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Global Expansion Key to Michael Kors Growth Plans

While many American brands are merely dipping their toes into the murky waters of international markets, the global expansion plan for the Michael Kors “jet set luxury brand” seems to be on rocket fuel.

Last week, during the third-quarter earnings conference call with analysts, CEO John Idol shared details about the company’s long-term growth strategy, including how and where it plans to grow both its brick-and-mortar and e-commerce retail presence in key locations throughout the world.

As of the end of December, according to Idol, the company operated 509 owned retail stores, but sees long-term potential for a total of 700 owned stores worldwide. In addition, licensing partners operated another 194 Michael Kors stores around the world, bringing the brand’s overall presence to 703 free-standing locations worldwide. In North America, the company operated 337 stores at the end of December, and remains on track to open approximately 50 new stores in the region during the current fiscal year.

Management continues to believe there is opportunity for 400 locations in North America, not including potential men’s locations. The SoHo flagship that opened in New York City on January 29 is the largest of the brand’s stores to date, spanning three retail floors and approximately 21,000 square feet. It offers the largest assortment globally of women’s ready-to-wear and shoes and a complete offering of the men’s collection. The company plans to apply the insights gained from this store for future expanded locations and for the men’s retail business.

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During the quarter, Kors converted an additional 60 wholesale doors into shop-in-shops, bringing the total number of department store doors converted in the current fiscal year to 700, and ending the quarter with approximately 2,030 worldwide accessories, footwear, womenswear and menswear shops within stores.

Kors opened 40 new watch and jewelry shop-in-shops during the quarter, ending with a total of 230 shops. The company continues to see opportunity for a total of 500 watch and jewelry shops worldwide, both with wholesale partners and as owned retail stores.

During 2014, the company discontinued the outsourcing of its e-commerce business to Neiman-Marcus and brought it in-house, resulting in strong year-over-year increases in e-commerce traffic and conversion during the quarter. The new site provides customers with a larger product selection and a better shopping experience. It also taps into the company’s enhanced omnichannel capabilities: product ordered on the site can be returned to Michael Kors retail stores. Management believes that e-commerce could ultimately represent 20 percent of North American sales. A Canadian e-commerce site is launching in the next several months.

Idol reported that customer engagement continues to increase across all key social media channels. In the most recent quarter, Facebook fans grew 55 percent to over 16 million, Instagram followers increased 109 percent to over 3 million, and Twitter followers increased 50 percent to over 2 million.

In Europe, the company opened 14 stores during the quarter, and remains on track to open approximately 50 European locations in the current fiscal year. At the end of calendar 2014 there were 125 stores across Europe, and the company continues to believe that the region can support a total of 200 Michael Kors retail locations in addition to the e-commerce business that will launch in calendar 2016, all of which the company hopes will ultimately generate $1.5 billion in annual revenue long-term.

In Japan, 5 stores were opened during the third quarter, though the company believes this market can ultimately have 100 stores. Last month it announced the planned opening of a new flagship store in Tokyo this fall, in the renowned Ginza district. The 7,800 square foot store will be the first in the world to feature all of its categories and collections. The flagships in Tokyo and Fukuoka, and the scheduled 5,000 square foot flagship duplex in Kobe, will serve to heighten the Kors presence and brand image in the Japanese market. An e-commerce business is scheduled to launch in Japan in calendar 2016. Long-term, the company believes it can achieve annual revenue of $300 million in the region.

The increase in tourism was an important contributing factor to growth in the Far East, as evidenced by the performance of Kors airport and duty-free shops in this region. Licensed partners opened 12 new stores in the quarter, bringing the total number of locations in greater China, Korea, Southeast Asia and Australia to 128, with opportunity for a total of 200 locations.

The company is also pleased with the performance of its 79-store travel business, and believes it is a highly effective way to raise the visibility of Michael Kors ‘ luxury brand, given the increased number of tourists traveling the world, and believes there is potential for approximately 100 travel retail shops globally.

The company expects revenue in the current fiscal year ending March 2015 to increase by approximately 30 percent to $4.4 billion from $3.3 billion in the prior year.