When you hit a speed bump at 15 miles an hour, your car makes that little bumpy noise and you think about getting your CV joints inspected. When it hits the same bump at 120 miles an hour, you take your bumper home in a sandwich baggy.
It’s not surprising that a new report on the growth of Chinese retail sales for the first two months is having an effect on fast-moving retailers with operations in the country. Michael Kors Holdings Ltd (NYSE:KORS) , Coach, Inc. (NYSE:COH) , and Fossil Inc (NASDAQ:FOSL) are all exposed to China, and each faces a separate problem if sales stay low.
Slowdown in Chinese sales
Taking industrial output as the signifier, China is having the worst start to a year since 2009. The company increased output by 9.9%, compared to 10.3% in December of last year. That decrease in the rate of production was layered on top of an increase in inflation, which rose 3.2% in January, driving up the cost of food and hitting its highest point since April 2012. Those issues combined to push sales growth down to 12.3% — analysts had been expecting 15%.
The worrying part of the equation for investors — because 12.3% growth isn’t exactly bad — is that the slowdown may continue. Analysts are starting to detect a pattern in China, one of investment-driven growth with lagging consumption growth. That’s clearly bad news for companies that are trying to sell things in China. That bad news may be amplified by a downturn in lending, with signs pointing to a shorter leash in the hands of the central bank.
What it means for investors
The market is worried that Michael Kors Holdings Ltd (NYSE:KORS) is going to get sunk on a slowdown. Shares were down 5% yesterday, which is only adding to the woes of Michael Kors Holdings Ltd (NYSE:KORS)’s investors, who have seen the stock flounder over the past month. But it’s not all bad news in China. The company recently came out on top of a study of online brand demand in China, with handbags taking a full 51% of searches for fashion items. Michael Kors Holdings Ltd (NYSE:KORS) has said that there’s a lot of growth potential for the brand in the region. Right now, it operates 65 stores in that part of the world, and CEO John Idol has said that the company plans to expand that up to 150 stores.