urban sprawl

It's hip. It's hot. It's—well, whatever the current terminology is among the 18-25 set for trendy items aimed at the young, urbane and upscale. Urban Outfitters offers not only the latest apparel, shoes and accessories for the generation just coming into its own, but also an ever-changing mix of wall hangings, chairs, rugs, and more for outfitting that first apartment.

"We have such an eclectic mix of products," observes Ken McKinney, director of distribution and a 16-year veteran of the company. "We ship everything from jewelry to furniture to apparel."

The 35-year-old company opened its first stores close to where its intended customers were clustered—that is, near Ivy League schools. The original store is located near the University of Pennsylvania, the second in Harvard Square, a Frisbee toss from Harvard Yard.

Today, the Urban Outfitters name has spread nationwide to 90 stores. Most are in the Eastern United States, although the chain is growing rapidly in the West. It also has three stores in Canada, six in the United Kingdom, and one in Ireland. In addition, the company operates 79 Anthropologie stores targeted to women 30-45. And its newest chain, Free People, which targets 25to 30-year-old women, includes six stores. On top of that, the company markets directly to consumers via catalog and Web sales, and has a wholesale channel that sells its Free People brand of clothing to department stores and specialty shops.

The mix of brands and channels has proved a success, with the company growing 20 percent annually. At any given time, McKinney says, his distribution facilities are packing and holding merchandise for six to eight new stores preparing to open. "That growth alone is a significant challenge," he says. "We need to make sure we stay ahead of the curve with the logistics for our stores. It is why we are looking at initiatives such as doing more cross-docking and building a new West Coast facility."

Urbane among the Amish
The company's distribution network currently consists of three facilities. The oldest in the network, opened in 1996, is a 192,000-square-foot facility located in Gap, Pa., in the heart of Amish country. It is not uncommon to see tractor-trailers loaded with gear for the clothier's urbane customers sharing roads with horse-drawn buggies.

A second is operated for Urban Outfitters by a third-party service company in Reno, Nev. Both of those facilities feed the company's stores. The third DC, in Trenton, S.C., fulfills catalog and Internet orders. Wholesale shipments of Free People apparel to specialty retailers, now shipped from the Pennsylvania DC, will shift soon to South Carolina.

Since many of the stores are located in the East, about two-thirds of all products pass through the Gap facility, which has 121 employees. Key to handling that much volume is the DC's large put-tolight area, whose equipment was supplied by AL Systems. Some 90 percent of arriving goods bypass storage and are assigned to stores immediately upon receipt. The system consists of 10 packing lanes, each with 110 put locations directed by lights. Stores are typically assigned to the same slots within the area, but can easily be reassigned as needed. McKinney says the put-to-light system has doubled packing productivity at the DC.

The Reno facility provides store fulfillment for Western states. Employees there use a radio-frequency (RF) put system for gathering orders. RF handheld devices direct workers to sort items into 500 put locations in the system.

As a result of its growth in the West, the company plans to switch from a third-party operation to a company facility in the near future. McKinney and his staff recently completed a study to determine the best location for their own Western DC. After analyzing store locations, suppliers and other economic and labor factors, they settled on the perfect spot: Reno. McKinney says that the search is under way for a suitable facility of about 250,000 square feet that will be ready for occupancy by the end of the year. He intends to install a put-to-light system similar to the one in Gap, as well as conveyors and print-and-apply systems that will eventually allow as many as half of all receipts to be cross-docked.

The third facility in the network, the one in Trenton, S.C., represents a recent acquisition. Urban Outfitters moved into this 468,000-square-foot facility only last summer after another clothing distributor gave up its lease. The DC currently employs 122 workers, along with 85 employees who staff a call center also located in the facility. Before being moved here, catalog fulfillment was handled from Gap, and before that, it was outsourced (until the channel grew to the point where Urban Outfitters wanted better control).

"We got a real wake-up call when we brought direct-to-consumer in house in 1999," recalls McKinney. "Direct-to-consumer is a different animal altogether."

Small shipments, large volume
The Trenton facility is well suited to the unique handling requirements of the catalog and Internet trade, which typically means large volumes of small orders. It's that capability that led to the decision to shift the Free People wholesale business to Trenton, as the typical specialty shop order consists of fewer than a dozen units of various SKUs.

"The facility is designed for this kind of 'each' picking," explains McKinney. Order-picker trucks batch pick items and bring them to a tilt tray sorter, the heart of the operation. Some 703 trays ride the circular track, dropping products into 1,016 chutes arrayed alongside the FKI Logistex sorter. At peak times, the facility can process up to 20,000 orders per day, although typical volumes run closer to 7,000.

Handling and transporting furniture poses another challenge for the distribution network. The buyers for Urban Outfitters are constantly on the lookout for unusual items to stock the stores—chairs, sofas, art prints. These items, which may include antiques or eclectic items from overseas, are often used as store displays until they're sold. Rugs and smaller pieces are stored in Gap, while larger items—like sofas, dressers and tables—are held in a nearby warehouse. Once the wholesale business moves to South Carolina, the large items will be brought into the freed-up space in the Gap building.

