Forget China: Michael Kors' Real Growth Market Is Europe

Michael Kors is giving age-old European fashion brands like Louis Vuitton a run for their money.

Apr 16, 2014 at 11:43AM

More and more often, European consumers are trading in their European luxury brands for that of American fashion designer Michael Kors Holdings Ltd. (NYSE:KORS). We can already see this trend take flight as Michael Kors' sales in Europe climbed higher in its fourth quarter of fiscal 2013. Not only did Michael Kors threaten the sales of handbag designer Coach (NYSE:COH) in the United States, it is now challenging French luxury brand LVMH Moet Hennessy Louis Vuitton (NASDAQOTH:LVMUY) in Europe.

While some Europeans are staying loyal to their European brands, many are beginning to prefer Michael Kors on account of the brand's affordable prices and stylish, high-end fashion sense, which has remained on-target with seasonal trends. Coach and Louis Vuitton need to watch out as Michael Kors attempts to dominate the fashion industry in Europe.

The new kid on the block
In just over two years since its IPO, Michael Kors has become a darling on Wall Street as its stock continues to climb, and it has risen by more than 500%. Despite its small size, Michael Kors' sales have grown by leaps and bounds over the past three years in comparison with those of competitors Coach and Louis Vuitton. Given that Michael Kors is essentially a new, upstart fashion brand in comparison with industry veterans Coach and Louis Vuitton, Michael Kors has done a phenomenal job at gaining a fan base and designing items that are in-sync with consumers' tastes. It has also been successful at marketing its accessories, footwear, and apparel along with expanding both its domestic and international operations extremely quickly. By glancing at the table below, you can see how Michael Kors' sales have increased three to five times faster than those of Coach and Louis Vuitton in recent years.

Company Name

FY 2011

Revenue

2011

YoY Growth

FY 2012

Revenune

2012

YoY Growth

FY 2013

Revenue

2013

YoY Growth

Michael Kors

$1.3 Bil.

61.9%

$2.18 Bil.

67.7%

$3.21 Bil. (Est.)

47.25% (Est.)

Coach

$4.16 Bil.

15.2%

$4.76 Bil.

14.4%

$5.08 Bil.

6.72%

Louis Vuitton

$23.66 Bil.

16.4%

$28.1 Bil.

18.8%

$29.15 Bil.

3.74%



Run for their money on their home turf
Not only has Michael Kors been growing a great deal over recent years and doing so at a fast pace, it is now taking sales away from European luxury, lifestyle brands Louis Vuitton and Kering SA (NASDAQOTH:PPRUY), which has the Gucci brand, on their home turf. This is a big deal since the company Michael Kors is only 33 years old, while Louis Vuitton has been around since 1854, and Kering SA since 1963.

While these classic, French luxury brands are still cherished by many Europeans and seen as status symbols, they are also more expensive than and not as trendy as Michael Kors' fashion collections. What's even more disconcerting for brands like Louis Vuitton and Kering SA, which rely heavily on European sales, is that sales in their industry are growing much slower than they have in past years. For instance, according to Bain & Co, "The European luxury-goods industry, meanwhile, grew just 2 percent last year, slowing from a 5 percent rate in 2012." However, Europe still holds the top spot in marketing and selling luxury goods as this market comprised 34% of the industry's sales, which were around $300 billion in fiscal 2012.

Just like Americans, Europeans are changing up their styles by mixing and matching different brands and wearing both high-end and lower-end brands to achieve stylish new looks. Many Europeans like Michael Kors' contemporary fashions and the fact that they can spend less on an accessory piece or handbag from Michael Kors than they would for an item at Coach, Louis Vuitton, and Kering SA.

In addition, while Michael Kors continues to open new stores throughout Europe its competitors are opening fewer stores and raising their prices, which has helped increase sales at Michael Kors. In fact, European sales for Michael Kors in the fourth quarter of fiscal 2013 alone increased by 143.5% from the year-ago period. As a result Europe provided 13.83% of its total sales for the quarter. In addition, European sales for the first nine months of fiscal 2013 increased 127.5% to $335.8 million from the same period in fiscal 2012. European sales are likely to continue to rise for Michael Kors as more and more Europeans switch over to wearing his collections. 

Foolish takeaway
Michael Kors' gain in European luxury goods sales provides further proof that not only is Michael Kors here to stay but that it is just getting started. Foolish investors would be wise to do more research on Michael Kors and decide whether the company would fit well into their portfolios. Michael Kors' size should not be underestimated by the competition. Michael Kors is clearly a force to be reckoned with and it is well on its way toward global recognition on par with the age-old fashion brands. 

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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