next is enhancing the customer experience. Last is growing our distribution across all channels. I'll discuss each strategy, beginning with the product expansion.
As anyone who has followed us for any time knows, our company is a portfolio of lifestyle brands. Each brand specializes in a particular customer, and knowing and understanding her lifestyle, I always refer to her as because 90% of our customers are female. Knowing her lifestyle and her life stage is what allows each brand to be successful. The Urban brand, for instance, concentrates on the 18 to 28-year-old customer. Anthropologie, on the other hand, primarily serves an affluent woman in her 30s and 40s. She typically has a home and a family. While the core product offering at each brand is apparel, she gives us permission to offer many different product categories as long as they resonate with her lifestyle. Currently, all of our brands offer some product categories that are adjacent to the core apparel offering.
We haven't come close to realizing the full potential of these adjacencies. Over the next five years, we intend to concentrate more of our resources on these underdeveloped categories and expanding the offerings within them. Let me give you one very good example, which is the Anthropologie home assortment. Home defines the Anthropologie customer. This was reflected in the first store where 50% of the selling floor was devoted to home product. Today, even though the average Anthropologie store is approximately the same size as that original store in Wayne, Pennsylvania, the home penetration now stands at approximately 20%. Yet her desire to buy home products has not decreased. To the contrary, as David will discuss this afternoon, the Anthropologie customer actually spends as much money per annum on home products as she does on apparel.
We see a significant opportunity to offer a much fuller assortment of home products and capture more of her spend. David will outline how he and his team are currently in the process of doing just that. We also believe that there are additional product and service categories that each brand can begin to offer within the next five years. Here I'll cite as an example the Free People brand. They've had tremendous success over the past few years, launching new categories like intimates, accessories, and party dresses. Shoes, the latest launch, had a successful wholesale debut this fall. A new activewear line called FP Movement is currently being tested and, given the positive results that they've seen, will likely be offered in more depth next year. The Free People team has additional product ideas that they'll share with you this morning.
In case you're wondering why I keep referring to the expanded offering as both product and services, we believe that there are also many opportunities for our lifestyle brands to take advantage of appropriate services. Just last week, for example, Anthropologie launched its registry service. It's a technological marvel that you all get a chance to see and interact with this afternoon. Although less than a week old, the launch has far exceeded our expectations. Expanding the product and service offerings at each brand is the first component. The second is enhancing the customer experience. Again, those of you who follow us are well aware of our reputation for creating exciting four-wall experiences. This campus and even this room should convince you of our capabilities in this area.
By the end of the day, I hope you will be in awe, as I am, of the extraordinary talent in this company to create magical spaces. The power of experience in the selling equation is well understood by many modern hoteliers and restaurateurs but, for some reason, is less well understood and practiced by most retailers. It is one of our core strengths, second only to product creation as a reason for our success. The customer experience we currently offer at each brand is very good, but we know we can make it a lot better. For instance, we believe that expanded offerings in stores and online will excite and please her more, and we will introduce a number of omni-based initiatives designed to make shopping easier.
These initiatives will allow her to shop wherever and whenever she chooses and pay for and receive her purchases however she wishes. Calvin Hollinger will discuss these initiatives in a few minutes. While these initiatives should help improve her experience and improve conversion, the much more powerful experience driver will come from our ability to create captivating imagery. Here I hold out the Free People brand as that blazing the trail. Powerful creative imagery used online, in stores, in catalogs, in videos, and across social media sites like Instagram, Pinterest, Snapchat, and Facebook is helping to drive brand awareness and product demand. The social media sites I just spoke of, along with the brands' apps and internal and external blogs, are helping to create strong customer engagement and a sense of brand community in addition to driving sales.
A rich, compelling customer experience, we believe, creates strong engagement, and that's one antidote to the endless cycle of discounting and promotions that many retailers find themselves addicted to. That brings us to the third and final component of our strategic plan, which is to grow all of our channels of distribution: retail, direct, and wholesale. Adding stores in new geography has been our primary method of retail channel growth since we opened our second store in 1980. There's a limit to this growth. Once again, those of you who have followed us for a while should be familiar with our self-imposed limit of 200-250 stores in North America for the Urban and Anthropologie brands. We believe the Free People maximum is around 150. These aren't random guesses. The limitations are based on demographic and psychographic analysis of the major metropolitan markets in North America.
We believe that opening more stores would risk brand overexposure, which is one of the fastest ways to kill any brand, especially those with an operating model like ours, which is based on elevated fashion and experience, not on low prices and promotions. By the end of this year, we expect to have more than 200 North American stores in operation for both the Urban and Anthropologie brands and over 100 for the Free People brand. Obviously, we are nearing our upper limit of unit growth. Fortunately, there is an alternative way to think about retail store expansion. Increasing the store size per unit accomplishes square footage growth but avoids overexposure problem. This solution dovetails nicely with our strategic initiative of expanding product and services. Each brand plans to open larger stores and use the additional square footage to sell the expanded offering.
Again, I will rely on Free People as a case in point. Currently, the Free People brand operates stores with approximately 1,200 to 1,800 selling square feet. This is the legacy size of the original concept when the brand was exclusively a women's apparel company. Meg or Team believe that today, 4,000 to 6,000 square feet of selling space would be a more appropriate size for Free People stores to properly display and stock their expanded product range. The same is true of the other brands. Urban recently opened expanded format stores in Herald Square and Williamsburg. This afternoon, as Frank told you will have an opportunity to walk through an Anthropologie larger format store. For the most part, the brands won't add larger stores in new geographies. They will replace existing ones. When available and where appropriate, the brands will lease additional contiguous space in current locations.
Otherwise, they will relocate to larger spaces nearby. We expect to start slowly and build the number of these conversions over the five-year period. The effect is rather dramatic. Without opening larger format stores, our square footage CAGR would be in the low single digits. With larger stores added in, that CAGR jumps to double digits. We also believe that the Urban and Anthropologie brands have an opportunity to open more retail stores in Europe. Next year, the Free People brand plans to open their first freestanding store in London. It would be a mistake to assume that the benefits of an expanded offering accrue primarily to the store channel. Additional product has been instrumental in helping to drive significant double-digit direct sales over a number of years, and we believe that will continue. The genesis of our category expansion strategy actually came from observing Amazon's growth.
I submit to you, if Mr. Bezos still thought of Amazon solely as a purveyor of books, Borders would still be out of business and Barnes & Noble would still be struggling, but Amazon's overall sales would most likely be in the $5 billion range. The $60 billion in annual sales that Amazon enjoys today has been driven primarily by its expansion into a multitude of different product categories. I am not suggesting, and please don't write, that we want to be or compete with Amazon, or even offer close to the number of categories that they do. But I am suggesting that the concept is similar. The direct-to-consumer channel also benefits from the vivid imagery that we produce, and they are actually the prime recipient of that benefit.
Today, you will see vivid examples of how the Urban brand has transformed its imagery from mundane to stunning in the last 12 months. It's no wonder that their direct customer is responding so positively. Each brand also has the opportunity to significantly grow its international direct-to-consumer business. As we move to Global Inventory capabilities and combine that with our current ability to offer multi-currency, multi-language, and add in low-cost shipping fees, we expect the penetration of non-North American direct business to continue to build over the next five years. Finally, let me say a few words about Free People wholesale channel. As you will hear, the wholesale channel has already succeeded in driving sales from new categories. Non-core apparel categories accounted for 17% of wholesale sales in this year's second quarter, but they accounted for almost half of its growth.
We believe that the new product categories will continue to help propel wholesale sales through 2020. International growth has been another engine driver for wholesale sales, and we expect that to continue through to 2020 as well. The Free People team will speak to both of these factors in more depth in a few minutes. In summary, our Vision 2020 strategy is to expand the product and service offerings at each brand, enhance the customer experience across all channels and brands, and grow all channels of distribution by offering more products, opening larger stores, and expanding all channels internationally. We believe this strategy could result in a twofold increase in URBN sales by the year 2020 and allow us to remain very profitable. Thank you.
With that, I'll ask Calvin Hollinger to come up and speak to the shared service initiatives that we think are necessary to support this growth. Calvin?
Thank you, Dick. Are we go? There we go. Good morning, everyone. Also, thank you, Frank, for pointing out that my presentation was going to be less fun than the rest of the presentations today. Frank was also honest and true in the last earnings call when he mentioned that we are growing SG&A fairly rapidly while also expanding our capital investments. What I thought I would do today is discuss those investments, share with you a little bit more detail, where we're investing, why we're investing, and the benefits we expect to get from these investments. I thought because there's so many things going on, that I would group into two main areas, customer service and customer engagement. First, to customer service. For those of you who were here just two years ago, you may recall this picture. It shows our Reno, Nevada, fulfillment center.
It is our online operation center in Reno, Nevada, and it is 500,000 square feet and sits right next to our retail distribution center, which fulfills the stores on the East Coast. Since its opening, we have seen a dramatic improvement in customer delivery to our customers. In fact, we can now get to next-day service to our six westernmost states, which include the important L.A. region and the San Francisco Bay area. Our other fulfillment center is in Trenton, South Carolina, which as you can imagine, is a lot more challenging to get fast service into the important Northeast region. Not to be outdone by the West, we have now opened or are in the process of opening up an East Coast fulfillment center in Gap, Pennsylvania. For those of you not familiar with Gap, Pennsylvania, it is about 30 miles west of here in Lancaster County.
It will run both our e-commerce, our direct operations, and our wholesale operations, and it is on track to open in June of 2015, just next year. This beauty is one million square feet. It is twice the size of Reno, and it is four times the size of the retail distribution center that you can see just to the left, which services our eastern stores. This building is highly automated. Inside, we will have eight miles of conveyor systems, and outside on the roof, you cannot see it yet, we are installing North America's second-largest solar array panel, which will generate the energy required to run this building. It has a capacity of delivering 200,000 packages per day, and it gets us into the important Northeast region with a next-day service delivery. But speed is not the only advantage we have over here.
There are a couple of other strategic advantages that it gives us. First is labor optimization. Although these buildings are highly automated, they still require a lot of labor. Receiving, inspecting, packing, marketing, et cetera. This campus, again, it runs retail, direct, and wholesale. Through peak, we will employ over 1,000 people. Now, the nature of retail, wholesale, and direct is they have a totally different cadence, which means there are wild fluctuations in labor needs throughout the month. By sharing labor between the buildings and by sharing labor across channels, we can begin balancing out the labor and drive down overall operating costs. The second advantage we have now, similar to Reno, we can now consolidate retail, direct, and wholesale inbound shipments, get economies of scale, and drive our cost and time, our inbound supply chain. Thirdly, and probably most importantly, it will help us rationalize inventory.
Today, in our retail distribution center, we have to keep a level of backstock for stores to replenish from. Backstock anywhere in a supply chain is very, very inefficient, because by definition, backstock means not accessible to the customer. With this new concept, new campus, similar to Reno, we can now eliminate retail backstock. If a store needs to be replenished, we simply pull the inventory from our active online inventory, move it across the street, and float out to the store through our retail distribution. It also helps us to balance inventory. If we see product is turning fast in one store or a group of stores, we can just simply reallocate inventory from the direct channel to the store channel, again, rationalizing total inventory. On the subject of inventory, let me give you some other quick updates on some other initiatives that we have underway.
The first is called Drop Ship. As you heard Dick mention this morning, as you'll hear from the brand presentation later on, we are dramatically expanding our product and service offerings. Some of those categories, such as Anthropologie's Home, come with its own unique logistical challenges: storing, moving, delivering. Other categories require us to offer a vast number of choices. For example, in the Urban business, music is very, very important to the Urban customer. In fact, we are the world's number 1 vinyl seller. Instead of us actually having thousands and thousands of vinyl albums online, we've put in system capabilities to integrate seamlessly to our vendors, offer their inventory without owning the inventory, and offering for sale and using the supplier to actually go and provide the whole Drop Ship capability.
We have roughly 100 vendors hooked in today, and as we expand the Anthro program, we expect that'll expand rapidly as well. The second capability, Order Online Pick Up in Store. This is very, very prevalent in the U.K. It's called Click and Collect. You'll hear more U.S. retailers talk about this capability. We've had it now for one of our brands, Terrain, for about a year, and we are going to roll this out to the other brands this coming year. We offer two choices. If the inventory is in the store, she can come collect and pick it up anytime. If the inventory is not in the store, through our new distribution network, we can then bring that inventory to the store to get picked up the next day or the following day, et cetera. A natural extension to Order Online Pick Up in Store is same-day delivery.
We're in the process of having some discussions with some courier services in metropolitan areas to begin offering that service. I think one or two of the brands will try and pilot that next year to deliver, again, within a metropolitan area, same-day delivery. Finally, Global Inventory. Very, very important. Dick mentioned it. Today in Europe, in our European fulfillment and distribution center, we have dedicated inventory for our European market, so for our stores and our online customers. Our U.S. inventory is used to fulfill, obviously, the U.S. stores and customers, but also our international demand. It's slightly different by brand, but about 10% of all of our packages are now getting shipped internationally, and it's growing rapidly.
With our international expansion online, with Free People's growth wholesale into Asia, which you'll hear about later, with Free People's successful launch of a Chinese website, Free People shop-in-shop in Hong Kong, and then next month's Urban launch of a shop-in-shop in Hong Kong for the Urban brand, it's only a matter of time that we will need to have a distribution presence in Asia. Not suggesting 1 million sq ft, not suggesting 500,000 sq ft, something much smaller, probably a 3PL, but we need to have distribution points somewhere within Asia. The issue with having dedicated or captive inventory within a region is it comes with inherent challenges. To try to circumvent some of those challenges, we've implemented a concept called Global SKU or Global Inventory that Dick mentioned.
We can now take a demand from anywhere around the world and fulfill it from any place that we have inventory, a store or distribution center or fulfillment center anywhere in the world. This provides our brands tremendous flexibility. Within a certain region, they can either offer a highly curated localized assortment, or they can offer a broad assortment, global assortment, or they can offer a combination of both. Suffice to say, inventory optimization always has been, always will be a key focus for the Urban Brands. All right, now for something completely different, customer engagement. For those of you who follow e-commerce trends, you'll hear more and more about the shift from desktop to mobile devices. People interact more now with mobile devices than with desktops. That holds true for all of our brands as well. This slide, I hope you can see it, shows Free People.
It is the latest information we have, so it's the second quarter. I'm comparing the last 2 years, it shows where traffic is coming from. What you'll see is just 2 years ago, 85% of all of our traffic came in from a desktop. Today, it's about 50% and rapidly declining. Conversely, we're seeing our customers want to interact more and more with us on mobile devices, and especially with the mobile app. This is the FP Me app. Speaking to Dave Hayne this morning, this number is really at about 10 to 11%, rapidly growing. What you may say, you're stating the obvious. More customers have smartphones, more customers interact and open emails while they're driving, et cetera. What's the big deal?
The big issue is that the conversion rate, i.e., people actually buying things, the conversion rate is highest on the desktop, which is steadily declining, and less so on the mobile devices, which we see we are growing. Let's face it, shopping on a mobile device is a very poor experience. It's not just the size of the screen. The issue is that a lot of the mobile experience is still designed and built with a desktop mindset. Yes, there's a thing called responsive design, which configures the screen based on your device. For the most part, the mobile experience is still just a mini-me version of the desktop, and that's not good enough, and this trend is not going away.
We at Urban, we believe we have a wonderful opportunity here to be ahead of the curve and become best-in-class at building and delivering compelling mobile apps for our customers. This year, to that end, and part of the investment, we created a separate mobile development team, and we went out and we hired wickedly smart Android and Apple developers, and all they do all day is crank out compelling apps. All of our brands now have an app. As I mentioned, Free People is FP Me. Urban has an app called Urban On, which is both on the Android operating system, Android and the iOS, which is the Apple device. Then we're very proud that just last week, just coincidentally for this presentation, we launched Anthropologie's app.
In addition to being a very slick shopping experience, it is also Anthropologie's introduction of the much-awaited gift registry. The customer who downloads this app, it'll be available, I believe, in the next two weeks in the App Store. Apple, with the iPhone 6 release, will be backed up, but they'll release it on the App Store the next two weeks. If you download the application, you'll be able to go into our stores, scan products, see more information about the products, ratings and review, suggested cross-selling opportunities, et cetera. Seamlessly add the product to the registry, share the registry, and when we're out of stock, we can message the customer, either through text or email, her choice, that we're out of stock and have some suggested selling. I encourage you to look at the registry.
I know that David will speak more about it, the whole program, during your time with Anthropologie. With that, as Frank said, the fun begins when I end. I thank you for your attention and just leave you with a parting thought. The next time, the next earnings call, when Frank mentions we're growing SG&A or deleveraging SG&A or growing capital investment, please remember it is a very, very good thing. Thank you.
You can see the uphill battle I have. That concludes this part, and as we said, the fun now begins. This is my part as the tour guide. We're going to leave the doors here, hang a right, go back out the building this way, if that's how you came in, and then walk down the road this way towards Building 3. Susannah's on that side. She'll lead, and I'll be in the back. Thank you.
Frank.
Take it with you. Yep. Yeah, take your stuff with you. We won't be coming back to this building, to this room. Please.
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Wait a second. I'm still hearing your music. Hold on. As soon as Dave gets the music going, I'll tell you. Rich, I got Dave's music now, you can hang up.
De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. El cariño que te tengo no te lo puedo negar. Se me sale la babita, yo no lo puedo evitar. Cuando Juanica y Chan Chan en el mar cernían arena, cómo sacudía el jibe, a Chan Chan le daba pena. Limpia el camino de paz, que yo me quiero sentar en aquel tronco que veo y así no puedo llegar. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí.
