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With Vetri purchase, Urban bets on a demographic trend

Urban Outfitters Inc. is betting that the quickest way to its young customers' wallets is through their stomachs, with the acquisition of a celebrated upscale pizzeria that it sees as ripe for expansion.

Urban Outfitters Inc. is betting that the quickest way to its young customers' wallets is through their stomachs, with the acquisition of a celebrated upscale pizzeria that it sees as ripe for expansion.

The Philadelphia-based retailer's announcement Monday that it is acquiring Pizzeria Vetri's parent company - the Vetri Family group - comes as the battered apparel and lifestyle company seeks to win back youthful shoppers, who are spending more of their money on restaurant meals.

"In recent years, casual dining has been one of the fastest-growing categories," Urban Outfitters CEO Richard Hayne said Monday in a conference call with analysts after the acquisition was announced. "We believe there is tremendous opportunity to expand the Pizzeria Vetri concept."

While Urban Outfitters' brands also include the more broadly appealing Anthropologie and Free People women's clothing chains, its dominant namesake stores largely appeal to teen shoppers with edgy fashions and quirky knickknacks.

But such shoppers are dedicating more of their money to dining out. Food purchases account for about 22 percent of all teen spending, up from about 14 percent in fall 2009, according to research by investment bank Piper Jaffray. During the same period, spending on clothes fell from about 23 percent to 20 percent.

Urban's corporate fortunes have followed suit, with shares dropping about 12 percent from an average of $32.69 during fall 2009 to about $28.81 so far this season. The stock closed at $22.67 Monday, down $1.82, or 7.43 percent, from the morning's opening.

The retailer has responded to its lagging performance by expanding its range of products and services, including pilot restaurants at some locations that seem to be drawing more customers, securities brokerage Stifel said in a research note after the acquisition was announced.

"Adding Pizzeria Vetri to select stores could serve as a traffic driver," Stifel said in the note, which also cautioned that integrating the new business will be a significant challenge.

In Monday's conference call, Hayne made no mention of restaurateur Marc Vetri's other restaurants, which include the Osteria, Alla Spina, Amis, and Lo Spiedo brands.

He said the expansion of Pizzeria Vetri - which has been lauded by Food & Wine magazine, GQ, and other publications - would not necessarily pair the restaurant with Urban Outfitters' brands.

There are two Pizzeria Vetri branches in Philadelphia, with a third slated to open soon in Austin, Texas.

The acquisition could be especially effective in winning back customers who have defected to e-commerce outlets, said Steven Gartner, executive vice president with CBRE-Global High Street Retail Services in Philadelphia.

"Restaurants are one of the few experiences that you can't get on the Internet," Gartner said. "It seems like a mash-up that's made for this new world we find ourselves in."

The acquisition follows Urban Outfitters' 2008 purchase of J. Franklin Styer Nurseries in Glen Mills, which became Urban's Terrain home and garden stores and website.

The company has been cooperating with Vetri on a proposed mixed-use project in Devon that would incorporate a pizzeria and another of the chef's restaurants, a Terrain store, and a large-format Anthropologie shop, as well as luxury homes.

Bringing Vetri's restaurants under its corporate umbrella allows Urban to replicate this kind of retail-restaurant combo on its own terms, said Douglas Green, a principal at Philadelphia-based real estate brokerage MSC Retail.

Though restaurants are commonly used in malls and some department stores to attract shoppers, it's rare - if not unprecedented - for a retailer to pursue such a strategy by snapping up a food business, Green said.

"It comes down to control," he said. "Being able to control the vibe, the message, the hours of operation. It allows them to kind of put themselves in the driver's seat and not be at the mercy of other operators."