Going from ragtag to riches

It had been a record week, and the vibe at Urban Outfitters headquarters was high. Adrenaline was palpable in executive offices, in design huddles, and on down to the models in skimpy threads pouting for a Free People Web shoot.

It was mid-March, and the retailer of insurgent chic had reported killer profits while other retailers watched shoppers weary of high gas prices go into hiding. You could almost hear towels snap a few days earlier as Wall Street analysts congratulated executives for putting up such good numbers.

Urban Outfitters was riding a recession-proof wave of profitability, charging into a quarter that would log more big profits in May and deliver a massive mid-April payday for founder and billionaire shareholder Richard Hayne.

Hayne, 60, chairman of the board, was subdued amid the frenzy in his warship-factory-turned-office in South Philadelphia. In a lumberjack shirt and jeans, he coolly explained how his countercultural baby had become a Wall Street darling four decades after he opened his first store near the University of Pennsylvania.

"There's only one thing that ever really does it," Hayne said, in his barely audible voice, "and that's pleasing you - the consumer."

A sexy standout in the staid Philadelphia business scene, Urban Outfitters is the envy of the retail world - a company on the make in a city on the make. In five years its stock has outperformed the industry overall while sales have grown from $548 million to $1.5 billion last year.

Urban is on a hiring binge as others are firing, expanding while others are pulling back, enjoying architectural praise for a new headquarters at the Navy Yard, chasing Internet youth while others grieve for the olden days and ways.

Hayne, one of Philadelphia's self-made tycoons, has found the retail equivalent of the Fountain of Youth. The baby boomer has turned Generations X and Y into slavish shoppers by selling them "an experience" made by peers.

Hayne's philosophy: Young people are great customers. If you want them to like what you're selling, hire people just like them and give them power over what you sell.

Hayne and his executives believe youthful talent, unfettered creativity and business discipline - elements often at odds in corporate culture - can transform the business into a $10 billion behemoth.

"The model a lot of companies use is a very pyramidal model which sort of designates that all creativity, all wisdom flows from the top," said Hayne, who built Urban from a ragtag University City storefront he opened 38 years ago. "We think that's the absolute wrong model."

Hayne surrounds himself with people who have passion, said retail analyst Brian Ford, who has known him since 1974 and worked for 15 years as a corporate accountant for Urban.

"They have very creative avant-garde thinkers," Ford said, "and allow them freedom."

They like to say at Urban that there is no human-resources department. Just a chief talent officer. And his name is Bill Cody.

"Talent's not an HR problem," said Cody, an e-commerce retail veteran brought in a year ago to hire the best and brightest. "It's an executive problem."

Cody's job is to find people for the company's four divisions: Urban Outfitters, Free People, Anthropologie, and, launched just this year, upscale garden store Terrain. Cody hired about 100 employees in 2007 and has openings for dozens more.

Ideally, the hires are something like Maggie Shuler, 35. The Pottstown native joined Anthropologie's buying team 10 years ago after working for a Los Angeles clothing company where the mantra was to "execute the singular vision of a single person." That was why she quit.

Today, Shuler is helping launch a shoe collection at Anthropologie stores. She resembles the chain's target customer: stylish, between 30 and 45, and hot for novel bedding, clothes, perfumed soaps, and other must-haves for women who have not yet traded down to mom jeans.

"There's an incredible trust in everyone to make their own decisions and to be able to kind of execute their own ideas and their own vision," Shuler said in a room surrounded by concept shoes she helped assemble.

Drexel University graduate Lindsey Chiccone, 27, orders edgy "housewares" like customized whiskey flasks - accoutrements that make a stroll through an Urban Outfitters store feel like a treasure hunt for snark.

Urban's accessories give its stores an ironic edge (a book of bare-chested celebrity-hunk photos from the '70s and '80s called God's Gift - can you say Rick Springfield?) or a dose of public-relations grief (gun Christmas-ornament controversy, 2006). Target customer: 18 to 30.

"What works so well with us is that it's actually a lot of initial control in the hands of buyers at the lower levels," said Chiccone, who weeds through tons of things before making big-buy recommendations to her manager.

Merrie Allison, 45, of Chestnut Hill, travels the globe and is a close assistant to Free People president Margaret "Meg" Hayne. But don't call her chief of staff.

"We don't believe in titles," said Hayne, who is married to the chairman.

As she spoke, designers - average age 24 - crafted handbag prototypes and accessories on giant tables, like art-school students.

"If somebody's really talented and understands the Free People aesthetic, we then reach a point where I give them increasing responsibilities," Hayne said.

Free People is a line of pricey bohemian-chic knits and accessories sold in elite department and specialty stores. Target customer: women 25 to 30. Just like employee Kathryn Shutt.

"We have a lot of say in what happens, which is really cool," said Shutt, 27.

The corporation taps into the zeitgeist of its youngish shoppers by designing stores with attitude and filling them with merchandise tailored to what executives refer to as "life stages."