De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. De Alto Cedro voy para Marcané, llevo a puesto voy para Mayarí. En el barrio la cachimba se ha formado la corredera. En el barrio la cachimba se ha formado la corredera. Allá fueron los bomberos con sus campanas, sus sirenas. Allí fueron los bomberos con sus campanas, sus sirenas. Ay, mamá, ¿qué pasó? Ay, mamá, ¿qué pasó?
[Foreign language] En el barrio la cachimba se ha formado la corredera. En el barrio la cachimba se ha formado la corredera. Allá fueron los bomberos con sus campanas, sus sirenas. Allí fueron los bomberos con sus campanas, sus sirenas. Ay, mamá, ¿qué pasó? Ay, mamá, ¿qué pasó? El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela. El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela. El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela.
[Foreign language] Ya no hay nadie ahí, mejor que busquen los bomberos, que yo creo que Tula lo que quiere, señores, es que le apaguen el fuego.
[Foreign language] El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela.
[Foreign language] Ay, por ahí viene Leales en tremenda corredera. Viene a observar el cuarto de Tula que ha cogido candela.
[Foreign language] El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela.
[Foreign language] Carlo y Marco están mirando este fuego, si ahora no se apaga, se apaga luego, candela.
[Foreign language] El cuarto de Tula le cogió candela, se quedó dormida.
[Foreign language] Un pillito le busca a Marco pa' que busque tierra buena, que vengan para acá rápido, que la Tula, mira, cogió candela.
[Foreign language] El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela.
[Foreign language] Marco, coge pronto el cubrito y no te quedes allá afuera. Llénalo de agua y ven a apagar el cuarto de Tula que cogió candela.
[Foreign language] El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela.
[Foreign language] Tula está encendida, llama a los bomberos. Tula eres candela, apaga los fuegos.
El cuarto de Tula le cogió candela, se quedó dormida y no apagó la vela.
Hello. Is this working? Welcome to Free People. We're very happy to have you here today, and we hope we live up to expectations that Frank has told you about. Today, you will hear the Free People story from three of our leaders: Sheila Harrington, our CMO; Chrissy Meehan Muszynski, our VP of Global Wholesale; and Dave Hayne, our CEO. First, I want to touch on something else. Oona tells me she's often asked how Free People keeps their sales up the way they do from quarter after quarter comp positive. This is really important. One thing I want to stress. The three leaders that will be speaking today are responsible for the way our business has been over the years. Will three of you stand up and wave? Sheila, Chrissy, and Dave have worked for the brand for 11 years. That's right, 11 years.
They were here when we opened our first retail store, when we launched the commerce, and when we changed from being a junior resource to a contemporary. They were all here for that time. They were all important to that big move that we made 10 years ago. I have been working closely with each of them during that time. They work exceptionally well as a team. They are strategic. They have history to build on, which is of great value, as you would all know. They offer stability to our organization, which gives our teams a chance to grow and develop. They have strong leaders under them. The creativity in Free People is exceptional. Now, I will have Sheila come up and start and tell our story.
Okay. Good morning. two years ago, we discussed the opportunities of product category expansion for the Free People brand. This morning, I would like to review the progress of four of these concepts, which have been important contributors to our recent growth and for which we believe we will continue to have future growth. Intimately Free People is a concept that has been organically growing within our brand for some time. Intimately, however, in the past two years, is responsible for nearly 20% of the total brand's growth. This growth was based on the development of a strong foundations business, focusing on fits and quality, details and fabric that make us unique and stand out, developing our price range, as well as what we believe is extremely important, the emphasis on fashion and creativeness in this space.
In tandem with the foundations growth is the expansion of a unique sensibility and mood for this division. The sensual side of the Free People product strengthens our total brand mix and can be seen in our imagery reflected here. This division is the most evolved on our direct business, and we continue to experience accelerated growth, leaving us excited for the future opportunity in our stores and our wholesale channels as well. Moving on to Party. Party defines our high AUR selection of dresses for various events and sensibilities for our Free People girl. These pieces sparkle and shine and represent the brand extremely well. Over the past two years, our casual dress business has grown in all three channels. Our Party dresses have been an additional add for both our direct and wholesale businesses.
Demand is strong, and we believe this concept will continue to grow in all three channels. From the onset of our direct-to-consumer business, shoes has been an important contributor. As we continue to grow, the desire and really the need to create unique Free People branded product developed. We wanted to complete our Free People outfits from head to toe. Two years ago, we began to test and create and learn about what it meant to be a Free People shoe in the Free People shoe business in our direct and store channels. This line incorporates the attention to detail, materials, and hand that's important to our handwriting. Tests and learnings have been extremely strong. In February of this year, we launched our wholesale collection at the Platform Shoe Show.
Our first delivery to nearly over 100 accounts have strong results, and we are extremely excited about our future growth here. Movement is our most recent launch in direct. This concept is Free People's activewear line with a focus on core activities, being yoga, dance, surf, and run currently. This concept is a strong collaboration of creativity across all departments. We wanted to create a unique product and experience in the activewear space with Free People handwriting. I feel like our teams from our design and merchant teams, as well as our studio, art, image, and e-commerce groups, delivered above expectations. The launch of this concept only in May of this year has been our most explosive to date. We are excited what this business can mean to the Free People portfolio in all three channels of our future business.
I would like to share with you a video that reflects the spirit of this line. These four concepts that I've spoken about, Intimately, which you walked into, Party, Shoes, and Movement, have tremendous opportunity to continue to grow. As we spend time engaging with our customer, which Dave will talk about shortly, we continue to learn about where Free People has the opportunity to continue to develop, and we look for what is next. Our customers' tremendous interest in our beauty posts in our Building 25 blog speaks to our interest in beauty from our brand, including hair, skin, and cosmetics. Sorry. Additionally, from both the blog and the feedback in our stores, we know our customer would be receptive to a Free People home concept. We are in the middle of concepting FP Sanctuaries and are excited to share this with our customers soon.
Although we are excited about our opportunity to continue to create new product for our customer, we are, as we have been for the past two years, committed to evolve our core accessory and apparel line and to maintain strong Free People total growth. Thank you for your time this morning. I'd like to introduce Chrissy Meehan Muszynski, Vice President of Global Wholesale.
Hi, everyone. Thank you, Sheila, for that great product review. I'm pleased to be able to talk to you today about wholesale and the business we're developing. For those who joined us in 2012, and for those of you who are new, our goal at Free People is to build a global lifestyle brand focused on growth. With regard to wholesale, this growth has been and will continue to be realized by product expansion domestically and account expansion internationally. Year-to-date, wholesale sales have increased 32%, driven by domestic and extremely strong international business. We are excited by our potential. Over the past two years, our wholesale team has been hard at work developing our domestic business with existing accounts through product expansions. These extensions have enhanced the wholesale assortment for specialty and department stores alike.
In department stores specifically, we have increased our brand footprint, which has given us the opportunity to gain exposure to new customers within adjacent departments. In Nordstrom, for example, our customer can now find the Free People label in five divisions: ready to wear, intimates, shoes, party dresses, and hosiery. Our department store partners have success with our core offering and have been eager to test new Free People ideas with us, providing us the opportunity to be a top brand with them. We believe that our product extensions will fuel incremental growth with specialty stores as well. As an example, the launch of our shoes in second quarter contributed to 25% of our specialty store growth. We feel confident that we will be doubling our door count within the shoe division in the near future. Now moving on to our global presence.
We've experienced strong growth by expanding our showrooms and shop-in-shops worldwide. When we had last met, we had just launched what was our first shop-in-shop. By the end of this year, we will have 33 globally, 15 in the U.S. and 18 internationally. We anticipate double-digit growth next year and believe that we can have over 100 shops worldwide within the next few years. Our growth in international shop-in-shops is largely the result of us opening showrooms in Tokyo and London, which has given us the ability to service accounts directly within these markets. We anticipate that the Tokyo showroom, along with our distribution strategy in Japan, will continue to drive solid growth throughout the country on top of the nine shop-in-shops already opened there. Our recent success in the region was the opening of our branded shoe shop in the coveted Isetan shoe department in Shinjuku.
Further growth in Asia will be realized through the relationship that we have now with the I.T Group out of Hong Kong. We'll be partnering with them to be opening five new shops throughout Hong Kong and Greater China. We also continue to flourish in our 600 square foot Lane Crawford Lab Concept store in Queensway Plaza, Hong Kong. Korea is a key addition to our Asia roadmap, and we are eager to develop Free People's presence through targeted marketing and PR efforts. Moving further south to Australia, we are experiencing strong consumer interest, and we are on track to open five shop-in-shops with Myer department stores by spring 2015. Europe. We are currently servicing 11 countries out of our showroom in the U.K., and we feel that we have nothing but runway out of this market, as indicated by our substantial growth in Q2 sales.
We see tremendous opportunity in U.K. alone and are pleased to announce our continuation of our Selfridges partnership with plans to expand to all four locations by 2017. We are also exploring new opportunities and distribution partners throughout Europe to maximize the market's potential. We intend to use partners to cover Germany, Spain, France, and other regions throughout Scandinavia and Benelux. We are confident that we have the potential to significantly increase store count by 2017. Last but not least, from our work in stores and online, we know that the Free People customer is most responsive to strong and attractive visuals and styling. It is important that our brand is portrayed well with our wholesale direct partners. We've been working hard with our online marketing strategy to produce an elevated and enhanced user experience with our digital partners.
Our fall lookbook on bloomingdales.com was one of their most successful digital lookbooks to date, with unprecedented engagement. We have refined our presence online through curated editorial opportunities and user-generated content, look forward to strengthening the Free People wholesale e-commerce capability. As we look ahead, the Free People wholesale business has never been stronger, we have never been more excited about our future. Existing accounts have shown incredible eagerness to participate in the Free People growth story. We field regular partnership inquiries from global retailers, allowing us to be selectively strategic when entering into new markets. We believe the opportunity for continued wholesale growth is robust, I am personally excited to be leading this effort of transforming the Free People brand into a global lifestyle brand. Thank you. I would like to now turn it over to David Hayne, our Chief Operating Officer of Free People.
Good. Thank you, Chrissy. Welcome everybody. My name's Dave Hayne. It's very nice to be speaking with you today. When we last spoke on the quarterly earnings call, we covered our brand's recent accomplishments. Today, I want to provide some further insights into some of the growth strategies that we have at our stores and e-commerce channels and some of our future opportunities there. Getting a little ahead of myself. In about a month, we're going to be opening our 100th Free People store in North America. Closer. In about a month, we'll be opening our 100th Free People store in North America. Okay, thanks. This milestone comes about a dozen years after our first store opened in Paramus, New Jersey, in 2002. Next Monday marks our 10-year anniversary of our first e-commerce order ever taken on freepeople.com.
We actually looked into this, and we discovered that we took a total of seven orders on that first day for a little bit over $1,000 in sales. I was actually working on the website launch at that time, and I recall everyone being very excited about that debut. Fast-forward to today, and it's simply incredible to see what this brand has become. When this year wraps up, we could be near half a billion dollars in annual brand sales, with close to 2 million customers on file and a little bit over 1,600 employees across our three channels of business. This is simply amazing to witness this type of brand growth, and it's been fun to be a part of it. In our stores, the recent focus has been on productivity improvements and growing the selling square foot per door ratio.
We have renovated a lot of our earlier stores to the latest brand specifications. We've added flexible shelving to improve wall density and merchandising opportunities. We've improved our fitting rooms, we've improved our cash wrap areas, and reclaimed a lot of the back of house to maximize the selling space up front. We're also fully utilizing our shared URBN cross-channel initiatives. Our store associates are shipping hundreds of orders from stores a day, and they love their MPOS devices that enable them to place orders for store customers from a web inventory. This last point is an important one. More and more, we're finding that customers are coming into our stores to purchase items that they've pre-shopped online. Usually, space constraints in most of our stores significantly limit some of the assortment that they can carry.
All too often, our customers are disappointed when they come in and learn that their desired items are not carried in that local store. MPOS usually helps us satisfy these customers in most cases, but we know that we could be making a lot of these customers even happier with a wider assortment in a larger space, especially as we move into a lot of the new categories that Sheila's already talked about. A lot of these cross-channel dynamics and product expansion initiatives have us more excited than ever about larger stores. Next year, some of our new stores will be tested in formats above our traditional 1,000 to 2,000 selling square feet and upwards into the 4,000 to 5,000 selling square foot range, as Ted already talked about, with some of these key locations going even higher.
For example, by mid-next year, our Rockefeller Center store, which you see here, will grow to just under 7,000 gross selling square feet and will showcase our intimates, movement, party dress, and shoe offerings that you see around here today. These larger stores, as well as the potential London locations that we've already spoken about, will represent the next phase of our retail evolution. We believe we have an opportunity to significantly expand total brand square footage without oversaturating our store count in North America, and that this should help us retain our exclusive boutique sensibility while giving our customers the products she loves at closer parity to our web assortment. Meanwhile, the direct-to-consumer channel has never been stronger for us. The web enjoys the widest product assortment we carry alongside of our strongest imagery and visuals.
This is an area that we've given intense focus with investments in photo studio and photo studio teams, merchandising teams, and content creators. Every webpage that you see on our website and every image on our website, we try and make as rich and vibrant as possible so that it can be a strong reflection of the brand. Most of these web features are updated multiple times a week. We are also very active content creators. We are posting regularly, daily to our Building 25 blog and pushing editorial and product content to customers via social media multiple times a day. We think that these are critical pieces of the brand that can often go unnoticed.
We believe that unique content can be very brand enhancing, so that when customers think of Free People as more than just merchandise, that we become relevant to her lifestyle and remain top of mind for her when she is making buying decisions. As Calvin already spoke about, we also must be technologically relevant to our customers. In her everyday life, she is accustomed to live Instagram feeds, smart searching on Pinterest, very fast shipping on Amazon, easy access to information via her phone at all times. Because of this, we have put an emphasis on mobile application development and built our engagement program, FP Me. Nearly half of the visits, as Calvin already showed, to our digital properties are now coming to us via a mobile device, either a phone or a tablet.
Our internal mobile development team has been improving the shopping and social aspects of our iOS app, and we will be thinking about Android apps shortly. The iOS app is now accounting for 10% of our direct sales, and that is growing really fast, as Calvin already showed. FP Me has quickly become a cornerstone of our marketing strategy. Our goal is to put our customer front and center in the brand story so that she can be the one that is advocating for Free People and our merchandise. So far it has been working. Since we launched FP Me, over 50,000 style pics have been uploaded from over 10,000 different users, and each of these pics has been viewed hundreds of times on average across our site and our digital properties. Shoppers that view these pics have a much higher conversion rate than those that do not.
Amazingly, all of these photos that you see here were submitted by customers and can rival some of the best content that the brand puts out. By letting our customers participate in this brand experience, they grow stronger ties to Free People, and they help encourage other customers to participate as well. FP Me has also connected our customers closer to our local stores. Store associates can now communicate new styles and deliveries directly to the FP Me customers that they follow. Favorite FP Me users are often invited to local store and brand events. FP Me users have been rewarded with invitations to special events like this one that just took place in Vancouver, coinciding with our recently opened first store in that market.
Top FP Me customers, several local bloggers, and a handful of local store employees spent an intimate few nights glamping in rooms that were styled by the brand and enjoying styling sessions, kayaking activities, yoga, and great vegan cuisine. Back in May, we invited 20 of our top customers to join a well-known yoga instructor at our FP Me surf and yoga retreat in Costa Rica. This was put together to really help generate buzz for the Movement launch that was happening at that same time. Closer to home, the team organized a retreat in Ohio this June, where a dozen top FP Me customers were treated to live music around a campfire with fireworks later that night. This event set the stage for a July 4th campaign video that we were shooting that evening.
All of these events are incredibly brand enhancing for customers, but they also help Free People create very compelling social content that we then post back out on our Blog and social channels, which again entices more customers to participate, and it creates a powerful cycle. The FP Me program and events like these have achieved their goal of connecting customers more directly to our brands and to our store teams, and we're very excited about future plans that we have to expand this program further and get more people involved. These have been just some of the compelling ways that we're connecting with our customers and supporting her lifestyle. The Free People brand experience, like I said before, has really never been stronger, and the entire team is very excited about where we're headed and the future of this brand. Thank you very much.
I appreciate the time today. We'd now like to show you another video. It's a compilation of a lot of different videos that we've done in the past. Then Meg will come up and wrap things up. Thank you.
Are you happy now?
Yeah. It's scary.
You finally are not looking at your desktops and your mobile devices. That's great to see. We got you. Now you've heard our story. Product, points of distribution, and community. Free People has no limitations on creativity, energy, or determination to try something new. We test new fashion and extend categories. We take risks in marketing. We are eager to try the unconventional. Like in the video, we have hopes, we take risks, we inspire, we connect, we learn, and we move forward. This is a creative and passionate community. This makes us an ever-evolving lifestyle fashion brand, always looking for ways to inspire and engage our customer. Thank you for coming. Now we will have Q&A.
Has anyone seen videos that good? I mean, absolutely amazing. I'm just here to be an innocent bystander. Oona will be walking around with a microphone for anybody who has questions for the Free People team.
Morgan Stanley, can you hear me? Okay, there we go. Can you share potential You know,
The question was, can we share any of the financial performance metrics pre and post some of the store expansions, what we've seen around productivity and
Yeah. The productivity that we've had in some of our newer remodeled stores has been, on a square foot basis, it's been lower, which you would expect. That's kind of a natural thing for the square footage performance to degrade. There's some build-out costs that go into the upfront experience. We've been very pleased that the overall bottom line profitability has been in range of where we've been trying to target, and it gives us a lot of encouragement that the future stores that we're going to be pursuing in that range, and even larger, should be something that we can support as a financially sound, profitable exercise. It's given us enough encouragement to continue proceeding with that path.
