Dive Brief:

• Urban Outfitters Inc. in February began testing a paid membership program that offers free shipping and returns as well as other benefits from its store brands Urban Outfitters, Anthropologie and Free People. The lifestyle retailer plans to run the pilot UP membership program for six to 12 months, depending on how many customers sign up and what they learn from the test, Richard Hayne, chairman and CEO of Urban Outfitters, said in a quarterly earnings call.
• "UP is designed to drive increased frequency, capture a greater share of wallet, improve retention, provide opportunities for greater cross-brand exposure and selling and attract new customers," Hayne said. "The ability to access benefits at all Urban brands, for the price of one membership fee, offers a key differentiator for our program." The company began the test in Atlanta and Dallas at price points of $48 and $98.
• Urban Outfitters' test of a paid membership program comes as the retailer seeks ways to reignite sales growth after the pandemic led to temporary store closures and lower foot traffic. Q4 sales fell 7% from a year earlier to $1.09 billion, though its number of digital customers grew by 50%, Hayne said in the call.

Dive Insight:

Urban Outfitters is testing whether it can boost loyalty among consumers with a paid membership to UP, which is separate from its UO Rewards program. The retailer aims to drive store traffic and support its fast-growing digital business by offering a broader range of benefits including free shipping and returns, a 15% discount on purchases, a $10 coupon every month to clothing rental service Nuuly and access to promotions and events among its store brands.

A paid membership program could help Urban Outfitters meet consumers growing demands for more convenient shopping experiences following a chaotic year that upended traditional shopping habits. It could also give the retailer a way to gather data about its customers to help it fine-tune its marketing at a time when third-party data is becoming more scarce.

Members of paid membership programs are 60% more likely to spend on a brand after subscribing, compared with only 30% for free loyalty programs, consulting firm McKinsey & Company found in a survey on loyalty programs last year. Paid loyalty programs drive more frequent purchases, bigger basket size and greater brand affinity than free loyalty programs do. That makes paying members several times more valuable than nonpaying members, even when revenue from membership fees is counted separately, McKinsey found.

One challenge Urban Outfitters could face with the new program is explaining the difference between UP and its UO Rewards program as customers weigh whether to commit to a membership fee.

"The goal here is really to test and learn and to understand the degree to which customers are intrigued by these offerings and then also be able to measure over time how customers respond and if their behavior changes based on becoming a member," Hayne said during the call. "We just launched it a few weeks ago, very early but encouraged by the early feedback so far and excited about the program."

Urban Outfitters' test program is somewhat unusual for a retailer that mostly sells apparel, though paid membership programs have been a staple of warehouse chains like Costco and BJ's Wholesale since their inception. Amazon started its Amazon Prime membership program in 2005 to offer free two-day shipping on most products, and has since expanded the benefits to include access to its streaming video service and a basic music streaming plan. With e-commerce becoming a bigger priority for retailers during the pandemic, discount chain Walmart in September introduced its Walmart+ program to offer various levels of free delivery and discounts.

Urban Outfitters will provide updates on the test of its UP membership in future earnings calls, management said.