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Urban Outfitters CEO Says Retail Carnage Proves ‘Bubble’ Has Burst

March 8, 2017, 9:09 PM UTC

If you think there are too many stores out there, the CEO of Urban Outfitters (URBN) agrees with you.

On a conference call to discuss the company’s poor fourth-quarter performance, CEO Richard Hayne likened the retail industry’s current travails to the housing bubble of the 2000s that burst painfully for the whole economy.

Stores, particularly those focused on apparel, are grappling with drops in foot traffic in the order of 6% a year, and an increasingly promotional environment as consumers shift spending away from clothing, the surfeit of which has made it a commodity. That, coupled with years of overbuilding has led to dismal comparable sales results for specialty clothing stores and department stores in particular.

Indeed, Urban Outfitters’ fourth-quarter earnings fell short of estimates, and same-store sales were flat, while at Express, another youth oriented store, sales dropped 13% during the key holiday quarter that was brutal for everyone from Kohl’s (KSS) to Abercrombie & Fitch. (ANF)

“Our industry, not unlike the housing industry, saw too much square footage capacity added in the ’90s and early 2000s. Thousands of new doors opened and rents soared. This created a bubble. And like housing, that bubble has now burst,” Hayne told the Wall Street analysts. “We are seeing the results — doors shuttering and rents retreating,” he said. “This trend will continue for the foreseeable future and may even accelerate.”

As detailed in a Fortune magazine examination of the mall sector in December, there are 2,353 square feet of space of shopping centers in the U.S. for every 100 Americans, compared with 1,636 in Canada and 458 in Britain, according to CoStar Realty Information. From the 1960s through the 2000s, developers built hundreds of malls per decade.

Meanwhile, everyone from Abercrombie to Macy’s to Gap having been closing stores, lessening the pressure on retailer to jump on leases when they see a location they like.

Urban Outfitters has about 200 namesake and Anthropologie locations in the U.S., as weak as 130 Free People shops. The retailer plans to open 15 new stores in North America this year, a barely half the pace of the last two years.

Last year, the retailer’s profit fell 3% to $218.1 million while sales rose 3% to $3.55 billion. Its shares were down 4% while those of Express were down 11%, the latest victims of fashion retail’s ongoing doldrums.