I think it's important to understand too that Free People at 1,500 sq ft is about as productive from a sales production standpoint as you'll see. I mean, their brand has stores that do almost $3,000 a sq ft. When David says it's not at that high level, we're talking about, yes, it's slightly below, it's still incredibly productive, and quite honestly, I think where other brands would love to aspire to be. We have a very strong threshold or I guess proud threshold as to what we expect from a return on a store and what we expect from a top-line return. When Dave says it's coming down, it's still, I think, where a lot of brands would be very happy to be.
Do you think you can double the revenue in some of the newer stores you're remodeling?
Yeah.
Yeah.
Can you repeat the question?
She asked if we think we could double the revenue in some of those larger stores, and the answer would be yes. By doubling the revenue, hopefully doubling the bottom line would be the goal as well.
Richard Jaffe from Stifel. The video is fantastic and I'm sure costly. How do you allocate the cost for this? Is it held in the Free People business, or can you push it back upstairs to Urban?
We'd love to push it back upstairs to Urban. How's that going to work, Frank?
I don't know.
Surprisingly, some of those videos have not been incredibly costly to produce. We've had one of my favorite words talking about the team and the business is scrappy, We've got a very scrappy team that has been very good at executing content creation like that at a very affordable cost. Bringing in friends, bringing in acquaintances, bringing in peers in the industry to help with that kind of content creation has been one of our biggest successes and something that the team has really done a great job with.
I would also like to add that because Free People has done such a great job with videos and content that many artists, photographers, videographers. Actually, models and actors and actresses want to participate in our videos and in our photo shoots. Once you start to create a buzz in the industry, you are sought after, We have turned that corner, We have many reputable people that would like to do business with us. When I say we take risks and When I say that we try the unconventional, that's what I mean. When we first started the blog, there was no return on revenue. Dick was a supporter of that. He told us that if we did not improve sales in the next year, that we wouldn't be able to do it. To our surprise, we saw a lift.
Then we took the next risk with video. He was behind it, We produced a really strong video. Actually, Dick loves this video. He's talking about TV, Who knows?
Neely Tamminga from Piper Jaffray. Question for you, Sheila or Meg. On the product side, how do we think about Free People Beauty? If you think about movement and intimately, it's definitely built on efficacy of products that work really well. How do you bridge that between private label and some just key foundations that exist in beauty and kind of continue the efficacy theme? Thank you.
Okay. We do everything organically within the brands. We make sure we're talking to our customer, and everything comes from basically the heart of our creative team. We feel like that is the first important piece to how we can create a beauty line. There are going to be partners. We don't make beauty now. We know how to make apparel, but we didn't know how to make shoes a few years ago. We made sure we found the people that really resonated with our brand in terms of quality and what we wanted to portray in that shoe business. I feel really comfortable saying that we have a lot more research to do but that I know we can get there based on the strength of the handwriting of the brands.
Are you still answering? Can I ask mine?
Of course.
Adrienne Tennant, Janney Montgomery Scott. It's amazing what you're able to do internationally, globally, the reach that you have with just the showrooms. I'm wondering, what do you do to prep the market other than those showrooms to reach the wholesale customers? What's the size of the shop-in-shops? What would you need to see to pursue retail abroad more aggressively? Thanks.
I think what's amazing is when we start putting out videos like this and kind of creating a buzz in the market, we receive inquiries from people, and it kind of raises our stature and gets more people interested in what the brand could mean in their market. Chrissy's constantly getting inbound from partners that are interested in working with us, and we're doing a lot of work to reach out to people as well. The world is getting so much smaller these days. Everything can be shared and digitally shared these days. Digital marketing has allowed us to kind of really expose ourselves and get out there more globally. The interesting thing about our brand here at the company is we have these three channels that we can kind of play off as we think about international expansion, play off of one another.
Wholesale tends to be the safest way to grow internationally, wholesale and e-commerce together, shipping from the U.S. with the web. That's kind of been the way that we're thinking about global expansion, is to lead with wholesale on the web and then follow with stores when we really get some traction in a market and we think there's a viable market potential in that market. As we talked about with London and the U.K. next year, we already have an infrastructure in the U.K. from the other brands that we can lean on as well as some really strong buzz in the market for the brand and what we've been doing with our .co.uk and what Chrissy has started to build with the wholesale business in the U.K. We think it's the right time for us to be thinking about stores there.
Great. Thank you.
I think your question also included square footage.
Yes.
Our shop in shops are usually anywhere from 600 to 1,200 square feet.
Janet Kloppenburg, JJK Research. I had a question about expanding the existing store base to the larger format. I think you said you have about 100 stores, I was wondering what the near-term opportunity would be to expand those stores and if you thought that would accelerate your square footage growth over the next three years. I understand most of these categories are also being offered online, it sounds like you are interested in the stores growing, and I'm wondering of the existing base, which is two-thirds of your plan domestically, how many can be expanded? Thank you.
Thanks. That's a good question. I think as I spoke to, we are beginning to anniversary some of our early store deals. We opened our first store in 2002, that kind of early crop of stores is beginning to come up on their 10-year cycle. As that happens and as we see opportunities for certain stores that are potentially doing well and we want to recognize more opportunity with that store, we are going to be considering some expansions. We actually already have, as you've seen. There is definitely a potential to renovate and expand or relocate some of our earlier stores that have higher potential to grow our sales. As well as that, as we roll out new stores next year, we are going to be thinking about larger square footage there as well.
It is a multi-pronged approach that we are going to be looking to really reshape our fleet over the next five years and into a larger format. We do not have a hard number of what we have identified as opportunities. We know that there are certainly a handful that we are pursuing. It is nothing where we have any certainty around that, but there is potential to grow some of these 1,000 to 1,500 selling square foot stores into larger formats. Yes.
It's Laura Champine with Canaccord. This is sort of a follow-on question to that. If your average store size is 1,500 square feet today, in 2020, what do you think your average store size will be?
I think as I spoke to, we are going to begin testing the idea of a 4,000 to 5,000 and a little bit higher selling square foot store. Depending on the results of that test and depending on what we see, we may push that higher, we may stay in that range. It's something where we always want to understand how the customer's going to react to what we are putting out there in front of her, and if she reacts positively and if we continue to expand the assortment so a store could hold even more, then we may be considering larger spaces beyond that. But we do not have any certainty around where we are going to end up. We just know that that's the next phase of what we want to pursue.
Hi, Simeon Siegel at Nomura. You guys have done a great job, particularly in light of the promotional environment. Could you talk about what the target penetration would be for the different channels? As wholesale grows, can you just talk about the guardrails you'll have to maintain the control over your distribution and again, kind of operating within this promotional environment at the stores? Thanks.
The split between our three channels has actually remained relatively constant, surprisingly. As we've gotten into more of a retail and e-commerce business, wholesale, Chrissy's not one to let us penetrate too heavily, she's been really pushing and keeping that ratio between the channels pretty consistent. Sorry, what was the second part of your question? The promotional atmosphere, I think as Dad talked to earlier, the idea of two types of retailers, some that are focused on price and some that are focused on experience, we obviously want to be in that latter camp, the more that we can put out interesting, compelling product and interesting, compelling creative content, the more we think we can be in that latter camp and try and stay as far away from promotions as possible.
Simeon, just to follow up on answer to your question. I know there are a lot of global lifestyle brands out there's a lot of commentary on overexposure, I can tell you, over Meg's dead body. It's just not going to happen, if you think about a store penetration domestically of roughly 150 accounts, when you hear Chrissy's presentation on wholesale, she talks about domestic, she's not talking about doors. She's talking about additional exposure in different categories within the domestic growth, that's where the growth is coming from. We're very keen to not overexpose the brand. I think it's something that's critically important to us as a company, I can tell you in my seven and a half years here, I don't think a week goes by that Meg doesn't make sure that we're very aware of it.
It's on the forefront of our minds.
Thanks. It's Omar Saad from ISI Group. I have a question about the brand's push into some of the product extensions and new product lines. Can you talk about what are the core equities of the Free People brand that give it the license, that give it the permission from the consumer that really relate into areas like intimates, footwear, active wear? What are the equities there that you're pulling out to make that push? Maybe talk about from a numbers standpoint, how the mix has shifted from the core historical categories and how the penetration perhaps has shifted to some of these newer areas. Thanks.
I feel one of the first areas that we spoke to was Intimately, and we said it grew organically, and it came from outfitting and understanding how the customer actually wanted to layer up and style herself. That's how that line developed, and we realized within that core items, core success factors, we started to test into more traditional underwires and foundation businesses, but we did so once we had the expertise to sort of speak to that. It grew from still who we were as an apparel company, and the same with our shoe business.
We talked about Movement for quite a long time before we got it right because we wanted to make sure we were true to who the brand was in terms of the qualities that we wanted to use, how we wanted it to look, and we didn't want to look like any other person out there in that space. I feel like that was an important piece to the success so far.
I have to say, she will hate me to say this, but Sheila's ability to see opportunity in product is outstanding. She knows how to take a category and distort it, whether we're talking about regional distortions, price point distortions, fabrication, production distortions, all sorts of ways she can twist and distort the assortment has been our success. We will continue to grow the core of our business, which is apparel, with this mindset. She also looks for opportunities to layer on. It's about layering on while still protecting the core, which has been really important. Our core is still as strong as ever. I also challenged Chrissy that, same thing with her domestic business. I want to keep seeing the domestic business grow. I don't want to take the international and hide over what's going on with domestic.
Everybody is really under the radar in terms of what they've had in terms of business and what their opportunities are. We always protect the core of our business, whether it's product or whether it's distribution.
I just wanted to jump in. When we think about what targeted penetrations are going to be in product categories, the answer is we don't know. We're not hiding anything from you. The reality is the consumer is going to tell us. I think we feel very confident that the consumer has told us and has given us and given the brand permission to sell into the categories. We're going to continue to sell and give her what she wants. Where it ends will be where it ends, and our focus is always on pleasing the consumer. There isn't really a targeted % as it relates to Intimates or Movement or shoes as to where we believe certain penetrations can be. It'll be the consumer who will dictate that for us.
Hi, Oliver Chen from Citigroup. Regarding the brand and the shop-in-shop presence, what are your favorite kind of adjacencies? Has that evolved a lot? I had a general question also about how you view the competition as you evolve into multiple categories.
With adjacencies, I think that's always a challenging question only because by store it's different, by region it's different. I think for us, we start with, "Is the environment right? Is our consumer there?" We look at that space. We look at, can the space hold the brand because the brand has a very specific aesthetic. We want to build the environment for the consumer in that space. The requirements of 600 to 1,000 sq ft don't come easily in a department store space, so that's another thing that we look at. We do like to make sure that there are contemporaries around us that the consumer is also shopping. It could be denim brands that could complement a Free People customer. I think it really depends on one brand could be hot in North America, and it may not be relevant when we're in Europe.
Same thing happens when we are entering into Asia. I think it's really about, is it right for Free People? Do we see the customer there? Then can we build the environment for ourselves there? I'm sorry, what was the second question?
across your different retail category, where else she's shopping, how you are thinking about her demographically.
Within wholesale, is that within the department store?
Within wholesale.
Right. One thing that was interesting with intimates for us that was very challenging is when we decided to launch intimates within our department store environments. Our 26-year-old to 28-year-old customer wasn't necessarily shopping in an intimates department. Some are shaking their heads like they know. They go to the intimates department in a department store, and it doesn't really look like a contemporary customer. We have been pioneering what is a contemporary consumer in these other departments, and we have been challenged by some of our partners, like Nordstrom, to say, "Okay, help us redevelop what this department could look like. Can you develop an environment with us in another department?" Same thing for shoes. I think that in shoes, it is probably more progressive than an intimates department. I think we are definitely pioneering in the intimates area for the contemporary consumer.
I couldn't say that there's an absolute competitor that we would look at and say that's where we are. Meg, do you want to elaborate on that?
Free People has had a strong identity from conception, we really have never worried about competition. When we started, we were really known for our sweaters and knits. Then when we opened our first store, we thought, "Oops, we need some bottoms." Then we needed jackets. Then, as Sheila said, we needed layering. We keep evolving the brand with different categories all the while never really saying we're like this category or we're like this brand or that brand because most brands don't do a collection like we do, most brands don't have wholesale, retail, and direct. We never look back. We always look forward. We never look over our shoulders. We are always moving ahead.
Hi, it's Dana Telsey. As you're adding new categories to the assortment, what's happening with the customer? Is there new customers coming, or is it expanding, and how is their cross-shopping between the three brands?
Well, cross-shopping across the three brands, I'm probably not going to speak to that specifically, I think that we would certainly say that it's generally our existing customer that is the first one to buy into a certain product expansion. I think as social buzz can get out there about the fact that we have a new expansion line or a new category, the potential to get new customers via that new category is certainly there, and I think we've seen a little bit of that. Yeah.
That concludes Free People presentation and Q&A. I want to thank the team for all of their hard work. I appreciate everything that they've put in, and we're now going to move through the bamboo here without knocking the bamboo over into the Urban Outfitters presentation. Thank you.
Yeah. Great. Yeah. Yeah.
Awesome. Thank you.
Thank you. Ooh, perfect. Hi, me again. I kind of wanted to change my outfit, but didn't allow me enough time, kind of in the same outfit. I'm up here as a CCO for Urban Inc. or Urban Outfitters, sorry. Welcome to Urban Outfitters 2014 Vision 2020. Take a look around this room. These images speak to our fall season. We are very proud of what you're looking at today. Today, you will hear from Sue Otto, Executive Creative Director. She will go into what we have been doing on the web and social and content. After that, Ted will speak to our strategic growth initiatives. Lastly, Trish Donnelly, our new North American President, will say a few words to you.
Before we start, I would like, with a show of hands, how many of you have been to Herald Square, Space 98, or the Westwood Men and Women's store? Great. How many of you have been on the website in the last two months? Even better. Great. For those of you who have been in the store and been on the website, you have seen the changes that we have made. For those of you who have not, we will be showing you today what we've been up to. As you know, Urban Outfitters has had a tough year of business for the last year. You saw sales stall and profits decline. We lost our focus. We got off track.
Today, we are in the process of reinventing our authentic voice that speaks to our heritage, that takes us into this new era of commerce, that incorporates lifestyle product, imagery, content, experience, engagement, and community. We are currently in a work-in-progress stage. Up on the screen are all the areas in which we are working on. I'm not going to go over each one, but I'm just going to highlight on a few. Product focus to target customer age 18-28. That's sort of the obvious to me. That's where we got off track. That's where we lost focus. I know many of you are worried about us raising our prices. I've heard some rumblings about this. We are not just raising prices to raise prices. We are putting more make into the garments. We are improving fabrications and printing techniques.
We are adding real value to each piece. Our customers are responding to the product in women's. I am proud of the top 10 sellers for the month of September. I could not have said that a year ago. I could not have said that six months ago. The second point, unified message from concept to customer. The trend-to-customer piece is incredibly important in our industry. We must start out with a strong concept at the beginning of each season. When I came into the business, this area was weak. This department was weak. We reinvented the teams and the process, again, primarily focusing on women's, a little bit with men's to come, and we're working on home back to school next year. The next two lines I'm going to combine. Web imagery and store merchandising are significantly stronger than a year ago.
We are able to tell much stronger stories because of the trend-to-customer exercise, because of the better product that ties into the trend to customer. All around, we have a much richer experience for our customer, whether they're in the store or on the website. My job is to instill creativity into everything we do. We have a tremendous amount of creativity in this brand. I plan on giving them more support and set up process and procedure to make them more effective. We are attracting many new talented individuals. I am so excited by so many of our recent new hires at all different levels, whether they're entry or offer more experience. We are also attracting old employees that have been here that have left because they didn't like the direction.
We have really invigorated the team with some old talent that are happy to be back invested into the brand. I will leave you with this note. I am extremely encouraged by the progress that we have accomplished this fall. There is still much more work to be done. I have confidence that Urban will regain its leadership as a premier brand for the 20-something. The product, the imagery, the store experience are all moving in the right direction. We have only just begun. At this time, I would like to introduce you to Sue Otto. Sue started Urban 30 years ago, more than 30 years ago when I started. Sue started in our Cambridge store, which was our second store, and I started as an accessory buyer in the Walnut Street store when that opened. We worked side by side for many years.
I am thrilled to be working closely with Sue again. She and her team are responsible for the dramatic changes that you have seen this fall. Sue is the heart and soul of Urban. We are lucky to have her. Here she is.
Thank you very much. Thank you very much, Meg. I appreciate that. That's more than kind and more than generous. This has been an opportunity for me to be able to be here and to return the brand, I think, to a position of respect, creativity, and authenticity. It's been an honor to do so. Given my legacy, that's all I was dreaming of, for it to be something that everyone admired. I'll start now. We're in the process of a true Urban renaissance. We're in the process of developing an exceptional creative experience in design, styling, imagery, and content, reviving what is really great about the brand and our legacy. It's intelligent, creative, and aspirational to our customer, most of all, in respect for our customer, in respect for the things that they value.
It's truly a revival of what's always been our hallmark in creativity and design, hearkening to what we've already been known for in our brick-and-mortar environments. In the forefront, it's aspirational for the customer, and it represents authenticity. Customer and lifestyle are the most important things here. Talent. We've been able to do this through talent. We're attracting new talent, and the exciting part about that is that they're coming to us. They're coming to us from the most aspirational, interesting editorial that we admired. It's the kind of people we used to pull images and think, "I hope we can be as good as this." They like what we're doing. They want to be a part of it. They're realizing that we're changing the way things are done online, and they're coming to us. That's what's exciting. Styling.
