Dive Brief:

• Urban Outfitters shareholder CtW Investment Group, a union-affiliated investment firm that, through active ownership, works to protect investments against conflicts of interest and to strengthen the accountability of company leadership, in a letter published Monday urged against the re-election of long-serving Urban Outitters board members Robert H. Strouse and Harry S. Cherken Jr.

• Problems with the board and company leadership in general, according to CtW, include: low independence and long tenure, poor responsiveness to outside shareholders, extreme insularity and a broken nomination process. The firm slammed the board as “largely composed of individuals with a law and finance background, rather than individuals with outside retail experience, particularly with global supply chains.”

• In an email to Retail Dive Tuesday, the company defended itself against the criticism, outlining steps it’s taken to diversify its board and make it more independent, pushing back against the notion that its board composition was responsible for any stock declines. That “is not supported by the facts,” the company said.

Dive Insight:

Just last week, Urban Outfitters announced an $8 million investment in store leadership (to be incurred over the first and second quarters of fiscal 2018, estimating that future annualized savings would ultimately total some $25 million). The move is part of a strategy to figure out its optimal brick-and-mortar and e-commerce mix. But CtW’s letter indicates that such a project is coming from leadership unprepared to institute needed changes.

Despite CtW's criticism of the company’s performance, it's faring quite well in the space, considering many rival apparel retailers are turning to bankruptcy. Urban Outfitters Inc., which includes its namesake brand as well as apparel and home goods brands Anthropologie, Bhldn, Free People, Terrain and a food and beverage division, in March reported that fourth quarter net sales rose 2% over the year-ago period to a record $1.03 billion, driven by $19 million in sales from new Vetri Family Restaurants locations. Overall same-store sales were flat in the quarter.

While acknowledging the declines, Urban Outfitters said Tuesday that the company's board is to thank for its relatively strong position in apparel retail. “As shareholders who follow the retail industry know well, the entire sector is currently facing structural headwinds; however, due to the strong leadership of our Board and the diligent efforts of our employees, we believe that [the company] is better positioned to deal with these headwinds than many specialty retail competitors.”

CtW alleged that Cherken in particular has conflicts of interest that make him a poor choice for his place on the board’s Nominating and Governance Committee, saying the board in general “bears the hallmarks of a highly insular and long tenured board,” suggesting that has led to “years of stagnant revenue growth and a slumping stock price.”

CtW also criticized the roles of co-founders Scott Belair and Richard Hayne, as well as their family members; Both have sat on the board for 41 years, with Hayne currently serving as both CEO and chairman.

In response to a call for female directors in 2013, Hayne’s wife, Margaret Hayne, rather than an independent female director, was appointed. Margaret Hayne has also worked at the company since 1982, currently as Chief Creative Officer of Urban Outfitters, Inc. and CEO of its Free People brand, CtW noted. 

“The company’s history of rewarding family members and affiliates of board members suggests that Urban continues to be run as a family business, rather than a $2.6 billion dollar publicly traded company with a large majority of outside investors,” the letter reads. “This dearth of diverse board members is especially concerning when the company’s namesake brand is targeted at a broad range of college age consumers that are ‘culturally sophisticated,’ and the core customer base for both Free People and Anthropologie is women.”

In its response Tuesday, the company cautioned against radical changes to its leadership. “Three of the last four members added to our board are independent, and URBN received awards in 2015 and 2016 from 2020 Women on Boards for its commitment to board diversity,” the company said. “20% or more of our board seats held by women. As several of our larger, long-term shareholders have pointed out during our routine shareholder engagement efforts, changing the composition of a Board is not something that can or should take place overnight."