This commentary originally appeared on Real Money Pro at 06:58 on Aug. 13, 2015. Click here to learn about this dynamic market information service for active traders.
On the heels of more data filling in the view that China's economy continues to slow more than previously expected, which was also confirmed by the surprise to the herd with the devaluation of the yuan (hat tip to Doug Kass for calling that earlier this year), we saw a number of higher-end retailers get hit.
From Salvador Ferragamo to Tod's SpA and Gucci parent Kering, those luxury product vendors (high-end clothing, handbags, shoes and other goods), which rely rather heavily on China when it comes to revenue, were down yesterday.
Looking at domestic stocks, both Coach (COH) and Michael Kors (KORS) tumbled. According to its 10-K, Coach derived 25% of sales last year from "Other International," which is listed as Hong Kong, Macau, mainland China, Singapore, Taiwan, Malaysia, South Korea, Europe and Canada. Looking at such filings for Michael Kors doesn't reveal much in terms of the company's China exposure, but on the recent earnings conference call the management team said, "We are pleased with the strength in China and Southeast Asia with double-digit comp growth in the first quarter, reflecting the strong consumer response to our luxury fashion products and Michael Kors lifestyle brand."
To me that says, yes, indeed, there is more than a little exposure to be concerned about, which helps explain the drop in KORS shares.
Others that were also hit include Movado (MOV), Kate Spade (KATE), Tiffany (TIF) and Luxottica (LUX). My suspicion is we've not heard the last of this China related
Keep in mind, we also just received gloomy outlooks from Gap (GPS) and Macy's (M) in what is expected to be a down year for back-to-school spending.
Interestingly, Macy's talked about its international expansion plans, which includes e-commerce sales in China. With recent moves by Alibaba (BABA) to ink relationships with branded product companies, this could prove to be an interesting move as Macy's gets it toes wet with international expansion.
That sour taste in your mouth is retail related.
Later this morning, we'll get July Retail Sales data, which are expected to climb 0.7% when we exclude autos, a sharp move higher from the 0.1% drop recorded for June. Looking at findings from Gallup, Americans' daily self-reports of spending averaged $91 in July, pretty much unchanged from June levels and unchanged from monthly figures since April.
With job creation weaker in July than June, average gas prices essentially unchanged at $2.88 per gallon, according to the Energy Information Administration, rent prices are taking a bite out of consumer wallets and, of all things, so are haircuts.
According to government data, residential rents climbed 3.5% year over year in June, the fifth-straight month with an annual gain of that size. That is the fastest yearly pace in six years. As for haircuts, that same government data show haircut prices jumped 1.6% in June, the biggest monthly jump in 62 years and up 2.8% year over year, the largest year-over-year gain since 2008.
It seems to me that with wages constrained, consumers are going to be far more choosey when parting with their dollars and we haven't even talked about what's to come with higher health-care prices and the inflationary ripple effect of minimum wage increases that will hit in January.
As you've probably guessed, I'm not bullish on retailers and I'm at a loss for a catalyst that will change that view near term.