One of the key areas we're doing this is through new talent, is to advance creative stylings to a level that's inspirational to editorial culture and, more importantly, to our audience. That's the thing we're really trying to do, is for them to want to be able to imitate this, not just in the way they adopt it for their own personal use, but to be able to share on social media. We are influencing the marketplace. We see this through imitation, the work others are doing. When all these factors come together, we know we're doing the right thing, and we know we're doing a good job. Oops. Photography. We've raised the art direction in photography. This innovates the manner we sell online. We are innovating and changing the marketplace. We're elevating the brand and product. This creates increased value in the brand as well.
I think the important thing I said before is that we want our customer to imitate the work we're doing and that we have to be twice as good. They're doing this now. They live in a visual culture. They share images of themselves, their lifestyle, all day long. If we aren't twice as magical, we're not doing our job. I like that a lot of times on Instagram, a lot of the kids will write, "What filter did you use? What app did you use to do this photograph?" They're not even realizing we're using, of course, real photographers, real models. We're not using an app. That just tells a little bit about the vernacular they live in and their expectations. They can do great imagery. They can do beautiful imagery. We have to be that much better.
Women's photography is one of the key ways we're doing it. I think the before and after tells the simplest story about where we were and where we are now in all the factors: better product, styling, lighting, the models. Again, we're attracting great talent in terms of models and people who want to work with us, not paying more. They want to be a part of us. They actually take the work that they do here and share it on their own social media to be able to promote themselves. That's exciting. Beauty. This is a growing category. We support this growth initiative through editorial photography. It elevates, again, the product and inspires the customer. It's innovative in the industry. We do this a lot with on-model and actually showing the end use of the effect of the product.
We accompany this with content, video, interviews, more importantly, with studio visits, actually seeing the creatives of the product working with a lot of independent entrepreneurs. That adds authenticity, it adds interest. That tells a great brand narrative as well. Shoes. It's another growth category. To grow, we need to be better than all that's out there. We predominantly show narrative editorial photography on model. This elevates the product and inspires how to wear. Again, what's really exciting is when you see people, the kids show a lot of shoe shots online, and they always say, "I shot it in urban style. We want it to look urban." Again, another way we tell that we're meeting their needs and inspiring them. I think this one's a really easy one in terms of showing the before and after, to say the least.
We've improved product. Also, we are inspiring the customer. This product is amazing and perfect for styling throughout the entire site. The models and in the environment we shoot tell a great narrative. It's also inspired by adoption by the customer. A lot of times when we have these on social media, you'll see @ so-and-so. They are sending it to their significant other to inspire them as well. Apartment. We need to create a desire for this lifestyle. UO Around You is one of the ways we do that. We have pictures from kids' environments. They share what they've done with our products. They share and imitate. They imitate the kind of editorial photography we present. Men's photography. It's not enough to show product now. You have to see yourself and your community and the people in those products.
It's really important that we show people that the guys can relate to, in particular with guys. We're using casting agencies that often find real people and regular guys wearing the product. Our guy can relate to it and be interested in the product. The styling represents how he would really wear it. We also shoot flat in environments that are also aspirational or interesting to him. Site architecture. We've created an exceptional online environment for all this to live in as well. The photos immerse the viewer while providing information in a highly aspirational manner, increasing value in product. The montage of photos on the homepage and each gateway tell the story of the customer's lifestyle and execute the brand narrative. This mimics social media that they interact in, the way we're presenting it. It should look like Tumblr, speak to Instagram.
It should be able to be in a language that they respect and admire and a language that they themselves create on. Again, visuals are the language that they speak in. That's the way we're presenting it. Site architecture details. We create desire by showing the details, not just expose the technical details. Again, we romance the product and make them want to be a part of that lifestyle. Entertainment. I'm hitting it. Okay, entertainment. We entertain the customer to create traffic and brand equity. It's not enough just to have product now. We have to create a differential through the experience online, much in the same way we do events in-store and the people that work in our stores. We have a new music program that creates videos for music artists that are intriguing to our customer.
We have great music acts that we work with. We develop their videos for them. We work with directors like Gia Coppola and interesting people like anyone from Lana Del Rey to Led Zeppelin. We create proprietary product working with Jimmy Page himself, which was pretty exciting too. We've also incorporated actual music events that show social interaction. Again, creating aspiration to be a part of that lifestyle and community. The videos alone get 250 to half a million views each, this morning actually approaching close to 1 million. We're developing UO TV, which will actually show more of those videos and the product we present for them. It'll be pretty exciting on YouTube and working on Vimeo as well. Content. To continue the entertainment nature of the experience, we've acquired great talent in terms of writers, photographers, and interviewing talent.
Content, community, narrative tell the product and brand story. It creates authenticity and advances brand equity. Creative, collaborative experience and content envelop all facets of the site, from the entertainment to selling product to telling the product story and brand story and the creative people that are within our brand and the people we work with. You're judged by the company you keep, and we're lucky we have great company. Community. These innovators create a growing desire for our audience to participate in the brand. We are developing greater opportunities for contribution and participation using our forum as a community social and marketing opportunity. UO on You is a community initiative channel that brand advocates can contribute, creating content that defines lifestyle, not just sells product, often represents product, but more likely represents all the things they're really into. This is true of local store accounts as well.
We foster entrepreneurial in the stores, not just store managers, but store owners, so they can market and promote their business, and again, tell us a lot about their local lifestyle. Brand advocacy is critical to marketing our brand, and our community has great reach and supports us in doing so. One of the ways we're doing this is through Dreamers and Doers. Dreamers and Doers is a content initiative, and it also works on developing new product for our site and also for the stores from small entrepreneurs that are starting a new business. They work on marketing their business with us online, and they create unique offerings. We also use this as a way to identify new talent and hopefully advance some of the categories, like I mentioned with beauty. It speaks to what our customer values in terms of authenticity. It's optimistic.
It represents independence, enthusiasm, and self-starters. This creates great relatable content that shapes our community and the company we keep. This hearkens to our beginning, and I think more importantly, you'll see one of my favorite self-starters in here, actually in his first store and actually building his first store. People don't know that about us. They don't know where we came from. If we can tell their story, it offers us the opportunity to tell ours. I'm really excited about doing that. I'm really excited about being able to develop new entrepreneurs, advance our business, and create more authenticity for our customer and opportunities for them as well. I want to thank you for the opportunity to share this with all of you. We're really proud of this. I really do love our customer. I really do love Urban Outfitters.
I really believe in the opportunities we can create for others, and also not within the brand, but also within our community. I really appreciate you taking a look at it. Thank you so much. Here's Ted, our global President. Thank you.
Thank you, Meg. Thank you, Sue. I'm going to go this way just a little. Good morning. Thank you for joining us today at UO Vision 2020. Up and running. I hope you like the look of the imagery, which we have prepared for today's meeting, as we feel it is not only representative of the brand's voice as it exists today, but as well, it provides a perspective of our thoughts for the possibilities which lie ahead. I am pleased to have the opportunity to review with you our thoughts regarding the growth strategies which Urban Outfitters will bring to life over the next few years. First, a moment to level set. The initial strategies which were called upon to launch Urban Outfitters were conceived in 1970.
Our 50-year journey to Vision 2020 finds us today having grown from one store adjacent to the UPenn campus here in Philadelphia to 235 stores operating in 12 countries, soon to be 14 when we open Barcelona and Hong Kong this fall. Those initial strategies laid the foundation for the $1.3 billion global business which we currently operate. Although by no means a small accomplishment, I stand before you today with the intention of reviewing our thoughts on how we plan to double the size of our existing business. If our core competencies of creativity, entrepreneurship, and artful execution are employed appropriately, I am confident we will be delivering an outstanding 50th anniversary present to our shareholders. On to our strategies.
As we build out our growth opportunities over the next few years, we will continue to connect with the UO core customer through the creation of an immersive brand experience. Over the past 40 years, Urban Outfitters has successfully catered to and served many of the lifestyle needs of Baby Boomers, Gen X, and Gen Y. We are a lifestyle, life stage brand. The lifestyle activities of 18 to 28-year-old young adults inform our thoughts and our creativity. As well, they define our strategic actions. Our approach to Vision 2020 is thusly inspired. In today's world, an important piece of creating an immersive experience is social media. Before you is a representation of user-generated content from our Instagram page, UO on You.
Research suggests that our customer demographic spends over 20 hours a week on social networking, and that number doesn't include additional time spent browsing the web and consuming information in other ways. Our own surveys show that over 80% of our own customers belong to Instagram and Facebook. In fact, our 1.9 million Instagram followers places us in the top five highest number of followers on the platform for a retail brand. As well, Pinterest, Twitter, and Snapchat have a strong following within our customer base. As we have observed, social media has been in a state of continual evolution. Evolving and elevating our social media work is of paramount importance when it comes to creating an immersive brand experience. Successful Instagram and Pinterest posts drive product views and thus fuel engagement with our customer.
Further, user-generated content utilized appropriately on product pages inspires emotion and action, thereby increasing conversion and AOV. We have always been a cultural brand. By that, I mean we have always been inspired by the culture of our core customer. The culture of our core customer today is defined by social media. Our commitment to continuing to learn, evolve, and utilize social media/visual commerce as a key customer experience asset was recently recognized by L2, the think tank for digital innovation, as they gave both Urban Outfitters and Free People a flash of genius for our work utilizing the Instagram platform productively and our DTC experience. As long as we are discussing an immersive experience and our core customer, please let me share a few thoughts regarding direct-to-consumer user experience and device of choice. As most of you know, we launched our website in the fall of 2000.
Over the past 14 years, we have seen our customer evolve from a desktop/laptop user to an increased preference for mobile. At present, mobile makes up 46% of our online sessions, up from 30% this time last year. Thus, our customer-centric actions are focused on continuous improvement and conversion of conversion drivers such as creative imagery, the user experience, our iOS and Android app, support of international currencies, payment and checkout, communication, and delivery. Our efforts in this regard have seen conversion rates improve over the past 12 months, despite a 1,500 basis point movement of customer shopping sessions from laptop to mobile. At present, we aim to implement an additional half dozen customer-benefiting features before our holiday cutoff in October. Our code base will be fully responsive in Q1 of 2015.
In addition to the growth we have seen in mobile sessions, mobile is bringing the store and online experiences together with many customers now using the app before and during their in-store visits. As of last week, our app, Urban On, had been downloaded by over 1.1 million members. As of this past month, 10% of our direct demand is coming through Urban On members. Good news, as customers shopping through the app are twice as likely to convert as those shopping through mobile. With ongoing updates, features, and our recent Android app release, Urban On is an asset which we expect to continue to grow in strategic importance. From the digital to the physical, since its founding, Urban Outfitters has differentiated itself from competitors through the art of store experience. Creative, artful, ever-changing, lo-fi, touch-of-the-hand environments are the hallmark of the UO store experience.
Utilizing this well-practiced asset in an evolved manner is where we see our customer directing our actions. Their shopping behavior is changing. Their interests are evolving. Their options are static. Thus, we see opportunity. We will continue to emphasize a local sensibility through product offer, events, music, social, our blogs, our individual store teams, approach to design, display, and merchandising. We will as well look for new opportunities to vary format through larger formats, space projects, and international concessions. Along these lines, I thought I would share some comments and images which L.A. Racked wrote regarding our latest store opening in Westwood, adjacent to UCLA. As seen in their downtown Rialto Theatre, Malibu, and Sherman Oaks surplus stores, it's clear Urban Outfitters isn't afraid to think outside of the box.
Earlier this spring, we reviewed the retailer's renovation plans for their relocated Westwood Village location, a his and hers concept shop that would be UO's third-largest space in Cali. Though their men's store was unveiled last month, the bohemian cool women's store opened this past Saturday. The two-story women's shop carries the retailer's usual offerings of apparel, denim accessories, jewelry, and footwear alongside organic beauty products, retro home goods, decor, and mid-century pottery. Next door in the men's store, expect to find clothing, shoes, and accessories, plus a music shop filled with vintage vinyl, a curated selection of Fender and Gibson electric and acoustic guitars, an in-store snack bar, to-go windows stocked with Coolhaus ice cream, cold-pressed juices, and pre-packaged healthy bites. Like the Rialto Theatre and Malibu country digs, UO Westwood Village also offers handmade merch from local designers and artists.
This commentary speaks to how we are thinking and the actions we are taking to evolve the store experience. Although the creation of an immersive experience through the elements I have just discussed is of paramount importance, product is the key link to developing our relationship with our customer. Whereas we do see further opportunity in our core women's and men's apparel businesses, our overarching thought about opportunity as it pertains to product is thinking of our brand outside of a 10,000-square-foot box in the interest of expanding our brand through existing/new categories and services. As we go forward over the next few years, this simple statement will function as the catalyst to our thoughts about lifestyle, life stage, product offer. Our customer's lifestyle is not static. It is ever-changing with new interests and new activities lying at the heart of this time in their life.
Thus, an opportunity for UO as we strive to serve their life stage interest. We see a number of existing product categories capable of delivering pronounced growth beyond their current contribution to our business. Some of those categories are intimates, Urban Renewal, beauty, apartment, music. As we focus on the growth opportunity of these businesses, we plan to broaden our product offer, elevate brand imagery, leverage social media, and capitalize on store segmentation. We are also supportive of growth and AUR where appropriate. This AUR growth will place our AURs in a range that is in line with our historical AUR performance and enable us to merchandise better quality product offerings in the interest of providing the aspirational product assortment, which we feel is appropriate for the Urban Outfitters brand. A word about new businesses.
In addition to the categories which I just mentioned, there is growth opportunity to be realized from building out new businesses and services which align with our customers' evolving life stage interests. Along these lines, we recently launched Without Walls, an active sportswear concept, which is intended to serve the increased importance that active pursuits have achieved in the lifestyle of our customer. The imagery which I am sharing is from a recent email highlighting the active interests of a range of age-appropriate Without Walls ambassadors. The activities highlighted, slacklining, cycling, street dancing, free diving, rock climbing, distance running et al., are indicative of the varied activities of UO's customer of today. This email served as the launch for a current Without Walls social campaign, which invites customers to share imagery of their own trailblazing on Instagram.
I invite you to visit the Without Walls website, withoutwalls.com, to view our exciting range of product and to visit the Without Walls blog to experience the vibrant spirit of this new lifestyle brand. In regard to services, I have chosen to share some images from The Gorbals, which is Chef Ilan Hall's restaurant that operates in Space 98, our newly opened location in Williamsburg, Brooklyn, and Hairroin Salon, the hair salon, which is operating at our recently opened Herald Square location in New York. Both businesses are off to a healthy start financially and have received great reviews from our customer and the editorial community. Additionally, they provide good examples of broadening our store experience in line with our customers' lifestyle needs/desires.
Having discussed our thoughts regarding an immersive brand experience and our intentions regarding the offer of a broader range of goods and services, I now would like to share our vision for the future of our brand. That is to become the preeminent global lifestyle community for 20-somethings. As I called out at the beginning of my presentation, Urban Outfitters currently operates 235 stores and four shop-in-shop concessions globally. In addition, our direct-to-consumer business has shipped goods to 131 countries worldwide. Through the utilization of stores, shop-in-shop, direct-to-consumer, and social media, we have embarked upon our mission of building a global lifestyle community. However, we are just getting started. Over the next few years, we plan to continue to distort the opportunity of direct-to-consumer and our business model.
The crossroads of social media, elevated brand imagery, and appropriate lifestyle/life stage product offer, and continuous improvement in the user experience is a formula in which we believe and intend to produce industry-leading work. We as well will continue to open additional traditional format stores in North America and Europe. We will complement our traditional format stores with larger format stores and lifestyle space formats where appropriate. These hybrid store formats afford us the opportunity to further differentiate Urban Outfitters' physical store experience from would-be competitors through the utilization of additional lifestyle shops, services, and entertainment. We will also complement our traditional physical store format with the development of more shop-in-shop concessions internationally. Our initial shop-in-shop with Galeries Lafayette in Paris has just celebrated its one-year anniversary.
The success of this shop-in-shop has resulted in the addition of three more shop-in-shops with Galeries, as well as paved the way for the development of other concession relationships in Europe and Asia. This weekend, we will open our first concession in the Asian market with Lane Crawford in Hong Kong. As I close my comments this afternoon, I want to again thank you for your interest in our brand story. We have a rich brand legacy that has been built over a number of years through the successful execution of experiential retail. That said, the past year has been one of pronounced challenge. However, we are seeing positive results from the changes which have been implemented, and our customer is voting for the headway we have made. I am confident about what the future holds for our brand.
In closing, I would like to introduce Trish Donnelly, the recently appointed President of UO North America. Although I've known of Trish's accomplishments for years, I met her for the first time this last fall. Needless to say, we had a number of good conversations, and she joined the business in mid-July. Over the past couple of months, she has validated our confidence in the potential of her contribution to the future growth of the Urban Outfitters business. She's off to an outstanding start. Thus, Trish.
Thank you very much, Ted. Good? Thanks. It's a pleasure to be standing here before you all. Thank you very much. Given the fact that my tenure is all of two months, I'll keep this short. I can tell you eight weeks in is why I came here and what I've seen so far. I have followed Urban Outfitters both as a customer and a competitor for the past 25 years. I was always impressed by its understanding of and its great respect for the 20-something customer. Urban was the original authentic lifestyle brand, not only in offering apparel and accessories, but also by building meaningful businesses in home and music. I'd always been fascinated by the culture that Dick and the team had built over the years.
