Urban Outfitters (URBN) CEO Richard Hayne does not have comforting words for the retail industry.

“Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s,” Hayne said on the company’s earnings conference call on Tuesday.

“Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst. We are seeing the results, doors shuttering and rents retreating. This trend will continue for the foreseeable future, and may even accelerate.” (Emphasis added.)

Last week, we wrote that this year would be a “tipping point” for the retail industry as analysts at S&P said bankruptcies seem likely to increase among apparel retailers in 2017.

In its fiscal fourth quarter, Urban Outfitters reported earnings per share of $0.55 on revenue of $1.03 billion. Comparable sales for its overall retail segment — including Urban Outfitters, Free People, Anthropologie, and online sales — were flat.

Following these results, shares of the company were down about 3% on Wednesday.

Online competition

In addition to an overbuilt physical footprint for the retail industry, Hayne that of course the internet — read: Amazon (AMZN) — is the locus for much of the stress the industry is feeling.

“Without a doubt, retailers in general and [Urban Outfitters] specifically, face a number of challenges, the most obvious of which is the disruption created by the digital revolution,” Hayne said.

“Once again, sales from the [direct-to-consumer] channel grew much faster than the store channel. DTC session traffic is up strongly, while store traffic is weak. The shift in consumer preference is both obvious and growing… I predict within the next three years, total URBN retail segment sales by channel will be almost equal. This would be fine, if the increase in DTC sales were wholly additive, but they’re not. Digital shopping is partially replacing store shopping, and thus is negatively impacting store traffic and store-generated sales. Flat to negative store comps are causing occupancy deleverage, and eroding four-wall margins.” (Emphasis added.)

Now, there’s a fair bit of industry-speak in here, but what Hayne is in essence saying is that online sales of Urban Outfitters merchandise as opposed to in-store sales are not a simple one-to-one replacement.

Stores have not only employees but leases and expected profit per square foot. The entire retail footprint Hayne referenced above as having created a bubble was built in expectations of certain types of locations retaining certain profitability per square foot. On this basis operations are expanded, leases are entered into, new malls are built, and so on.

When this begins to fall apart, so too does the industry.

In its report on the retail industry, S&P noted that, “ongoing competition from large ticket items such as autos and other spending, such as health care, technology and ‘experiences’, are challenges since wage growth has been fairly sluggish.”

So it isn’t that people aren’t spending money, but that they are spending money in new ways. And ways that have hit the apparel industry hardest.

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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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