Facing Competition at Home, Express Expands Into South Africa

Express is making a bold international expansion move--but will it lead to profits?

Jun 5, 2014 at 12:43PM

Express (NYSE:EXPR), the fashionable retailer of men's and women's clothing and accessories, recently announced its continued expansion abroad. This time, the company plans to open its first store in South Africa. To American consumers who are used to finding Express stores at their local malls, the move seems to be confusing. However, for the company's management and its investors, the move makes perfect sense and may be just what the company needs.

Details of the move
Express formally announced its move into South Africa, which it hinted at in its latest 10-K, on May 30, 2014. Surprisingly, the first South African locations will not be stand-alone stores as American shoppers are used to; instead, they will be store-within-a-store concepts found in South African retailer Edgars' department stores. Doing it this way allows shoppers in the country to be introduced to the brand.

The company will carry out the next step in its South African expansion in 2015 when Express will begin opening stand-alone locations. The openings of franchised store-within-a-store locations allow Express to expand without the large expenses associated with opening actual stand-alone stores -- which is always good for shareholders. However, this does beg the question: why does the company see the need to expand abroad instead of expanding more within the United States?

North America is great
Unfortunately for Express and its shareholders, the move may be the easiest way to expand the company's revenue. In fact, the company has had such a difficult time as of late that it should come as no surprise that it now has 11 stores in the Middle East and 15 stores in Latin America; this has come in response to the stiff competition the company has been facing domestically, particularly from competitors like The Buckle (NYSE:BKE) and Urban Outfitters (NASDAQ:URBN).

Comparable-store sales

Company Name

2013

2012

2011

Express

-1%

-3%

3%

The Buckle

0%

2.1%

8.4%

Urban Outfitters

6.9%

-0.6%

-3.8%



It is clear that fashionable retail has become extremely competitive, particularly in the last two years, and that Express is wise to take the path of least resistance by expanding outside the United States. The company has concluded that in order for it to thrive and grow in the 21st century, it will need to become a truly global brand.

Foolish takeaway
While it may appear random, Express's journey into South Africa by first opening franchised locations and then stand-alone locations next year is just the next step in the company's global expansion. As detailed in its latest annual report, a major pillar of the company's current growth initiatives is expanding the Express brand to numerous countries throughout the world. Investors would be wise to focus on these growth initiatives more and more as they evaluate the company's performance in the years ahead. 

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends The Buckle and Urban Outfitters. The Motley Fool owns shares of The Buckle. 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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