Why Europe Makes Jones Group’s International Retail Business Valuable?

by Trefis Team
-14.10%
Downside
14.99
Market
12.88
Trefis
JNY
Jones Group
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Jones Group’s (NYSE:JNY) international retail business has grown substantially after the acquisition of European luxury footwear brands Stuart Weitzman & Kurt Geiger. In 2012, the segment’s revenues and daily revenue per store jumped by a staggering 50% and 40% respectively despite the economic slowdown in Europe. [1] While a significant portion of this growth can be attributed to the acquisition of Kurt Geiger, there is no doubt that the organic growth has been impressive too.

This growth can be attributed to the strong demand for luxury products in Europe as well as the brands’ popularity in the region. Europe is the largest luxury market in the world with bulk of the sales coming from the tourists. This has been the main reason why this market has remained stable amid the economic headwinds. Both Stuart Weitzman and Kurt Geiger are well established brands in the region, which makes them significant for Jones Group. Europe’s economy is beginning to show signs of improvement and consumer spending should improve going forward, which bodes well for the company’s luxury brands.

Jones Group primarily derives its international retail revenues from Europe, and this segment contributes about 20% to the company’s value as per our estimates.

See our complete analysis for Jones Group

Huge Potential For Luxury Products In Europe

Even though Europe has been reeling under the impact of debt crises, the sustained demand from tourists has fueled the luxury market’s growth. According to Bain & Company’s estimates, the personal luxury goods market in Europe stood at around €75 billion ($96.1 billion) in 2012, registering an annual increase of 5%. Although the growth was slow as compared to that for the previous year and there has been a slight drop in the tourist demand, the region still holds 35% share of the global luxury goods market. [2] [3]

Tourism has been the key driver since the demand from local consumers has waned. Chinese customers have become increasingly important and now account for about 30% of the industry wide luxury sales in the region. According to analysis by TUI Think Tank and Z_punkt (a strategy and foresight consultancy), an estimated 3.8 million Chinese people traveled to Europe in 2010 and this figure is expected to grow by four times by 2020. Hence, Jones Group has an opportunity to leverage the growing demand from Chinese shoppers in the region. Moreover, the increasing tourist travel from regions such as Russia, Japan, Brazil and India has further complemented the growth in Europe’s luxury market. [4]

Stuart Weitzman & Kurt Geiger Are Extremely Popular In The Region

Stuart Weitzman and Kurt Geiger are two of the most popular luxury footwear brands in Europe. Designer Stuart Weitzman started his namesake brand about 26 years ago, which has acquired a loyal customer base over time. Today, it sells more than 2 million pair of shoes every year in over 70 countries. [5] It encompasses a large demographic as it caters to customers in the age group of 18-68 years. With high attention to detail and use to unique materials, the brand has delivered a number of hits such as Million-Dollar Shoe, 50/50 Boot, Alex Wedge etc. [5]

Kurt Geiger has successfully established itself in the European luxury footwear market over the course of almost 50 years. It is one of the strongest brands in the region, and sells about 10 pairs of shoes every minute. The brand is very design-based, has distinct handwriting in its products, and even makes tailor-made products for its customers. Kurt Geiger creates more than 250 designs every month, which encourages its customers to keep coming back to its stores. [6] The strategy of acquiring these two brands has worked well for Jones Group, and their tremendous popularity in Europe will continue to drive the company’s international retail revenues in the future.

Improving Economy Can Boost Local Demand

While demand from tourists has primarily fueled the luxury market’s growth in Europe, demand from domestic customers has subsided. According to a study conducted by consulting firm McKinsey, more than 50% of European consumers reported that they bought fewer luxury products in 2011 as compared to the prior year. Moreover, they are increasingly looking for bargain shopping as compared to full price shopping. [7]

However, the economic environment in Europe is beginning to improve as large economies such as Germany and France have shown signs of growth. In the second quarter of 2013, economic growth in these two countries was better than expected driven by renewed business and consumer spending. [8] As consumer confidence improves, the spending on luxury products is likely to go up.

Our price estimate for Jones Group stands at $ 14.26, which is slightly below the market price.

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Notes:
  1. Jones Group’s SEC filings []
  2. Bain projects global luxury goods market will grow overall by 10% in 2012, though major structural shifts in market emerge, Bain & Company, October 15, 2012 []
  3. Luxury spending in Europe hit by drop in tourist demand, Reuters, Apr 2 2013 []
  4. New Chinese tourists in Europe from 2017, Z-punkt []
  5. Lifetime Achievement: Stuart Weitzman, Footwear News, Nov 26 2012 [] []
  6. Kurt Geiger – A Shining Example Of A Sole Trader, The Independent, Jan 23 2011 []
  7. Domestic consumers: The “Sleeping Beauty” of European luxury, McKinsey & Company, February 2012 []
  8. Germany, France haul euro zone out of recession, Reuters, Aug 14 2013 []
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