I'd see it in the creative product and the compelling product assortments, the best-in-class store builds and environments, and most importantly, the brand's connectivity to the customer and where they were within that small slice in their lifestyle journey. I'd even loved hearing Dick in earnings calls talk about increasing store square footage while other retailers were pulling back for fear of direct-to-consumer. A little over a year ago, I stopped paying attention. It's no secret it's been a bumpy year. I was in the stores last holiday before I joined the company, and the opportunities were obvious. It doesn't take a genius to hindsight a retail business in December. At minimum, I knew we had great product, customer experience, and great marketing opportunities, which I personally found really exciting.
Meg, Sue, and Ted have all talked about future, about looking forward, about the work that's in progress, about being the preeminent retail lifestyle community for 18 to 28-year-olds. What makes me most excited about being here with Urban is that almost 50 years later, the conversation about being the best we can for our customers is still happening with great passion and great commitment from a creative and an innovative team who believe passionately in the brand and have a great respect for the customer. Exactly how Dick started things almost 50 years ago. How the customer shops today has evolved, and as Ted mentioned, a big priority is to continue to build out the digital experience, but our core philosophy hasn't shifted over time. This is a team where we'll always have works in progress. It's our obligation to our customers and a responsibility that we embrace daily.
I am really proud to be here, and I look forward to leading this team. I found my first two months with Ted and Megan Sue and the rest of the team pretty exceptional. Thank you for giving me a few moments, and I look forward to getting to know you and really appreciate you being here today. Thanks. I think we're Q&A now. Yeah? Okay.
I'll pull that up in a second.
Okay, cool.
Thank you. Lorraine Hutchinson from BofA. Are you seeing the age range change at Urban this fall so far? Has there been any pushback or lower acceptance rates at the higher price points there?
Did you address that to Meg or to all of us?
Everybody.
Okay, everybody. I wouldn't say that we necessarily have seen a pronounced difference in age range. I wouldn't doubt that in perhaps traditional mall settings, that a younger customer that may have been attracted to some of the product offering is not as attracted to where we want to be in the positioning of the brand. That is by our intention. In regard to the price point call-out, we really have been paying attention to the performance of regular price and our inventory and our performance overall with the receipts that flowed in through July for August and August for September. The regular price side of our business, we have seen good performance in regard to the women's offer with elevated price, where that is a pronounced difference in product offer to this time last year.
The regular price side of the business is treating us pretty well overall, both in direct and retail. We are giving up a good deal of markdown business from being in a long on inventory position this time last year. Regular price retails have been performing in line with our expectation.
Sorry.
Hi, Lindsay Drucker Mann from Goldman Sachs. Beyond regular price selling, are there other metrics that you can speak to that give you confidence that new initiatives that you all are resonating with the consumer and having positive impact? At what point should we think about you being in a better inventory position to satisfy the demand that's coming out of those? Thanks.
I would say that other than simply talking about the performance of regular price, I would talk about performance on a weeks of supply basis on top items in the assortment as we've come through the last 45 days. It really has been outstanding, both in retail and direct. Weeks of supply is a metric that we basically use to govern our decisions about assortment, and we like what we have seen in regard to some of the product that's tied back to specific trend-to-customer concepts that Meg worked on with the concept and the buy team in putting together the assortment for the season. The product narrative is getting through to the customer, and we are seeing response. The other piece of the question. Yes. We have been chasing some, but as well, we have put additional narratives into the assortment.
Not chasing as much as we would have in the past, looking to move on to new stories, but having a better idea on how to quantify those stories and the buys that are in place going forward through holiday and into spring.
I absolutely understand the desire to talk about the quarter and get an update on Urban Outfitters. I appreciate everybody's model and the investors and analysts that we have here today. The goal obviously is to talk about the longer term. To give you the update on the quarter, the DTC business continues to outperform stores. Reg price continues to rule the day, as we said we'd be using as a measuring stick. We have not seen price sensitivity. We have started to see the store business, reg price business improve. As we said, we still think it's going to be challenged in the quarter. We're still in a transition. We're still in the early innings here of an improvement. As Meg said, it's still a work in progress. We are making progress.
We look forward to giving you an update at the end of the third quarter call. As it relates to price sensitivity, it's not happening. The momentum has continued online, and the stores are starting to improve. Thank you.
Hi. Matthew McClintock from Barclays. You talked about elevating the experience online, you talked about elevating the experience through Space 98 and some of your new stores. I was just wondering if you could talk about what you are doing in the remaining 190 stores that you have. Are you doing anything different there to enhance the in-store experience? As you think about the brand repositioning and going further up-channel or going to higher AURs, how important is that store experience to full-price selling and higher AURs? Thanks.
When I spoke on what we are improving, what we're working on, the work in progress, the trend to customer piece, I can't express how important that is. Basically what we're talking about. One of the other points is communication and collaboration. When I came into Urban brand, the different departments were working in silos. That's not happening today. This is why this woman is extremely important to me. She's the one that is conveying the imagery and the merchandising and the content and the story. In the store area, I have another partner that I work very closely with. We give Sue's team and John's team the opportunity to see the product when we first conceived it. They see it at trend. They see it when we first get the samples in. They have the ability to edit and put together outfits.
It makes their job easier to be able to tell stories, whether it's outfitting or whether it's concepting a floor. These strong concepts are started and conceived in the very beginning, and then they can do their job. They have a say in how it's going to turn out. It's a whole group effort here. We participate together. You want to say something? Is that okay?
Hi. I think the really important thing to remember is that when they're in their store walking around shopping, I watch it with my daughter, they have their phone out. The really important thing is all of this that you see around us, they're looking at that and they're experiencing the product. Now, to be able to make it much more direct, we are looking at integrating photography in our stores, not unlike this is the example you see here. I want them to be able to feel it. I think the photography is the key thing. Environment's still a really big deal, and we deliver a great environment, but they've got to see the picture. They've got to see it, and they've got to have it. They have it in their pocket. When we walk in, we want to deliver that as well.
That's what's really meaningful, and I think that will be a huge change in stores.
Thanks, guys. There's some amazing fall product that is just flying out. Congratulations. If I think about Urban in 2020, and we think about the lifestyle stores versus your traditional stores, what should the base of store look like? How many will be with a coffee shop or a hair salon? How many will be some hybrid of that? How many will be the more traditional Urban store that we are thinking about? Then just one follow-up on merchandise. Urban Renewal has had its own renewal, and the resale landscape out there has been exploding. Is that an opportunity for Urban away from Urban Renewal to kind of dabble in?
In regard to the search for the number on how many will be space, larger format, et cetera, as we've discussed internally, we're migrating our way in that direction. One very important learning that's come out of that exercise through whether it's a space project such as we have in Williamsburg or the larger footprint store in Herald Square, is the notion of our own shop in shops and how much space we can give a category being influenced by the customer's likes and desires for that category and to build experiences that are almost department store-like experiences within our environment. That's what's taken place in those locales, and that is influencing our thoughts in a very positive way.
That is producing very positive numbers in our business that naturally we will want to take that in some fashion, whether it's a larger format in a market or simply carving out more space for the categories we're talking about in the existing store fleet. In regard to renewal, it's really a legacy business of the brand. In the time I've been involved in the business, like all fashion businesses, we've had strong moments, we've had weak moments, and it's no different than any other. From the standpoint of it's very much influenced by the strength of the talent that you have involved in the business. We feel like we're in a pretty good place there right now, and that happens to be also at a moment in time that the customer is connecting with that sensibility as well. Yes, we're very optimistic about what that contribution can be.
I'm Larry Leeds of Buckingham Capital.
Do you remember when you interviewed me in 1980?
I do.
Does anybody in this room even know who Perry Ellis really is?
God bless you, Ted. You look great. Question. I've been in your Herald Square store 5 or 6 times. It's one of the great stores of America. It's fabulous. Most people don't know it's there. I don't know what your game plan could be or should be because it's deserving of a lot of traffic. I speak to friends in Manhattan. They say, "Oh, is it open yet?" There's got to be some way of hyping that. I saw your entertainment, the entertainment thing you were talking. It'd be a great place for entertainment. My question is, how do we get people fully aware of how great it is?
I'm going to be working on that. I've just started to work with public relations. As I said, within the content, being able to get that out more. It's not just the content we have on our site. It's what I said, telling our brand story. I want to be able to tell this to people everywhere. One remark also in terms of how are we going to have these things happen everywhere: the reason why we started them is actually based on the first store, 4307 Locust Street, which is a highly socially interactive environment. To be able to revisit that, when I said renaissance, I mean knowing what we were really good at and bringing that back into the brand.
Right now, you can get just about anything you want online and probably more choices than you'll ever be able to have in a store. Why not just get it online then? One thing our kid has is that they want to be with other kids. They want a socially interactive environment. You're not going to get that by going in and buying a shirt. We have an effort in all of our stores to all these learnings that we have from these spaces to empower the managers to truly be store owners, as I was saying before, not just store managers. They have Dreamers and Doers marketplaces. They work with the local colleges to be able to have some of the young entrepreneurs come in there, and they have events with them. It could be music. It could be anything.
The point is, what's going to get me up out of my room and off my computer and off of my phone and my social media and go to an Urban Outfitters? These events and have the ability to be able to do that. It doesn't always have to be a Herald Square. It doesn't always have to be a Space 98. We take the learnings from them, and they're sending them out to all stores. It's just started, but you're going to be seeing more and more of that. People are turning out just to be able to. They want to see other kids. They want to be with other kids. They want to hang out. It's the people who are just selling a shirt and just have an open cash register aren't going to be able to do business now.
I am working on public relations, all the things we're doing. I just interviewed somebody who's really great, too, and she was like, "My God, you have so much information, so much fire that needs to get out there." I agree. It'll be better this year, I promise.
Macy's is the second-largest tourist attraction after the Empire State Building in New York. Over half the people who buy there now, shop there, are from overseas. They have an amazing and how you tap in on that is another question because it's an international hub.
Yeah, I agree. I think people need to know about it. We need to find some ways to be able to tell people internationally that come. Also for Space 98, too. We've talked about that a lot, initiatives, and I'm learning a lot in terms of Hawaii and how we approach that because it'll be a similar situation. Again, I hope next year to be able to do a lot better and learn a lot more about how to be able to reach those people.
Thank you.
Thanks. John Morris with BMO Capital. Question for Trish. It is early days. You said that you see a lot of opportunity. Could you give us a sense of what you are particularly excited about for where you see that opportunity and also the priorities, how you would prioritize some of those initial initiatives that you might be taking over the course of the next year? Thanks.
Sure. Well, I think what I am most excited about, as I said, is the passion and commitment from this team. So much had already been in work before I entered in July. The thing that I am most excited about is the evolution of product. At the end of the day, that is really what it is all about, and we are working really hard to make sure we are giving our 18 to 28-year-olds, whether it is across men's, women's, home, or music, exactly what he or she is looking for. The product piece is what I am most excited about. In terms of priority, yeah, we are nailing the product while we are looking for all of these other opportunities, concentrating on not only product growth, product category growth, but store growth. We are a culture that tests and learns and runs. I think that will absolutely continue.
I hope that answers your question.
Ike Boruchow, Sterne Agee. On the initiative to drive an older customer, maybe closer to the 28 versus the 18, I guess my question is: when you plan the business over the next five-plus years, is this all incremental traffic you get from an older customer, or is there an expectation that some of the younger 18-year-olds kind of drop off, and you just make up for that with more 28-year-olds?
I want to course-correct that thought a little bit. The core customer we're going after is the core customer we've always gone after. The 18-28 is produced by over a period of time surveying those that shop with us and seeing that 85%-90% of who shows up falls between the ages of 18-28. The real core of who we go after is a customer that really is of a college age. We get older. We get younger. What I have seen since being with the business now since 2001 over my time is that there are times that in responding to the productivity of the business, the customer can take us in a direction Again, being aggressive with trying to drive the business that may not fall right in that footprint that we want to occupy.
I recall a time back about 2006 when we drifted a bit younger. Coming through last year, we drifted a bit younger. Our best-performing component distribution-wise in our business coming through 2012, the back half of 2012, and the front side of 2013, were major regional malls. That's a younger customer. We're really looking to do nothing but course correct to what we really feel is our legacy position for the brand, and that is a college-age customer. We'll get younger, we'll get older, but that's who the target is.
Hi. Lorraine Wax , Crossledge Investments. Love to hear a little bit more about social media. Just when we all think we're cool, we're on Facebook and Instagram, you're about 10 steps ahead of that. Want to hear of what you're doing, what you're most excited about, where you're getting the most traction that we're probably not even aware of yet, and how you measure the returns. I know, Meg, you spoke about the blog as it related to Free People. Where are you starting to see some real impact on the business?
We measure it actually in two different ways. Obviously, how many likes we get, do they really like us? Also, the number of followers we have, which we have an enormous following, and also the growth in terms of those followers, What social media is important. We also measure direct sales. It could be a very easy measurement, and it's something can link through which Instagram will continue to grow in those ways. In other ways, we actually look at activity. When the product's there, we have great analysis that go in and double-check and see, did someone touch on that product that day? How many sales do we have? It's both. We want them to like us, and we obviously want to make money. That's a really key thing. We want to make sure it's actually working. Photography. Anything with photography.
Obviously, Instagram's still really good and continuing to grow. I know that Meg and I had some questions about Pinterest and where that's going. I think for the Urban customer, they're just really starting to populate a little bit. Before it was a little bit mature for them, and Pinterest now has a wider group, and I think that's exciting. There's a lot of things out there like Snapchat, too. We're just started with something called Steller, which actually is all about content, and I think they do a great job. I think the main thing we can do is we were talking about yesterday in our team meeting is by supporting that social media on our site and telling a little bit more right on our site to millions of viewers what we have going on. We can support the forum, create interest, and advance ourselves on that.
I don't know if any of you have even seen Steller, and it's great. It's a great online magazine app. It's beautiful. They do great follow-up of all of our content. If we can tell 4 million people, "Hey, this is great. You want to check it out?" Great for them, good for us. Those kind of partnerships and building those partnerships, I think, are important. Advancing all of the opportunities we have for our kids to be able to be on our site and developing more brand advocates, it's still a huge deal. Obviously, as much as I can get the most beautiful girl in the world in an outfit, they're going to be much more interested in seeing themselves and their friends, and they're going to turn up more for that.
Increasing more opportunities for that, seeking out new opportunities in social media, and advancing those on our site to create interest, and have us be the lead on those.
We're hoping Sue is working with sort of a lean team right now, and we're looking to build it. She attracts many different types of talent, whether it's from the music industry, editorial industry, content. We were looking to have a much more robust team in the future that will be able to take more risks.
Great. Thanks. Anna Andreeva from Oppenheimer. Just a follow-up on the store business improvement, lagging that what you've seen online. If it's truly down to merchandising and visual, maybe talk about the timeframe to start to see a more gradual build there and any other initiatives that you are thinking to bring in to drive traffic. It sounds like there's been quite a bit of hiring on the team. Maybe talk about specifically which functions and if there are any additional holes in the organization that need to be filled.
I knew you couldn't help yourself, Anna. To talk about the store improvement, the primary reason that the store comps, as we felt coming into the quarter, were going to be negative isn't the merchandising, it isn't the visual. It's that being responsible in inventory coming into the quarter. If you think about the brand and where it was and where we finished in second quarter, I certainly wouldn't allow a brand to buy deck comp positive inventory, nor would Ted and team. The biggest constraint we had was distorting the inventory in the stores as to what's working and some of the reads that we received online and getting that store, the inventory distorted appropriately. That transition's going on in the third quarter. As it relates to imagery, it's not just merchandising the stores.
I think what we're seeing online is it's easier to communicate the message online. It's easier. You have a landing page versus one page, whereas you have a store and you can become broken on product. Maybe the visual isn't as complete. It's easier to manipulate the imagery and the experience online, more so than it is in stores, and the stores are coming and we're certainly making progress. As it relates to team, we're always looking for talent. As Meg said, the first word out of everyone's mouth is always creative. We're always looking for creative talent that helps to differentiate ourselves and helps to keep us differentiated going forward.
In an effort to stay talking about the future, I would like to say that coming into Urban Brand last November, it's been exceptional. I've had a great time. Ted has been unbelievably supportive, his strengths
tend to be my weaknesses, so we complement each other quite well. Sue Otto, giving her much more of a voice and putting her in a more creative role has been tremendously important, too. She will be a great partner. Trish. Oh my gosh, I really wanted Trish to come. We really need someone to be on top of the merchants and the process procedure, inventory, operations, all of the things. She loves product, too. I don't want to take that away from her. I need a balance with the team. This is a very balanced team, but we look to hire more people to be able to do the job as well. We do have a good threshold right here to build off of in the future. Ted is always forward-thinking. He's looking for bigger spaces. He's looking for ways that we can grow the business.
Sue obviously is, as I said, incredibly talented and creative and what she can do with the brand, and Trish is going to really help turn the business around. Together, we should pretty much make a good team for you all.
I believe that concludes the Urban Outfitters presentation. We're now going to go over to have lunch. Please just be aware there are restroom facilities behind you. I think the women's is right behind Calvin Hollinger, if you remember him, and the men's is around the corner here. We're going to go out the way that we came, and then Oona will lead the way, directing you to our courtyard where we've set up lunch for everybody. Thank you.
