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A scary reality about Urban Outfitters' customers: they're broke

Urban Outfitters Herald Square 2
Business Insider/Hayley Peterson

Urban Outfitters is doubling down efforts to offer the coolest clothing after quarters of sales and profit declines.

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But that might not be enough to save the retailer. 

The trendy brand is currently too expensive for the young customers its trying to recruit, retail consultant Judith Russell writes on industry website The Robin Report. 

This has led to a showrooming problem of sorts.

Showrooming is when customers check out an item in stores and then buy it for cheaper somewhere else, usually online. 

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"A 23-year-old shopping in the Fifth Avenue store admitted to me that she loves to check out Urban for style ideas and then buy similar products at H&M or Forever 21, because Urban’s prices are a little out of her reach," Russell writes

The good news about this trend is that Urban Outfitters is still seen as a style influencer. 

But it also reveals a bigger problem: Young shoppers don't see a compelling reason to pay up for Urban Outfitters' clothing. 

This generation of 18- to 28-year-olds are also more cash-strapped than their parents. 

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"Many of them feel like they’ve won the lottery if they find jobs in their fields after college, despite earning starting salaries that have barely budged from what recent college grads earned a decade ago," Russell writes. "Meeting basic living expenses is a challenge for many of them, so their ability to spend on premium-priced fashion is limited."

Young people are also increasingly spending on food and electronics. 

H&M and Forever 21's clothes are generally sold for about half the price of Urban Outfitters, despite the fact that the retailers use the same inexpensive fabrics. 

"Urban might need to get over its need to be premium-priced, and instead figure out how to price in a way that doesn’t drive their customers to the competition while maintaining profitability," Russell writes. 

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In a recent earnings conference call, Urban Outfitters told investors that it was working to sell clothing at a wider variety of price points.

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