Strategy Urban Outfitters is in the perfect position to capitalize on a fundamental shift in American fashion

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High-waisted jeans are back in, and Urban Outfitters has plenty to choose from.

Urban Outfitters' CEO says it's ahead of the denim curve. play

Urban Outfitters' CEO says it's ahead of the denim curve.

(Facebook.com/urbanoutfitters)
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  • Urban Outfitters CEO Richard Hayne said in a recent call with investors that fashion is now "fashionable again."
  • The company reported strong fourth-quarter results, driven by a demand for new styles in bottoms.
  • Hayne said that the "fashion rut" of skinny jeans and yoga pants is over. Some analysts have backed this up and said that athleisure, the dominant trend in apparel for the past decade, is fading out of popularity.

Fashion is undergoing a major shift. Athleisure may finally be on the way out after years of dominating the apparel business, and it's being replaced by more fashionable denim wear.

"Fashion, well, it's fashionable again," Urban Outfitters CEO Richard Hayne said in a call with investors in March, explaining that strong growth in the quarter was driven by demand for new styles in its "bottoms" business. Same-store sales were up 4% across all of its brands, including Urban Outfitters, Anthropologie, and Free People, during the quarter.

"Demand for new fashion has surged," he said, adding that apparel has been stuck in a "fashion rut" defined by skinny jeans and yoga pants for the past few years.

Urban Outfitters' high-waisted denim wear. play

Urban Outfitters' high-waisted denim wear.

(Urban Outfitters)

Athleisure has been a dominant trend. Between 2011 and 2016, the market for athletic wear grew to be 30% of the total clothing and footwear industry, increasing an impressive 7% a year compared to the 1% growth of the apparel sector in general, according to Wells Fargo analysts. The trend started with athletic brands such as Lululemon, Under Armour, and Nike, but eventually, even more traditional clothing stores such as Gap, J. Crew, and Forever 21 followed suit in the hope of boosting their own sales.

But some analysts now say that it's hit its peak, partly because the market is overcrowded with options.

In 2017, growth in this category showed some signs of slowing. US activewear sales totaled $48 billion last year, which was a more modest 2% rise from 2016 compared to previous years, according to The NPD Group.

Meanwhile, new styles of denim, such as high-waisted pants, are captivating the hearts of American shoppers.

"The last time we had a change, I think, was around 2006-2007," Hayne said in the earnings call.

A resurgence in '90s styles — which may well have kicked off in vintage stores as trendy shoppers showed that they were prepared to spend hundreds of dollars on a pair of vintage Levi's — is taking off in mainstream fashion. Levi's has already latched on to this and created a new collection of limited-edition jeans from the '60s, '70s, and '80s, known as Levi's Authorized Vintage, which are sold for $300 a pair.

"We were sitting on an aged icon," James "JC" Curleigh, president of Levi's, told The Wall Street Journal in 2017.

The company reported an 8% sales increase in 2017, which was the highest growth rate in a decade.

The same is true of Calvin Klein, which has relaunched its archive collection to capitalize on the vintage trend.

In its most recent earnings, reported at the end of March, Calvin Klein and Tommy Hilfiger parent company PVH said that jeans showed "incredible improvement" in 2017. In particular, Calvin Klein jeans showed "tremendous strength and outsized growth above our average order book growth," CEO Manny Chirico said in a call with investors.

But Urban Outfitters' CEO says the company is ahead of the curve with its wide-legged, high-waisted pants, and he believes it's well-positioned to benefit from this trend for several years.

"Most of the benefit to us, since we consider ourselves a fashion leader, accrues in the first half of that period before there is a widespread adoption and lots of folks copy," Hayne said.

He added: "And so, I would expect it to benefit us for anywhere from three to, six or seven years."