My lonely days are over and life is like a song. Oh yeah, at last. The skies above are blue. My heart was wrapped up in clover. The night I looked at you. I found a dream that I could speak to. A dream that I can call my own. I found a thrill to press my cheek to. A thrill that I've never known. Oh yeah, you are mine. She's mine. Oh, saints preserve us. Here we are in heaven. For you are mine at last. Lola wants you. Whatever Lola wants, Lola gets. Little man, little Lola wants you. Make up your mind to have no regrets. Recline yourself, resign yourself, you're through. I always get what I aim for. Your heart and soul is what I came for. Whatever Lola wants, Lola gets.
Take off your coat, don't you know you can't win? You're no exception to the rule. I'm irresistible, you fool. Give in. Make up your mind to have. Make up your mind to have. No regrets. No regrets. Recline yourself, resign yourself, you're through. You're through
What I aim for. Your heart and soul is what I came for. Whatever Lola wants, Lola gets. Take off your coat, don't you know you can't win? You're no exception to the rule. I'm irresistible, you fool. Give in. Give in. Give in. Give in. Give in. Give in. Give in. Cities in the stream. Falling leaves, a sycamore. Moonlight in the moss. Ice skating away. Ski trails on a mountain side. Snow line in the run. Telegraph cables, they sing down the highway and travel each bend in the road. People who meet in this romantic scene are so hypnotized by the lovely. People from the blue. Wagging of a meadowlark. Moonlight in the moss. You and I, and moonlight in the moss. Telegraph cables, they sing down the highway and travel each bend in the road.
People who meet in this romantic scene are so hypnotized by the lovely. From the blue. Wagging of a meadowlark. Moonlight in the moss. You and I, and moonlight in the moss. I say I'll move the mountains, and I'll move the mountains, if he wants them out of the way. Crazy, he calls me. Sure, I'm crazy. Crazy in love, I say. I say I'll go through fire, and I'll go through fire. As he wants it, so it will be. Crazy, he calls me. Sure, I'm crazy. Crazy in love, you see. Like the wind that shakes the bough. He moves me with a smile. The difficult, I'll do right now. The impossible will take a little while. I say I'll care forever, and I mean forever. If I have to hold up the sky. Crazy, he calls me. Sure, I'm crazy. Crazy in love, am I.
Like the wind that shakes the bough. He moves me with a smile. The difficult
I'll do right now. The impossible will take a little while. I say I'll care forever, and I mean forever, if I have to hold up the sky. Crazy, he calls me. Sure, I'm crazy. Crazy in love, am I. When I take you out tonight with me, honey, here's the way it's gonna be. You will sit behind a team of snow-white horses, in the slickest gig you ever seen. Chicks and ducks and geese better scurry, when I take you out in the surrey. When I take you out in the surrey with the fringe on top. Watch that fringe and see how it flutters, when I drive them high-steppin' strutters. Nosy folks will peep through their shutters, and their eyes will pop. The wheels are yellow, the upholstery's brown, the dashboard genuine leather.
With iron-glass curtains you can roll right down, in case there's a change in the weather. Two bright side lights winkin' and blinkin', ain't no finer rig, I'm a-thinkin'. You can keep your rig if you're thinkin' that I'd care to swap for that shiny new surrey with the fringe on top. I can see the stars gettin' blurry, when I drive you home in the surrey. Drivin' slowly home in the surrey with the fringe on top. I can feel the day gettin' older, feel a sleepy head on my shoulder. Noddin', droopin', close to my shoulder till it falls, clip-clop. The sun is swimmin' on the rim of a hill, the moon is takin' a header. Just as I'm thinkin' all the earth is still, a knock awake up in the meadow. Shh, you bird, my baby's a-sleepin', maybe got a dream worth a-keepin'.
Whoa, you team, and just keep a-creepin' with a slow clip-clop. Don't you hurry with the surrey, scurry with the surrey, pretty little surrey with the fringe on top. I could show the world how to smile. I could be glad all of the while. I could change the gray skies to blue, if I had you. I could leave the old days behind, leave all my pals, I'd never mind. I could start life anew, if I had you. I could climb the snow-capped mountains
Sail the mighty ocean wide. I could cross the burning desert. If I had you by my side. I could be a queen beyond crown. Humble or poor, rich or renowned. There is nothing I couldn't do. If I had you. I could be a queen beyond crown. Humble or poor, rich or renowned. There is nothing I couldn't do. If I had you. Oh, if I had you. See the pyramids along the Nile. Watch the sunrise on a tropic isle. Just remember, darling, all the while. You belong to me. See the marketplace in old Algiers. Send me photographs and souvenirs. Just remember when a dream appears. You belong to me. I'll be so alone without you. Maybe you'll be lonesome too and blue. Fly the ocean in a silver plane. See the jungle when it's wet with rain. Just remember till you're home again.
You belong to me. I'll be so alone and without you. Maybe you'll be lonesome too and blue. Fly the ocean in a silver plane. See the jungle when it's wet with rain. Remember, darling, till you're home again. You belong to me. Don't know why, there's no sun up in the sky. Stormy weather since my baby-
Raining all the time. Life is bare, gloom and misery everywhere. Stormy weather. Just can't get my poor self together. I'm weary all the time. Weary all the time. When he went away, the blues walked in and met me. If he stays away, old rocking chair will get me. All I do is pray the Lord above will let me walk in the sun once more. Can't go on. All I have in life is gone. Stormy weather. Since my man and I ain't together. Keeps raining all the time. Keeps raining all the time. I walk around heavy-hearted and sad. Night comes around, and I'm still feeling bad. Rain pouring down, blinding every hope I have. Me tittering, tottering, beaten, and fluttering drives me mad. Love, love. Love, love. This misery is just too much for me. Can't go on.
All I have in life is gone. Stormy weather. Since my man and I ain't together. Keeps raining all the time. Keeps raining all the time. From this moment on. You found me, dear. Only two for tea, dear. From this moment on. From this lucky day. No more blues songs. Only hooptie two-steps. From this moment on. For you've got the love I need so much. Got the skin I love to touch. Got the arms to hold me tight. Got the sweet lips to kiss me good night. From this moment on. You and I, dear, we'll be riding high, dear. Every care's gone. From this moment on. You've got the love I need so much. Got the skin I love to touch. Got the arms to hold me tight.
You've got the sweet lips to kiss me, and kiss me, and kiss me, and kiss me, and From this moment on. You and I, babe, we'll be riding high, babe. Every care's gone. From this moment on. Are the stars out tonight? I don't know if it's cloudy or bright. 'Cause I only have eyes for you, dear. The moon may be high. I can't see a thing in the sky. 'Cause I only have eyes for you. I don't know if we're in a garden. Or on a crowded avenue. You are here, and so am I. Maybe millions of people go by. They all disappear from view. I only have eyes for you
I don't know if we're in a garden or on a crowded avenue. You are here, so am I. Maybe millions of people go by, but they all disappear from view. I only have eyes for you. Maybe millions of people go by, but they all disappear from view. I only have eyes for you.
They're writing songs of love, but not for me. A lucky star above, but not for me. With luck to lead the way, I found more clouds of gray than any Russian play could guarantee. I was a fool to fall and get that way. My own land and also black as day. Although I can't dismiss the memory of his kiss, I guess he's not for me. I was a fool to fall and get that way. My own land and also black as day. Although I can't dismiss the memory of his kiss, I guess he's not for me.
Let there be you. Let there be me. Let there be oysters under the sea. Let there be wind and occasional rain. Chili con carne and let there be champagne. Let there be birds who sing in the trees. Someone to bless me whenever I sneeze. Let there be music, a smile and a sigh. Let there be talks, let there be love.
I'm excited to have this opportunity to share with you a recent accomplishment in the strategic project for the Anthropologie Group. As you may recall at the close of Q3 last year, we mentioned that we were in the process of professionally
It's a real pleasure working with the Rich brand and our talented and committed team members here at the home office in the field as we strive to find new ways to surprise and delight our brand fans. I'd like to thank Dick , the URBN community, and the broader Anthropologie Group for their unwavering support. To update you, the Anthropologie Group now consists of our namesake brand, Anthropologie. BHLDN, our wedding concept. Recently, with the addition of Terrain, the outdoor living garden concept. These three brands speak to our customer through distinct stages of her lifestyle. She comes to our brands to find artistry, beauty, inspiration, and ways to express her creativity, whether decorating herself or her home, both indoors and now outdoors.
In keeping with the URBN agenda today, I'll be walking you through the following: a quick view of our history and recent accomplishments, and then the Anthropologie Group Vision 2020. For those of you who are new to the Anthropologie Group story, here's a quick primer. Anthropologie was founded in 1992 with our first store in Wayne, Pennsylvania, on the Main Line, not too far away from where we sit today. In 1998, we launched our catalog. In 2006, we reached the milestone of a half a billion dollars in revenue, and we opened our 100th store in 2007. In 2010, Anthropologie birthed the wedding concept, BHLDN, which began online. In 2011, we hit the landmark of $1 billion in revenue and also began to invest in direct-to-consumer, helping to turbocharge the business and truly become a multi-channel retailer.
Today, in 2014, we're pleased to welcome the Terrain brand to the Anthropologie Group family. A quick look at the past five years shows that we've delivered strong and steady top-line growth with a 12% CAGR, taking us slightly from less than $1 billion to approaching $1.5 billion. During my tenure, we've approached this growth strategically, delivering not only top line, but driving tremendous profitability, exemplified by both gross profit and operating income, outpacing net sales on a five-year CAGR basis. As you may recall, a few years ago, we shared with you our plans to redirect the Anthropologie business by focusing on re-engaging lapsed brand fans, course-correcting our apparel offer, elevating the creativity in our journals and online, and recommitting to surprising and delighting her through the multitude of touchpoints we have at our disposal.
We focus not on total top line, but on a healthier measure, regular price revenues, all the while building our team and investing in our DTC capabilities. Today, I'm happy to report that we've not only met but surpassed those aspirations. We have recorded 33 consecutive months of full-price positive comp store sales while delivering industry-leading four-wall and overall profitability. We've elevated local community engagement, hosting 1,500 events annually, ranging from birthday parties, farmers markets, and fashion shows, making Anthro stores a must-see on her weekly shopping excursions. Recently, our award-winning social media channels have become a daily requisite for inspiration for millions. Our focus on getting to know her over the last three years helped us grow the Anthropologie loyalty database to over three million customers.
We refocused the BHLDN strategy on product, social, and direct-to-consumer, recently introduced the shop-in-shops in five Anthro stores, which have led to almost doubling revenues and bringing this young brand to solid profitability this year. Listening to her, we expanded the Petites line, entering over 20 metro areas with shop-in-shops and over 700 styles available online. All the while, our store footprint continued to expand. This year, we will reach over 200 communities with over 2 million sq ft of stores, with more to come. To a great degree, we achieved this level of success with a well-executed strategy and a team focused on her. What gives me confidence in our future growth, however, is the amount of runway we have by channel and country with our current strategy and the encouragement our customer gives us to continue to shape and broaden our offer to mean more to her.
Wherever you find deep brand loyalty like we've built at Anthropologie, it leads one to ask, what else can we bring to her that's unique and special? Well, the same insights that led to introducing BHLDN and Petites to our brand fans led us to analyze her spending habits across a broader set of categories. By triangulating market research, credit card data, and interviews, we've learned that her highest spending occurs in apparel, home, beauty, accessories, and intimates. Annually, she spends approximately $9,000 in these highlighted categories. As shown on the slide, the width of each segment represents how much she spends on each category, with apparel and home accounting for the largest portions of her wallet. The highlighted swatches represent Anthropologie's current penetration in each category. As you can see, apparel far outpaces other segments, indicating the opportunity for growth that lies ahead.
Approximately 5% of her closet in these categories is spent at Anthropologie. However, as you can see, we capture over 10% of her annual spend in apparel. Our strength in apparel is not surprising given the amount of resources we devote to it and the brand equity we've built with this category over time. Of the other 5 categories, none are as even as one-quarter as penetrated as apparel. When we break down the reasons for not having our fair share in these categories, it becomes evident that both the size of and the ability to capitalize on these opportunities is clear. Growing share of these categories simply with our existing core customers will deliver excellent growth before finding new brand fans domestically or abroad. We know what she is spending annually and how much she is currently spending with us.
What is also encouraging is hearing her ask us for more. Our customer listening posts consistently reinforce her desire for us to offer more products. Permit me to read a few of these to you. "There isn't anything I wouldn't want them to do. It's a merchant's dream." "I want to see more items in decor, something I can pick up spontaneously." "I actually think I could live here. It's amazing. Terrain brings the outdoors inside in a beautiful and creative way." "I wish you BHLDN were stocked at Anthropologie in London too. Any chance that will happen? #fingerscrossed" "There should be Anthropologie home stores. That would be amazing." "You never know what they will have. You go in and find things you love." Here are a few of the many snippets captured by our listening posts in social media and in the stores over one week.
One of my favorites, "Stop it. That dress is to die for. It just gets better and better." "It's no secret that I'm a total Terrain fanatic." Going forward, she's requesting more offerings from home to beauty. We've studied her suggestions and the categories and have begun to strategically invest in line with our customer's aspirations. Here's how we're thinking about category expansion. Let's start with home. The role of home previously for the Anthropologie brand was to offer a range of services by lifestyle product, a sort of seasoning spice to your home decor, giving the brand a strong lifestyle bias. Yet the narrow scope and shallow depth of the assortment kept our customer from truly incorporating Anthropologie into her home beyond gifting. As the earlier slide highlighted, she is spending as much, if not more, in the home, just not with us.
What is wonderful is that we already have built strong brand recognition in the home and appeal within many categories. She admittedly wants to find ways to bring us into her home but has struggled to find cohesive looks for her family due to our lack of offer and presence on our store floors. Our new approach to home is to move the strategy away from an offering of accent pieces and gifting to become a true destination for outfitting complete rooms, providing her with the breadth of styles needed to suit her lifestyle. We've already taken a number of steps and made investments in this expansion. To begin with, we worked with Meg to define three clear aesthetics to synthesize our positioning, which will be the foundation of our assortment across seasons and categories.
We focused on being able to completely outfit four important rooms, the living room, dining room, bedroom, and bathroom, prioritizing the good, better, best development of key classifications and hiring a new team experienced in the space to execute the strategy, some of whom you'll meet inside shortly. We've made a great deal of progress over the past few quarters, much so that we decided to share our progress with our brand fans and mail an entirely home-dedicated journal just last week, it's sitting at your table today. We're updating our website, styling, social, and with the help of Calvin's shared services team, our distribution model in anticipation of future success in this arena. We recognize that this is a competitive space, we know that our aesthetic positioning is unique from others.
We believe we already have touched her heart with our brand equity in the home, now we're building out the underpinnings to fuel expansion over the coming years. Strategically, we selected home as our first expansion category because of the unique aesthetic positioning, admittedly, the resident brand equity that we have that's very strong, and the sheer size of her spend. With that underway, we're beginning to build our teams and strategies in other key expansion categories. Beauty. It's another area where we see enormous opportunity for growth. Today's beauty market is a sea of sameness with undifferentiated service experiences. Similar to home, our narrow assortment and insignificant amount of space in stores has kept us from becoming a true beauty destination. Our product has been limited to one-offs and gift-giving, we believe this business can grow to be so much more.
We plan to build on Anthropologie's storytelling expertise to curate and deliver a special assortment of brands from across the globe in a soulful manner. We will broaden our assortment, offer more foundational and special occasion items, develop relationships with unique brands from across the globe, and offer experiential services. We have recently hired a beauty lead, who you will meet in a few moments, to help shape the business and source new relationships. The structure of our beauty offering will cover fragrance, makeup, skin, hair, and nail care items with over 800 product styles ranging from newly sourced and under-distributed lines to services that help complete her look, prepare her for an event, or indulge in a moment of much-needed self-pampering. While accessories have been a longstanding part of our business, we are undergoing a redesign of the category with a foundational shift in product strategy and assortment.
All one needs to do is shadow our customer for a few moments to better understand her relationship with accessories and the potential for Anthropologie. In recent years, our jewelry, scarf, hair, belt assortments have had varied quality and appeal, and combined with the limited floor space, has inhibited our growth. Right now, we are reimagining our assortment to be better aligned with our customers' apparel tastes and expectations. We are building an experienced team, repositioning the product by elevating the quality, offering unique designs, unexpected materials, and maintaining Anthropologie's distinct aesthetic by working directly with talented artisans. Shoes and bags are undergoing a similar redesign as accessories. Like our jewelry, our limited assortment and brands do not align with our apparel offer. Combined with limited floor space, this has prevented us from becoming a top-of-mind destination.
One peek into our customer's closets highlights the seemingly endless passion she has for shoes. We will begin by introducing new branded designer relationships rather than own brand designs, and our ability to leverage our apparel visits and align with our aesthetic preferences experience will ultimately create a shoe and bag frenzy in larger stores. Intimates. There is a noticeable void in the market for unique, sensual, and relaxing shopping experience that connects our customer to beautifully curated lingerie. Our objective is to fill the void in our customer shopping options by creating an offer and experience which seduces and woos the very woman for whom it's intended. Our approach is to tailor to her rather than to him. Unlike other retailers who design and market with a man in mind, we plan on building a relationship founded on a woman's point of view of what is beautiful and sensual.
When you combine this offer with the type of store experience that Anthropologie is known for delivering, we believe we will have a compelling formula. This differentiated assortment with feminine silhouettes and romantic reference points is intended to make the woman feel beautiful, confident, feminine, and sensual both day and night. In order to succeed, we will offer an elevated level of service educating customers. Our services will aim to help her understand her body, our products, and how best to wear intimates, empowering the customer and solidifying a relationship with her. BHLDN is well on its way to becoming a one-of-a-kind wedding destination that caters to the bride in search of the unusually beautiful things for her special day. While this has been our overriding objective since the early days, we will now take this one step further by expanding the offerings to touch on more wedding-related events and people.