"Our greatest challenge in transportation is the furniture," says Terese Tubbs, transportation logistics manager. "There are not a lot of players in the field that will do home delivery of furniture. We buy ... unique items from Europe and other places.We first have to get them to the DC, then to the store where they are displayed, and then finally once bought, to the customer's home." For home deliveries, Tubbs typically contracts with local furniture movers who have the expertise necessary to handle these large, often one-of-a-kind items.

Ins and outs of transportation
Today, McKinney is focusing increasing attention on the transportation piece of the operation. An important consideration in selecting sites for the three DCs was their proximity to major ports, as most of the company's products are imported. The Reno facility takes in the bulk of the items entering from the West Coast, including imports, most of which now come through the Port of Oakland. The Pennsylvania facility handles most East Coast receipts, which enter through the New York and New Jersey ports. Each facility consolidates goods bound for the other DC. Normally, two truckloads move between the Nevada and Pennsylvania facilities each day, exchanging merchandise for distribution to stores in their sections of the country.

Outbound shipping, especially in light of rising transportation costs, also has McKinney's attention. "It is especially challenging making the right decisions for our store channel," he says. "Freight costs [account for] more than half of our total operating expenses."

The company owns two trucks, left over from the days when it operated a handful of city-based stores. These trucks are still used to provide milk-run deliveries to stores in Philadelphia. All other transportation is outsourced. Over the past few years, Urban Outfitters has shifted from shipping merchandise to stores via less-than-truckload (LTL) haulers to a pool distribution model, shipping truckloads to regional locations where the shipments are deconsolidated for local delivery. As a result of the shift, transportation costs have dropped anywhere from 15 to 45 percent, depending on location.

One way McKinney is looking to control costs is by limiting the number of deliveries to certain stores. Typically, stores receive deliveries each day, Monday through Thursday. A delivery typically consists of 50 to 60 cartons. Reducing the number of deliveries to stores with lower sales volumes would reduce transportation costs. But since most stores maximize selling space, there is very little room for reserve storage. Virtually everything that arrives goes directly onto the store shelves (the average store occupies about 10,000 to 12,000 square feet, though some larger outlets measure more than 17,000 square feet). Fewer, larger shipments could create storage problems at the stores.

Sometime down the road, the company may shift some of its freight to intermodal service. But McKinney is not convinced that the savings would justify the sacrifices in transit speeds. "We are looking at intermodal, but it would add days," he says. "With line-hauling, we can get it there in four days. Our product is fashion, which has to be fresh.We do not want to lose time to market."

On the radar
Urban Outfitters currently has several initiatives under way aimed at enhancing its distribution and fulfillment performance. For example, the company is now in the process of implementing a new warehouse management system (WMS). The WMS, from Manhattan Associates, went live in October in the Trenton DC and will be rolled out to the Gap and Reno facilities later this year or early next year. The system will tie into the existing picking systems. McKinney expects the system will give Urban Outfitters a better handle on productivity and enhance inventory accuracy.

"The WMS will allow us to receive ASNs [advance shipment notices] from our vendors and will give us better visibility throughout the supply chain," McKinney adds. "We wanted to improve the visibility and to notify our stores when product leaves our buildings. The WMS will also help us with performance management and trading partner (vendor) management."

The WMS implementation also represents an important step toward achieving the company's goal of increasing its cross-docking. "We now cross-dock about 8 percent of our receipts, but we want to get that north of 30 percent," says McKinney. "[The WMS] will enable us to make decisions on exactly what we should cross-dock."

Increasing the amount of cross-docking performed at the Gap DC will require upgrades to the material handling systems. Once the new Reno building is up and running, McKinney plans to concentrate efforts on replacing conveyors and other equipment at Gap to facilitate cross-docking. Gap currently features a U-shaped design flow, with both receiving and shipping doors on the same side of the building. McKinney would like to cut new doors in the opposite side of the building to create a flow-through design that is better suited to cross-docking.

He would also like to do more to optimize picking and slotting in the facilities, but recognizes the limitations inherent in SKUs that have a life span of only eight to 12 weeks. "If we had more basics, we could do more optimization," says McKinney, "but by the time we get enough information on an SKU, it is already gone."

Over there
Despite its booming growth in the United States, Urban Outfitters is also looking to expand in the European market. The chain currently has seven stores there.

Right now, a third-party service provider in London handles distribution. That may change. McKinney says the company might look into establishing its own facility as the chain grows on the continent.

In the current operation, some merchandise for the European market ships directly from suppliers to London, while other goods first pass through the Gap facility, where they are gathered either into ocean or aircargo containers, depending on how quickly they need to get to their destination overseas.

On tap for this year is the introduction of direct-to-consumer fulfillment to European customers. These orders will be fulfilled from the London DC.

Whatever direction Urban Outfitters takes in the future, McKinney and his team are prepared to handle the supply chain challenges. "Philosophically, we view ourselves as a true service organization to make things easy for our stores," he says. "We will make the sacrifices here at the distribution centers, fall on our swords if necessary, to make it easier at the store level."