Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Urban Outfitters wants you to order some actual pizza along with your pizza slice pool toys.

The ultra-trendy retailer's move to gobble up a small Philadelphia pizza business on Monday puzzled followers of the hipster store chain. They questioned what gourmet pizza has to do with selling vinyl records and bohemian sundresses and why the company would stray from its comfort zone just as sales at established stores are starting to stabilize after a year of declines.

Investors Take a Bite Out Of Urban Outfitters
Source: Bloomberg
Intraday times are displayed in ET.

The announcement sent the stock down as much as 10 percent to a four-year low of $22.04 a share, as investors digested the news that Urban would rather invest in a completely different business model than plunge more cash into its existing retail businesses. 

But the move makes a ton of sense. Shopper traffic to mall-based stores such as Urban Outfitters is in free fall as more shoppers defect to the web. To keep afloat, brick-and-mortar stores must increasingly differentiate themselves by giving shoppers a reason to actually set foot in a physical chain.

A yummy slice of pizza isn't a bad way to go, especially considering the upswing in American restaurant spending, which in March overtook spending at grocery stores for the first time since the Commerce Department began collecting the data in 1992. 

What's On The Menu?
US Spending on Dining Out, Year-Over-Year Change
Source: Bureau of Economic Analysis

The restaurant business isn't uncharted territory for retailers. Department stores such as Neiman Marcus and Bloomingdale's paved the way decades ago with eateries that turned shopping trips into family events. Restaurants at stores like Tommy Bahama, Bass Pro Shops, and Cabela’s encourage hungry shoppers to linger longer. Whole Foods, which has been experimenting with its own restaurants, recently bought a stake in a fast-growing sandwich chain called Mendocino Farms.

And Urban Outfitters has already dipped its toe into food service through Terrain, a home-and-garden store with a garden cafe boasting an $18 artisanal cheese plate and a $26 duck-breast dish. It has also experimented with hosting hair salons and coffee bars in its stores. 

You might argue that Urban Outfitters could have sought out fresher fare than carb-heavy pizza, given a recent shift in consumer eating habits. And it's unlikely that sales at the half-dozen pizzerias will make a dent in earnings any time soon. 

Urban Outfitters Tries To Expand The Retail Pie
Its Namesake Stores Still Represent the Bulk of Its 2014 Revenue
Source: Bloomberg

Urban Outfitters shares are down roughly 36 percent so far this year. Investors want to hear more about the struggling chain's plan to turn itself around, rather than its long-term aspirations as a restaurateur, when it reports earnings later Monday. But its pizza deal is at least an appetizer. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net