Wholesale warehouse retailer Costco () announced that it is considering opening stores in Germany, Italy, Spain and France. International executive vice president James P. Murphy indicated that the company is seeing reduced real estate prices that could make an entrance enticing. We’re excited at the move’s potential and think other retailers may want to consider entering Europe as well.
Costco’s low-cost, warehouse format translates well to Europe, in our view. Given austerity measures and macroeconomic headwinds, lower-priced goods could certainly be a draw to European consumers. Competitor Walmart () has yet to establish much of a presence in Europe, meaning Costco may be advantaged in that respect.
We think several companies could follow suit entering or expanding presences in Europe. Michael Kors (KORS) announced on its last conference call that it expects same-store sales growth in excess of 20%, and that it will open 10-15 new stores in Europe. Further, its competitor Coach () doesn’t currently have a store presence in Europe. The firm has focused on expanding in China and Japan, but favorable conditions in Europe could make entry into luxury centers like Paris much more attractive. If an economic recovery resembles the United States’ recovery, aspirational brands like Michael Kors and Coach could very well experience stronger growth than less prestigious brands.
Under Armour (UA) could also utilize this weakness to enter the European market. As we’ve mentioned previously, Under Armour doesn’t really have a cohesive international strategy, but it did recently pay to sponsor English Premiership team (soccer) Totttenham and already sponsored German Bundesliga (soccer) club Hanover ’96. We’re confident that Under Armour, like most companies, will have some significant setbacks while entering new markets. Therefore, we think it would be wise for the firm to take advantage of lower real estate prices to increase its margin of safety. During times of economic hardship consumers often cut back on gym memberships and expensive sports. This means athletic apparel and shoe makers, like Under Armour, Nike () and adidas (ADDYY) could see benefits from running and performance clothing, making it an opportune time for Under Armour.
Although not American, Canadian retailer Lululemon (LULU) could also begin to open stores in Europe. Like running, we think yoga may be a slight beneficiary of economic hardship. However, as we’ve established previously, Lululemon sells luxury athletic fashion rather than just performance gear. With luxury spending remaining fairly intact, Lululemon could enter Europe amidst macroeconomic hardships. Though both Lululemon and Under Armour have plenty of room to grow in America, substantial progress in Europe from either firm could certainly improve their respective long-term intrinsic values.