For example, bridal showers and mother-of-the-bride outfitting. For the first three years, BHLDN was run as a standalone. We recently incorporated BHLDN into the Anthropologie Group. We were sensitive to preserving the unique and special brand identity while leveraging our design, retail, and direct-to-consumer strength and accessing a larger pool of Anthropologie customers. Through sharing DTC platforms, infrastructure, and building out a shop-in-shop model, we introduced the concept to Anthropologie brand fans and ignited growth. Those of you who have ever visited a shop-in-shop location within an Anthropologie store can certainly testify to how lovely these brands sit together. BHLDN has quickly transitioned from an online wedding concept to a fast-growing segment in the Group. Get ready as we begin to take this internationally next year. Our success as a life stage, lifestyle group has made the introduction of registry a much-anticipated milestone.
Through registry, we aim to capture the long-available opportunity of participating in gift-giving by broadening our offer while delivering an uplifting and seamless experience. Registry has natural alignment with our home category expansion, Terrain, and the BHLDN customer while allowing us to deepen our connection. This will allow us to introduce Anthropologie just as she's beginning to build her home and family, which is a key life stage event, often identifying future Anthropologists. Home products like glassware, dinnerware, serveware, and flatware will be the backbone of registry and help us capture a segment of the enormous wedding registry market. We also want to strengthen our place in our home and gift-giving occasions for years to come, and we're already seeing her register across a variety of other non-home related categories.
Think of the capabilities this gives us to better tailor offerings beyond weddings to the millions of spouses failing each time with gift occasions. Just imagine wish lists being created for her events like her birthday, anniversary, Valentine's, and Mother's Day. Wonderfully, like BHLDN and the home segment, registry is a life event gateway for inviting new customers into the group. New customers will be introduced to the brand not only through registrants, but also the gift-givers. In fact, since the soft launch last week, we've already seen nearly 1,000 registries created, which is remarkable for a soft launch in a single online channel. While BHLDN and registry open the door to previously untapped life stage moments, so does the recent addition of Terrain to the Anthropologie Group, a concept that shares some heritage with the early years of Anthropologie.
Currently, Terrain operates two stores as well as an independent direct-to-consumer site. For those who have yet to visit one, all you need to do is observe the space around you to see how well Terrain delivers a full sensory experience, which transports the customers to an aspirational space. Terrain's target customer does cross over in terms of lifestyle, income, and age with a large segment of the Anthropologie customer, even though right now the customer sees little brand association between the two businesses. We are currently in the process of developing our strategic plan to grow Terrain and leverage Anthropologie's assets. This will provide us an opportunity for yet another expansion into her lifestyle, her garden and outdoor living needs. More to come on this development.
As excited as we are for the product extensions that we've just reviewed, we still see tremendous opportunity for apparel to be a vital and growing business for years to come. By successfully building new adjacent categories and tapping into the large opportunities in home, intimates, accessory, and beauty, the growth will most likely outpace apparel at some point share of business and could, when successful, reach 50%, lowering apparel's penetration from the 70% today to 50%. In addition to growing apparel, these category expansions will help us double the size of Anthropologie Group by 2020, as shown in the chart below and seeing the size of the pie. In order to support this growth, we will develop two key channel strategies to deliver on this expanded assortment. Direct-to-consumer.
As Dick highlighted previously, we've embarked on aggressive investment and growth strategy for our direct-to-consumer business, not only because of the revenue opportunity, but because of the way growing direct-to-consumer causes of us to think of her and speak to her, as well as the strategic capabilities the new technology provides us and the impact DTC has had on the Urban culture and business model. The focus on DTC has caused us to take advantage of the medium's dynamics by broadening our product offer successfully. We've revisited our go-to-market strategies, built stronger social engagement, monitored customer behavior in new ways, and built out cross-channel capabilities. In recent years, like our fellow URBN brands, we've seen extraordinary growth in this channel. We've reimagined our digital brand experience through site evolution, introducing digital look books, and upgrading our creative and inspirational content.
We've also used direct-to-consumer to enhance the Anthropologie loyalty experience, garnering a deeper understanding of our customers' shopping behavior. In today's quickly changing retail landscape, omni-channel enhancements are becoming increasingly important. In fact, the success of a few of these category expansions will rely on continued investment in our supply chain in order to provide seamless omni-channel experience, allowing her to shop any way she wants from anywhere she wants. Calvin and his team have been leaders in helping us build new ways to embrace her in a cross-channel manner. While technologic, logistic, and DTC enhancements are fundamental to growing the business, it doesn't replace a three-dimensional presence, which is still requisite for certain categories. Category expansion such as furniture, beauty, bridal, and gardening. They call for her to touch and feel the product, experiencing it firsthand, and sizing it up how it fits in her space.
To that end, we've committed to a new retail format, the larger store. In just a few moments, we'll give you the opportunity to see and experience something pretty remarkable, our new large format firsthand. Before we do, let me provide you a little color about our vision and what you can expect in coming months. Just like Apple and their new iPhone, we truly believe bigger is indeed better, and in our case, necessary to expand our reach. We know and are proud of our world-class store experience and performance. Based on what we've been seeing, our largest square footage stores are consistently outpacing the brand average in comp sales. She wants more, more product, more of the world-class experience we've introduced to her in our traditional 10,000 square foot stores.
Also supporting this notion is the recent successful introduction of the new category of BHLDN and Petites into the space, to the extent that we've been able to broaden their reach within the limits of our current stores. To fully realize the potential of growing assortment, we want to expand the footprint, uniting the spectrum of lifestyle products under one roof. What will you see inside? We pride ourselves on developing and creating the unexpected surprise and delight. There is always something different to catch our customers' eyes. While each location for the larger stores will be tailored to the local market, the new format will be roughly three times the size of our existing core stores. We aim to introduce the large format in the coming years to 25 to 50 locations covering top U.S. markets, accounting for over 75% of retail spend.
These larger format stores will provide a hub, along with our current standard format stores in each market for expanded assortment services, which need the exposure to be developed. While apparel sales are expected to double within the walls of the large format stores, it will no longer be the largest tenant, moving from two-thirds of the current floor space to one-third of the. The product is sure to stun, and the large format provides an ideal stage for true experiential environment. To take advantage of this, we will offer services ranging from dining to beauty treatments, from home decorating to gardening, depending on the dynamics of each location. Before you go into the building, I want you to know that this is merely a study on how to build and merchandise a large format store. This is not an exact model.
In fact, what you're about to see is about one-third smaller than what I would hope and envision for our first large store to be. It's directional merchandising, a directional assortment. You will also see we do not have some of the required amenities of the living, breathing store, like dressing rooms and cash wraps, just to name a few. I encourage you to wander around and explore the full breadth of the operating and the curated visual storytelling you'll see throughout. Recently, we've had two focus groups just this past week, and we're having another one tomorrow. They've received extremely positive feedback from the customers, even requesting we open a few in their backyards as soon as possible. We believe we have a tremendous, uniquely positioned brand for this kind of product extension.
We have a deeply engaged and financially healthy customer, along with a parent company that has the vision and resources to support our growth potential. Thank you. I hope you're as excited about the vision for Anthropologie's future as I am and our focus groups have been. Before I lead you in, I want to let you know in terms of a little bit of the logistics for the next 30 minutes or so. I'll lead you in. Inside, we have roughly 14 leaders in Anthropologie, who have some of the category proprietors who are going to be leading charges and growth throughout the space. We're going to set aside 30 minutes for you to walk around. I'll warn you, the focus groups were upset because we ended the walk and we gave them one hour. We have 30 minutes.
Try to make sure you circulate. They're there to answer your questions. Before that time's up, we'll give you roughly a 10-minute warning so you can get to your last spot. Inside, at the bottom of the stairs, we'll reconvene for some Q&A with myself and some of the other Anthropologie leaders. Thank you for your time. I hope you're as excited to see it as I am to show it to you.
Smile, though your heart is aching.
Smile even though it's raining. When there are clouds in the sky, you'll get by. If you smile through your fear and sorrow. Smile and maybe tomorrow, you'll see the sun come shining through for you. Light up your face with gladness. Hide every trace of sadness. Although a tear may be ever so near. That's the time you must keep on trying. Smile, what's the use of crying? You'll find that life is still worthwhile if you just smile. That's the time you must keep on trying. Smile, what's the use of crying? You'll find that life is still worthwhile if you just smile.
The very thought of you, and I forget to do, the little ordinary things that everyone ought to do. I'm living in a kind of daydream. I'm happy as a king. Foolish, though it may seem to me, that everything. The mere idea of you. The longing here for you. You'll never know how slow the moments go till I'm near to you. I see your face in every flower. Your eyes in stars above. It's just the thought of you, the very thought of you, my love. The mere idea of you. The longing here for you. You'll never know how slow the moments go till I'm near to you. Your eyes in stars above. It's just the thought of you. The very thought of you. No one to talk with, all by myself. No one to walk with, but I'm happy on a shelf.
Ain't misbehavin', I'm savin' my love for you. I know for certain you're the one I love. I'm through with flirtin', it's you I'm thinking of. Ain't misbehavin', savin' my love for you. Like Jack Horner, in a corner. Don't go nowhere, what do I care? Your kisses are worth waiting for. Believe me. I no stay out late, don't care to go. I'm home about eight, just me and my radio. Ain't misbehavin', savin' my love for you. Sittin' in a corner. Don't go nowhere, what do I care? Your kisses are worth waiting for. Believe me. I don't stay out late, don't care to go. I'm home about eight, just me and my radio. Ain't misbehavin', savin' my love for you. Ain't misbehavin', savin' my love for you.
Heaven. I'm in heaven. My heart beats so that I can hardly speak. I seem to find the happiness I seek. When we're out together, dancing cheek to cheek. It is heaven. I'm in heaven. The care that hung around me through the week. Seems to vanish like a gambler's lucky streak. When we're out together, dancing cheek to cheek. Oh, I love to climb to mountains. Reach the highest peak. It doesn't thrill me half as much. As dancing cheek to cheek. Oh, I love to go out fishing. In a river or a creek. I don't enjoy it half as much. As dancing cheek to cheek. Now, mama, dance with me. I want my arms about you. The charms about you. Will carry me through. It's heaven. I'm in heaven
My heart beats so that I can hardly speak. I seem to find the happiness I seek. When we're out together, dancing cheek to cheek.
Take it, Ella, swing it.
Heaven. I'm in heaven. My heart beats so that I can hardly speak. I seem to find the happiness I seek. When we're out together, dancing cheek to cheek. Heaven. I'm in heaven. The cares that hung around me through the week. Seem to vanish like a gambler's lucky streak. When we're out together, dancing cheek to cheek. Oh, I love to climb a mountain and to reach the highest peak. It doesn't thrill me half as much as dancing cheek to cheek. Oh, I love to go out fishing in a river or a creek. I don't enjoy it half as much as dancing cheek to cheek. Come on and dance with me. I want my arm about you. That charm about you will carry me through to heaven. I'm in heaven. My heart beats so that I can hardly speak.
I seem to find the happiness I seek. When we're out together, dancing cheek to cheek.
Dance with me.
I want my arm about you.
That charm.
About you.
Will carry me through to heaven.
Heaven. I'm in heaven.
I'm in heaven.
My heart beats so that I can hardly speak. I seem to find the happiness I seek.
Yeah.
When we're out together, dancing.
Cheek to cheek.
Cheek to cheek.
Cheek to cheek.
Cheek to cheek. Fool that I am. For falling in love with you. A fool that I am. Thinking you loved me too. You took my heart then played the part. Oh. Of little concern. My dreams just disappeared. Like the smoke from a cigarette. Oh, yeah. Fool that I am. For hoping, oh, you'd understand. Thinking you would listen to. Oh, the things I had planned. We couldn't see eye to eye.
This is the side. I still care. I still care. You know, fool that I am. Oh, I still care. Oh, that I am. I saw you last night, and got that old feeling. When you came in sight, I got that old feeling. The moment that you said goodbye, I felt a thrill. When you caught my eye, my heart stood still. Once again, I seem to feel that old feeling. I knew the spark of love was still there. There'll be no new romance for me. It's foolish to start. When that old feeling is still in my heart. I've got you under my skin. I've got you deep in the heart of me. So deep in my heart, you're really a part of me. I've got you under my skin. I try so not to give in.
I said to myself, "This affair never could go so well." Why should I try to resist when, darling, I know so well? I've got you under my skin. I'd sacrifice anything, come what may, for the sake of having you near. In spite of a voice that comes in the night and repeats in my ear, "Don't you know, little fool, you never can win? Use your mentality. Wake up to reality." Each time I do, just the thought of you makes me stop before I begin. 'Cause I've got you under my skin. I'd sacrifice anything, come what may, for the sake of having you near. In spite of a voice that comes in the night and repeats in my ear, "Don't you know, little fool, you never can win? Use your mentality.
Wake up to reality." Each time I do, just the thought of you makes me stop before I begin. 'Cause I've got you. Yes, I've got you. Oh, I've got you under my skin. You don't know
Until you've learned the meaning of the blues. Until you've loved the love you had to lose. You don't know what love is. You don't know how lips hurt. Until you've kissed and had to pay the cost. Until you've flipped your heart, and you have lost. You don't know what love is. Do you know how lost hearts feel? The thrill of reminiscing? Hot lips, the taste of tears? Lose their taste for kissing. You don't know how hearts burn. For love that cannot live, yet never dies. Until you've faced each dawn with sleepless eyes. You don't know, no, you don't know what love is. You are the promised kiss of springtime that makes the lonely winter seem long. You are the breathless hush of evening that trembles on the brink of a lovely song. You are the angel glow that lights the stars.
The dearest things I know are what you are. Someday my happy arms will hold you. Someday I'll know that moment is mine, when all the things you are are mine. You are the angel glow that lights the stars. The dearest things I know are what you are. Someday my happy arms will hold you. Someday I'll know that moment is mine, when all the things you are are mine.
Howl where the many millions of Jonathans and Williams would be, to capture me. You had such persistence, you wore down my resistance. I fell. It was swell. Though my big embrace is handsome, though we all know why I want you, I shall never know. It's not that you're attractive at all. My heart you active when you gave into view. I've got a crush on you. We defy all the day and nightly. Hear me sigh. I never had the least notion that I could fall with so much emotion. Could you too? If you cared for a stunning goddess, we would share the world. We'll pardon my boast, 'cause I've got a crush, my baby, on you. Love you too. Could you care for a stunning goddess? We could share the world.
We'll pardon my boast, 'cause I've got a crush, my baby, on you.
Somewhere beyond the sea, somewhere waiting for me, my lover stands on golden sands, and watches the ships that go sailing. Somewhere, beyond the sea, she's there watching for me. If I could fly like birds on high, then straight to her arms, I'd go sailing. It is far beyond the stars, it is near beyond the moon. I know beyond a doubt, my heart will lead me there soon. We'll meet beyond the shore, we'll kiss just as before. Happy we'll be beyond the sea, and never again, I'll go sailing.
I know beyond a doubt my heart will lead me there soon. We'll meet, I know we'll meet beyond the shore and we're gonna kiss just as before. Happy we'll be beyond the sea and never again I'll go sailing. So long sailing. So long sailing. Bye bye sailing. No more, oh boy. Bye, bye.
I only know that I'm in love with you. I only know that you're my dream. I don't know how it happened or how it came to be. Don't even know the reason why you mean so much to me. I only know I'd give my life for you, and where you go, right there I'll be. I don't know why I want to forever be with you. I only know that I'm in love with you. I don't know why my heart aches when I think of you, or why you're in all my dreams. Don't know if your heart can feel this love for me. Don't know if you share my dreams. I only know that I'm forever vowed to make you mine, someday, somewhere, somehow. Don't know if you want me, if this dream will come true. I only know that I'm in love with you.
I've got the world on a string, sitting on a rainbow. Got that string around my finger. What a world, what a life, I'm in love. I've got a song that I sing, I can make a rainbow, turn sunshine into rain. Luckily, you should see, I'm in love. Life's a beautiful thing as long as I'm on a string. I'd hate to be so-and-so if I should ever let go. I've got the world on a string, sitting on a rainbow. I've got that string around my finger. What a world, what a life, I'm in love. Life's a beautiful thing as long as I'm on a string. I'd hate to be so-and-so if I should ever let go. I've got the world on a string, sitting on a rainbow. I got that string around my finger. What a world. There ain't no other way to fly.
What a world. I'm in love.
Wish I knew why I'm so in love with you. No one else in this world will do. Darling, please say you'll love me. Run away. If I were wise, I'd run away. Like a fool in love, I stay, praying you save your love for me. I can feel it, even when you're not here, I can't conceal it. I really love you, my dear. Though I know no good can come from loving you. I can't do a thing. I'm so in love with you. Help me, please. Have mercy on a fool like me. I know I'm doomed but still I plead. Save your love for me. I can feel it, even when you're not here. I can't conceal it. I really love you, my dear. Though I know no good can come from loving you.
I can't do a thing 'cause I'm so in love with you. Help me. Help me, please. Won't you have pity on a fool like me? I know I'm doomed, but still I plead. Please save your love for me. Go have fun with the crowd. For crying out loud. Darling, please save your love for me.