Urban Outfitters says its stores target coeds who are "mating and dating" - "culturally sophisticated, self-expressive, and concerned with acceptance by their peer group." People who will spend money to look good. Feel cool. Land a date.

Anthropologie caters to "sophisticated and contemporary women" who are "nesting." Most are in committed relationships and still like to spend on frills.

In the Urban Outfitters Ardmore store recently: Crime-scene tape for $1.99. Green hand-grenade candles. Adhesive bandages bearing the image of Jesus next to Pocket Buddhas near the cashier. A sparkly, orange scarf tossed around a white hoodie and gray "peace" T-shirt.

"The way they've set it up, it takes a long time to look at everything," said Penn undergraduate Elise Conway, 21, who shops all three chains with an allowance from her parents.

"You've got to weave in and weave out," said Conway, a Main Line native whose father is an exporter. "It's a nice, wandering experience."

Clothes, books and kitsch are propped about the cavernous stores in clusters like a shabby-chic museum exhibit. Walking a straight line? No.

The result: Shoppers average 70 minutes in Anthropologie and 50 minutes in Urban, compared with 15 to 20 minutes at the Gap and Ann Taylor, said Erin Armendinger, managing director of the Wharton School's Baker Retailing Initiative.

In a fast-flickering Web world, Richard Hayne's company has found a way to make attention-deprived MTV midlifers and YouTube millennials do something anathema: slow down and linger.

The last few years have been good for Urban shareholders.

A $100 buy of Urban shares in January 2003 was worth $1,133 by January of this year, assuming dividends had been reinvested. A similar investment in Standard & Poor's 500 Apparel Retail Index was worth $166.11.

"We have grown at a compounded annual growth rate of 23 percent since the year we went public 15 years ago," said Glen Senk, 51, a 15-year veteran who ran Anthropologie before Hayne made him the first chief executive officer a year ago.

But things hit a rough patch in 2006. Comparable store sales, which measure activity at stores also open the prior year, tanked for four straight quarters at Urban Outfitters and Anthropologie, and profits fell during the fiscal year that ended January 2007.

Hayne launched a soul-searching exercise - "Urban Renewal" - to learn why.

If employees complained the system was broken, the system would be fixed.

"Why would we think that all of a sudden, collectively, these 50, 60 people who have been stars just all of a sudden collectively are not stars? That's stupid," Hayne explained.

The company had grown too fast, and balls were being dropped. One talented buyer would order baggy pants while another was loading up on loose shirts - a no-no.

"The customer would come into the store," Senk said, "and it would be hard to make an outfit."

Since then the company has boosted hiring, reorganized the ranks, and moved its headquarters into 282,000 square feet of restored brick buildings at the old Philadelphia Naval Shipyard, kissing its cramped Center City digs goodbye.

The buildings are an artist's dream - drenched in natural light from the same bountiful windows that gave shipbuilders light in the days of little electricity.

Each brand has its own building, employees bring dogs to work, and vending machines are banned. For breaks, workers head to a massive building that has a gourmet cafe, a fitness room, and a dining area whose windows frame an idled aircraft carrier afloat just outside.

"As a company, we think that nothing is more boring than last year's best seller," Senk said. "We would rather change regularly and be wrong on occasion than become boring and irrelevant."

A few weeks ago, the company reported a 45 percent increase in profits and a 25 percent jump in total sales for the quarter ending April 30.

The previous quarter, Urban profit increased 50 percent over a year earlier and sales rose 29 percent.

The company, with 257 stores in North America and Europe and 10,000 global employees, intends to open 45 stores this year even as other chains are canceling openings because of the bad economy.

Anthropologie has launched a wholesale designer line, following in the footsteps of Free People, which is one of the best-selling designer labels at Bloomingdale's, said Frank Doroff, vice chairman of ready-to-wear for the New York-based department-store chain.

"They have a cool factor," said Doroff, who is also now carrying Leifsdottir from Anthropologie. "They have an edge. And it's not found everywhere."

Urban is hesitant to open too many more of its marquee stores, which are designed and located to look and feel one-of-a-kind. The last thing Urban wants is to become as ubiquitous as the Gap.

So the company recently launched Terrain. Hayne dreamed up the garden store as a way to win back his original flower-child consumer: baby boomers who have traded skinny jeans and Volkswagen Bugs for feng-shui fountains and Land Rovers. The first Terrain opened in May at the old Styer's Nursery in Concordville.

Urban also is cashing in on its mostly young customers' love affair with shopping without leaving their home.

Catalog and online sales were up 34 percent last quarter - most of that growth from Internet transactions.

A few weeks ago, with Urban stock trading at around $32 a share, Hayne cashed in on the karma. He sold nearly $50 million of company stock, adding to a fortune that Forbes magazine said was worth $1.3 billion last year.

An avid gardener with impeccable crocuses on display in his office, Hayne hardly cuts the figure of a homegrown-hip tycoon. Then again, he and his company are the envy of the retail universe precisely because they do things their own way.

The soil is fertile. And they are working it. Still.

For a photo slide show on Urban Outfitters, go to http://go.philly.com/UrbanOutfittersEndText