Posted on Sat, Jan. 19, 2008
Maybe it's because Urban Outfitters chairman Richard A. Hayne toils over his tomatoes every summer.
Or maybe it's because the $1.2 billion retail chain he founded as a West Philadelphia hippie emporium in 1970 wants to harvest some of the nearly $79 billion landscape and garden market.
Whatever the reason, this spring Urban Outfitters will sprout a new store concept named Terrain, launching it with the purchase of J. Franklin Styer Nurseries Inc., a well-known garden center on Baltimore Pike in Concordville, near Chadds Ford.
Urban Outfitters, which sells short skirts, baby-doll dresses and strappy shoes to the college crowd, also operates Anthropologie, which offers high-end soaps, $1,300 distressed-iron-and-brass beds and fashionable flowered cardigans to their mothers.
The newest concept, the company promises, will "transform the local garden center into an experience that celebrates the beauty and abundance of nature while offering an eclectic mix of garden-inspired products tailored for the contemporary customer."
In announcing the transaction yesterday, neither the company nor Styer's current owner, Bill Simeral, would disclose the price. The deal is expected to close in February.
What Urban is doing is interesting for two reasons.
Not only is it launching a new concept, but it is expanding beyond retail into the service sector.
Besides selling mulch, silk orchids, garden books and tools in a comfortable atmosphere that includes a leather sofa and a coffee bar serving upscale La Colombe coffee, as Styer's does now, Terrain also will capitalize on the nursery's existing landscape design and construction business.
That puts it in the same category as retailers such as Philadelphia-based Pep Boys, which sells tires and also mounts them, and Home Depot, which sells countertops and also installs them in kitchens it helps design.
And, Urban is not creating its Terrain store brand out of whole cloth, as it did for Urban Outfitters and Anthropologie.
Instead, "we're going to create strategic partnerships - by creating partnerships with selected higher-end garden centers, we're going to learn more about this industry, because it's a complicated business," said John Kinsella, Terrain's managing director.
When the new concept blossoms in the spring, the store will be known as Terrain at Styer's. That pattern will hold as Terrain expands to other communities, Kinsella said.
J. Franklin Styer was founded in 1890. Simeral, the former president of the 10-acre Concordville nursery, bought it three years ago. He will stay on to run the landscaping and design component of the business.
"We are going to be acknowledging and respecting the community they've grown at Styers," said Kinsella, a former Smith & Hawken executive who comes from California and uses the word
community to mean customer base. "We're going to layer on what we do well, which is updating the assortment."
From a business perspective, Urban's idea to build on existing businesses makes sense, said Brian Ford, an executive at Ernst and Young's Philadelphia office and a longtime observer of retailing nationally and locally.
"You start with the idea that as a large retailer, you can source product and set style in ways that are very efficient, and at the same time avoid the real estate entanglements that it takes to roll out a large number of stores," he said. "It's a way to get their brand out there quickly and take advantage of their ability to buy."
Nationally, Americans spend $34 billion on plants, flowers, mowers and garden equipment, according to Bruce Butterfield, organization research director for the National Gardening Association, a nonprofit group for home gardeners.
The landscape design, construction and maintenance market is $45 billion, he said.
To narrow that, 6.9 million American households spent $17.3 billion on landscape installation and construction services, according to a 2007 survey conducted by Harris Interactive Inc. for the association. An additional $2.7 billion was spent on landscape design.
That may look like a lot of green, but Butterfield says it may wither in the coming year. "We're hitting the cement wall of recession," he said.
Baby boomers aren't as interested in gardening as experts forecast, he said.
"As people grow older, they are downsizing," he said. "And the 18-to-34-year-olds, the kids of the baby boomers, aren't into gardening. If it doesn't have a mouse, they don't want to know about it."
Terrain's Kinsella thinks Urban' is up to the challenge. To start, Terrain's atmosphere will become more welcoming to women.
And the stores will fill a gap between the 20,000 mom-and-pop garden centers with less than $5 million in sales and Home Depot, he said. "There's a lot of opportunity. No one national is doing it on a local level."
Urban Outfitters' chief financial officer, John Kyees, isn't too worried about the recession. "We don't think it's a big deal," he said. While other retailers' holiday sales were in the dirt, Urban's grew an impressive 9 percent.
Temple University marketing professor Michael Smith said Urban's plan is all about margin diversification. Kyees agrees. The standard merchandise in garden stores comes in at well below Urban's target profit margin of 20 percent, Kyees said. Margins have to be tight to compete with Home Depot's volume advantage.
But the landscaping business has much higher margins. And the kinds of antiques and knickknacks that Terrain will sell also command high margins. Even if Urban initially loses $2 million a year on Terrain, as Kyees anticipates, he predicts the concept will be an eventual winner.
"Green is in," Kyees said. "Our potential customers are exceptionally wealthy and they like to fix up their homes."
Urban Outfitters
Founded: 1970.
Headquarters: Philadelphia.
Stores:
Urban Outfitters: 122.
Anthropologie: 106.
Free People: 14.
Wholesale unit: sells to 1,500 specialty stores.
2007 revenue: $1.2 billion.*
2007 profit: $116.2 million.*
Stock price, 12-month range: $28.63-$19.41.
Yesterday's close: $24.25.
*Fiscal year ended January 2007
SOURCE: Bloomberg News
Contact staff writer Jane M. Von Bergen at 215-854-2769 or jvonbergen@phillynews.com.