After a number of IPOs have been postponed in recent weeks, owing mainly to the severe fall in global stock markets, Jimmy Choo (LSE: CHOO) decided to go ahead and become a PLCthis week.
Shares in the luxury fashion brand, known for its high-quality high-heeled shoes, moved marginally higher as investors remain wary of global growth prospects. Indeed, Jimmy Choo is heavily reliant on China so, with the worlds second-largest economy experiencing an uncertain period, its of little surprise that shares in the company didnt soar.
However, thats not to say that they wont perform well over the medium term. In fact, Jimmy Choo could prove to be a top notch investment. Heres why.
Just as sector peerBurberrystarted off with one item that defined its brand (ie, the trench coat), Jimmy Choo started life as a producer of premium high-heeled shoes. While they remain a key part of its future, the real growth potential in Jimmy Choo is in its becoming a major lifestyle brand. Just as Burberry now sells a range of clothing, fragrances and accessories alongside its coat, Jimmy Choo will look to diversify its product range further in the coming years.
As ever, the key to selling consumer goods is pricing. Certainly, Jimmy Choo has built up a loyal customer base and it makes sound business sense to diversify into new, proven product areas and cross-sell to loyal customers. Furthermore, it seems intent on making new products available to existing customers at a similar price-point to its shoes.
In this sense it is not attempting to follow Mulberry and move to a higher price point in order to increase sales and margins something that has proven to be a failure thus far for Mulberry. As a result, plans to widen the product offering are more likely to be successful, which bodes well for investors in Jimmy Choo over the medium term.
While the Chinese economy is experiencing a period of uncertainty, Jimmy Choo seems to be making encouraging progress. For example, sales in the first six months of the year increased by 9%, with a store refurbishment programme causing like-for-like sales to be just 2.2%. Furthermore, with China and other emerging markets continuing to have vast growth potential over the long run, it would be of little surprise for Jimmy Choo to continue to grow sales at a brisk pace moving forward.
So, while Chinese uncertainty is likely to hold back the share price of Jimmy Choo in the short term, the company seems to be doing the right things when it comes to growing sales over the medium term. Cross-selling opportunities are significant as the company offers more products and becomes a true lifestyle brand, just as Burberry has done before it.
Although the short term may prove challenging especially if demand from China continues to disappoint the longer term appears to be bright for Jimmy Choo and it could turn out to be a sound investment.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.