Be seeing you in all the old familiar places. That is all of my embraces. All day through. In that small cafe. The park across the way. The children's carousel. The chestnut tree, the wishing well. I'll be seeing you in every lovely summer's day. In everything that's bright and gay. I'll always think of you that way. I'll find you in the morning sun. When the night is new. I'll be looking at the moon. I'll be seeing you. I'll be seeing you in every lovely summer's day. In everything that's light and gay. I'll always think of you that way. I'll find you in the morning sun. When the night is new. I'll be looking at the moon. I'll be seeing you. Your green eyes with their soft light. Your eyes that promise sweet night. Bring to my soul a longing.
A thirst for love divine. In dreams I seem to hold you. To find you and enfold you. Our lips meet and our hearts too. With a thrill so sublime. Those cool and limpid green eyes. Of who wherein my love lies. So deep that in my searching. For happiness I fear. That they will ever haunt me. All through my life they'll want me. Will they ever want me? Green eyes, make my dreams come true. Soft light and eyes that promise sweet night. Bring to my soul a longing. A thirst for love divine. In dreams I seem to hold you. To find you and enfold you. Our lips meet and our hearts too. With a thrill so sublime. Those cool and limpid green eyes. Of who wherein my love lies. So deep that in my searching. For happiness I fear. That they will ever haunt me.
All through my life they'll want me. Will they ever want me? Green eyes, I love you
Wild is love whenever two hearts meet. Wild is love, bitter but also sweet. I know I must go wherever love takes me. Whatever love makes me, I will be. Like a fire, burning beyond control. Wild is love, deep in my heart and soul. Wild is the wind, and wild is the roaring sea. Nothing could ever be as wild as love. Like a fire, burning beyond control. Wild is love, deep in my heart and soul. Wild is the wind, and wild is the roaring sea. Nothing could ever be as wild as love. As wild as love.
The dance floor's deserted. You play the same love song. It's the tenth time you've heard it. That's the beginning. Just one of the blues. You've had your first lesson in learning the blues. The cigarettes you light one after another won't help you forget him and the way that you love him. You're only burning dollars that you can't lose. You're on the right track for learning the blues. When you're at home alone, the blues will taunt you constantly. When you're out in a crowd, the blues will haunt your memory. The nights when you don't sleep. The whole night you're crying, but you can't forget him. Soon you even stop trying. You walk the floor and wear out your shoes. When you feel your heart break, you're learning the blues.
Yes, the tables are empty. The dance floor's deserted. You play the same love song, oh yes. It's the tenth time you've heard it. Yeah. Man, it's the beginning. Just one of those, man. You've had your first lesson, oh yes, in learning the blues.
I think the opportunity to expand into some more global payment methods is something that we're already pursuing and should be something the other brands can do as well.
Susan Anderson, FBR. With all the new product extensions, does this change your outlook on where e-commerce can go? I think you threw out a while back 50%. Does this give you the opportunity to even further your omni-channel experiences, maybe utilizing iPads more in the stores? In stores where you don't think you could have an Anthro store because this one maybe sells some of these products. Thanks.
As I said in my remarks, I don't see the product extensions as being particularly geared to one channel or the other. I think it's a combination of both, and I think they're reinforcing one another. I think that we'll continue to have growth in the direct channel, and the product will be one of the main drivers of that. Obviously, now that you've seen the larger store format, I think you can see how that can drive sales as well. As David said, when you come in and you see the larger product assortment, you're more likely to buy it. You may choose to do it online. You may choose to do it in the store. We're really reasonably indifferent to where you choose to buy. We just want to be able to satisfy you and the products that you want to buy.
That's the purpose behind it. I don't think that it changes any of our views about direct. I think direct is still going to grow faster than the store environment. In other words, comps for direct will be more than comps in the stores, if you can even separate them. We don't look at that metric as much anymore. It's about the overall retail, meaning direct and store together. What are the comps that we're driving there?
Hi, guys. We've had a great view of a lot of things happening domestically, touched on what's been going on internationally. Can you talk a little bit more about how the direct business has been internationally in comparison to the retail business and some of the things that you've touched on here, the product extensions, the larger Urban Outfitters store, maybe not the very large Anthro store. Are those things that you'll look to roll out overseas as well?
Let me start with your last first, then let some of the other folks talk about the direct overseas. The answer is yes, we'd like to have the larger format and the expanded product overseas as well as here. We'll do that slower, we will take our time and get it straight here first before we will try to do that. The answer I can already imagine, I know exactly where I'd like to do it in London. I think the answer is yes.
Nothing specific to say about e-com internationally other than there's massive potential there. We have been continuing to support it and drive it. At Free People, we did a little pop-up shop in Australia for two days just to get a little more brand recognition down there. We instantly saw our web sales pop off of an already strong base in Australia. I think what's exciting to me is the minute we have any sort of increase in brand recognition in some of these countries, there's massive opportunity.
Yeah, I think that's exactly right. It's the brand recognition that drives direct. With that, since Urban has the most stores in Europe, we see the highest penetration of direct on the Urban side, followed by Free People. Anthropologie has an awful lot of runway, as they say, to increase their international direct business.
Hi, Lorraine Hutchinson. It sounds like you have a lot going on real estate-wise over the next two years. How should we think about a longer-term goal for CapEx per year? Also, should we expect inventory turns to slow given some of the investment into these new categories?
Yes, Lorraine. As it relates to capital this year, our number has been slightly overstated due to the addition of the Building 18, which is right over here, the new Anthropologie building, as well as the new direct-to-consumer fulfillment center that you saw today, the 1 million square feet that we're adding in Gap, Pennsylvania. Building 18, part of the spend was in late last year, as well as beginning of this year. That Gap fulfillment center, majority of the spend is this year. It'll bleed a little bit into next year, which has elevated our capital spend. As we look at the larger format stores, and we're going to test and roll out this model, we're talking about a small number in the next two years. That number wouldn't equate to the delta of what we picked up related to Building 18 and related to Gap.
I would actually expect our capital number to come down slightly over the next couple of years.
I will say that to your inventory question, as the rollout of the extended product starts to happen, I would imagine you would see a slight decrease in turnover. Some of the categories, particularly home, is a slower turning category, and that's the bad news. The good news is it goes out of fashion much less quickly, so it can stay around a little bit longer and still be appropriate. Markdowns are usually less in the home business than in the apparel business. I think it sort of all balances out. Yes, to answer your specific question, I think that the turnover in inventory will probably decrease a bit.
This is probably a chest-high fastball.
Uh-oh.
We have three terrific companies here that are all different, managed independently, and doing a great job. How would you verbalize the common denominator that you as CEO with your success? How do you feel about the corporation in total, and as related to the three components, and what is the common denominator that you place on all three to make them?
Maybe that's a beanball rather than just my fastball. I think that the common denominator is pretty simple. We see the universe really bifurcated. We're breaking down into two distinct sections. One where the leading motivator is price. Okay? They want promotion. They want to get a deal. They want to have off price, and they're buying because it's cheap. There's a whole other group of people, and I don't know if it's 40, 45, or even more % of the population. Those people want to have a design, a engagement with the product and the company that they're buying from. Again, Apple's the perfect example of that, they're much, much less concerned about price. I don't mean that they'll spend anything for it, they're less concerned about price. They want that experience. They want that engagement with the person they're buying it from.
I would say the common denominator across all of our brands is that we're in that camp. None of our brands are about price. We never want to make them about price. We want to have, I think, reasonable, fair prices, we want to push the engagement side of the equation. What was the second part of your fastball?
Okay.
Okay. That's what sort of keeps the brands, I think, clustered around the same philosophy. The next thing we do is just infuse creativity into the brand, because that's what drives that engagement. If we have strong creative teams with a strong creative vision, we will build that engagement and have the consequence that we want, which is a loyal customer. Now, the good news is that our brands are reasonably dissimilar when we think about the customer we're going after. While there is crossover, we do see women buying from Urban and Anthro, it's not the typical thing. The Urban customer, if we're doing our job, typically loves Urban and buys from Urban isn't buying from Anthro, and vice versa.
I think that we have, as I said earlier, distinct customer segments that we approach, and we know their lifestyle and their life stage, and we try to make appropriate product assortments and appropriate environments for them. Great example of that is in the Urban. As you heard them say today, we're the largest seller of vinyl in the world. I don't know that Anthropologie would sell one. That's not what the Anthropologie's about. Those are the kind of differentiators where if you're 23 years old and you walk into an Urban, you say, "This is my store." If you're an Anthropologie customer and you're 40, you walk in and you go, "Why would anybody ever want this?" You can see the same thing with a lot of the home product in Anthropologie.
The Urban customer is liable to walk in and go, "This is my parents' place." That's good. That's what we want. They're differentiated, but they have a similar philosophy. This corporate complex that we have here is really a wonderful symbol of that because there's a tremendous tie-in of the buildings. There are all these beautiful red brick buildings that were built, most of them, in the turn of my century, your century. If you go inside them, we've allowed the brands to personalize them, and you can see an enormous difference between the buildings. On the outside, there's a common philosophy, a common veneer, but inside it's very different.
Thank you very much. Just a follow-on question. With the increase in investment, a lot of the new products coming in the slowing of the turn, as you mentioned, what does ROIC look like flowing from last year, this year, by my estimate? Do you think that's going to be reversed in 2015, and is that something you can pay close attention to?
Remember that next year, we might have seven or eight, collectively across all brands, of these larger format stores. It's not going to move the needle. Now, over time, yes, it could move the needle. In the first couple of years, I doubt if you'll notice a difference. It's designed that way. We don't want to make any abrupt changes. We want to build, we want to test, we want to get customer feedback to the degree we possibly can. Give it to us real fast, and then we want to make adjustments. Once we're confident, then yes, we start building out a little bit more, but we're in no hurry. This is not about next year or the year after, 50 to 100 Anthropologie stores are going to be larger format. That's the way to get killed.
That's the way to make mistakes that you can't recover from. We test, we verify, we go forward.
Could you talk a little bit about how you expect to see the SKU count increase over the next several years? What are you doing from a design, a sourcing, a fulfillment standpoint to ensure that you can slow that inventory properly without risk of markdown?
We always have a risk of markdown. Now are you talking about in the new product categories? Okay, I'm going to let the brand people take this. David?
Well, we're still working through it by category, the expanded offer doesn't necessarily increase markdowns based on classification that Dick's talked about, whether it's beauty and home being a low markdown risk compared to something like shoes, bags, apparel. Also expanded SKU counts don't necessarily mean increased markdown risk, as we've seen with DTC, where we've closely doubled our SKU count in very short order and markdowns have come down. What we are going to be doing is partnering with Barbara Rozas, who runs our supply chain, to telegraph our plan, work closely with the vendor community and manufacturing base so we can commit as little as possible in this test-and-learn phase and not overinvest in long lead, heavy commitment minimums. For example, the home book you have in front of you, there are many pieces that we source domestically, some internationally.
We're able to keep the buy minimums very close so that they would react because they're dying to partner with us.
Hi, Matthew McClintock, Barclays. Today, you talked a lot about some advanced omni-channel capabilities, Order Online Pick Up in Store, same-day delivery, et cetera. I know you have locate in store, but I don't think you've ever discussed reserve in store. Could you talk to the potential of rolling that out? Secondly, in terms of your investments on apps, I believe apps are 10% of your spend. I think that was the stat that was thrown out here today. Mobile is roughly 27% or 30% of either spend or traffic. I was just wondering, how do you allocate your investment and your time behind developing apps or developing mobile capabilities? How do you think about those two channels? Thanks.
What was your first question on the stores? I'm sorry, we missed that at the end.
Just reserve in store. Do you have that capability? Do you plan on using that capability? It's not buy online, it's reserve it online.
Yes. As I mentioned, we have two options. It'll be Order Online Pick Up in Store if you have it, if we have it in the store, or you can reserve it. If we don't have it in the store, we'll ship it to the store, we'll reserve it, and you can pick it up next day or the following day. We'll have the capability by, I'll say, Q2 of next year.
Oona, I think you still have the question.
That was a mobile. Yes, mobile.
Yeah. Just allocating your time and investment dollars behind either developing mobile capabilities or app-specific capabilities. A lot of the conversation today was based on apps specifically.
Right. Part of the investments we made in talent was to build out a mobile app developer team, again, specifically focused on building out Android apps and iOS apps. As I mentioned, Urban has both Android and iOS. All the other brands have the iOS app. We have a dedicated team for that. I believe it's roughly about 20 folks we hired this year to focus on apps. The mobile, we are looking at responsive design, that'll be if you go directly to our site through a mobile device, it'll reformat it better than going purely against desktop. We are also looking at desktop further development. The challenge we now have is you now have desktop, you have mobile, you have apps. From apps, you have Android, you have Apple. With Apple, you have version four, five, and now six.
There's a huge investment for us. As I also mentioned, we are seeing the customers want to engage more and more with us through apps. It's a very rich experience and move away from desktop. It's an investment we want to make, and we believe that we are ahead of the curve somewhat and want to stay ahead of the curve, and we think it'll be a competitive advantage for us to build compelling apps. It's a huge investment and focus for us. However, we still have to focus or still have to support desktop and mobile. The apps is a huge focus for us this year.
Hi, Roxanne Meyer, UBS. In your opening comments, you talked about your Vision 2020 being that you would double revenues and have industry-leading profitability. I guess I'm just wondering if you can elaborate on the profitability part. Clearly, the industry hasn't been all that profitable lately. Just wondering if you can provide context through all of the initiatives that you have, how you see the progression of your profitability over time.
Sure, Roxanne. I'm not sure you saw the same presentation that I gave because I said that we wanted to double revenues by 2020, we wanted to remain very profitable, highly profitable. Our goal really is in our industry of profitability, but I'm not putting a number on that, and I think David went over that a little bit in some of the questions that he answered today. We believe that as we grow that top line, it's very possible because we're getting more concentrated on categories that we haven't before built out, that they may not have the same degree of profitability as we're used to. That doesn't bother me. That's not what my goal is. My goal is to be very profitable, highly profitable, double our sales.
I think we will continue to stay at or near the top of our industry, that we will double our sales. Where the actual operating profitability rate will be, I can't tell you exactly right now. I am highly confident that we will make this work and stay in the top decile.
Hi. Betty Chen with Mizuho. My question is regarding the conversion rate. It sounds like there's clearly some opportunity around mobile and apps even in terms of conversion as you see that traffic shift from desktop into those new channels.
What are you seeing in terms of the spending from conversion in mobile and app? Is it comparable to the desktop? Is it maybe even more attractive in the sort of experiences and engagement between those two presentation? Just remind us, in terms of some of the apps and websites, what is it in terms of North America versus international? What are those international customers? Thanks.
Yeah, sure. I think what's interesting about this whole space is that we're really chasing macro changing consumer behavior. As we follow the customer with where she's taking her time and spending her time digitally, we know that we need to be playing in the app space, we need to be playing in the mobile space, and we need to be getting better on desktop. Where those all convert and where that shakes out is important to us because we want to maximize that conversion. Ultimately, she's going to decide where she chooses to convert. More and more, she's opening up emails on her phone and just checking out what that email is all about, bouncing off and maybe later that night or later that week, coming back and converting wherever she chooses to convert.
We do see the highest conversion rate we have on the desktop. Second highest we have is in the app usually. Then the mobile site, we think we can do a better job to improve that over time, but I think ultimately that's going to continue to be the lowest of those three, just because of the way the consumer behaves. Internationally, I think Urban might be able to speak to this a little bit better in regards to Android. I know that there's much higher Android penetration internationally than we see with iOS. To date, we've had, for Free People, the U.S. conversion via iOS has been fantastic. The bulk of our customers have chosen to engage with us over iOS, and we're just beginning to figure out that there's a need to get into the Android space.
I think once we're there, we'll be able to say to international customers as well that they can choose to shop with either way. I think there is certainly a larger international consumer that's using an Android device.
Just to touch on one thing as it relates to the lead that Dave gave in regard to international. We're placing the same emphasis and importance to building out our experience mobile related for international as we are in North America. Recently, having language capability for the German market, the French market, currency capability in the markets that we're doing business in in Europe, integrating other features such as social into product pages, social into the experience in mobile. The whole idea being to get mobile as rich of an experience as possible, both in North America as well as in the international markets that we operate in. North America really leads the charge in regard to building out that work and learning from the work that we built out in this market.
It really is pretty much the number one focus shortly and a quick second-place finish to keeping the experience as rich as we want it to be creatively, is really the nature of the user experience itself in the markets that we want to do business in.
Hi, Liz Dunn from Macquarie. First question, is it fair to say that Urban, as you stand here now, is less than a double and Free People may be more than a double? As a related question, I don't think you mentioned acquisitions at all, and I believe David said something to the effect of if we were investing in a business similar to this, and we're going to double our revenues, it'd be a no-brainer. Is this signaling a shift in your thinking about acquisitions? Thanks.
I'll just touch on paragraph two in my comments this morning. I have the same sitting right here. I got to double, too. We're all in the double boat, okay?
No, I think our overall goal is to double. Brands specifically, they want to double, I think you may start to feel that there's a bit of healthy competition. They all want to double, some of them will probably do more than that. We might exceed our plan. In terms of acquisitions, you know what we want to do now. We are looking to extend our product offerings and our service offerings. To the degree that there is an acquisition candidate out there that can help us get there faster than we think we could do it on our own, then we will be open to an acquisition like that. What we're not looking for right now is a fourth brand, a fifth brand, something completely unrelated. We have a very, very clear strategy. We want to stick with that strategy.
Acquisitions absolutely could be part of it'll only be part of it if it fits within that strategy. Okay?
Yeah, just tapping into the double question. I can't speak for the other brands, but if you were to look at Anthropologie today, I believe the brand equity that's been created is already more than double our business size. We're just growing our team and our product execution strategy into a brand that's already a multi-billion dollar brand in North America before we go international.