In the face of strong retail sales numbers, the media still predicts a Scrooge-like holiday season for the sector. Example: this Wall Street Journal story.
You’ve heard the litany of reasons why stores will suffer, how Santa won’t come for the Phillips-Van Heusens , Ralph Laurens , VF Corps and Columbia Sportswears of the world. Cotton prices have climbed too high, cutting into margins, as are rising wages in the once-cheap Chinese labor market. We know that Jones Group’s disappointing quarter as a result of sourcing issues pulled down the whole group.
But Cramer called that wrong, especially with cotton prices coming down. He thinks the companies that can raise prices and control costs, the latter by moving to cheaper countries like Vietnam, will emerge from present turbulence just fine.
Besides, and this is important to note, the very thing causing the labor issues in China is also giving rise to the increase in spending there: the emerging middle class. They’re demanding more money, but they’re spending more of it, too. That’s why Chinese retail sales grew by almost 15 percent last year. And even the Chinese Communist Party is encouraging the spending as part of its long-term plan to restructure the economy.
“This is yet another industry where the emerging markets growth is transcending sluggishness here in the US,” Cramer said. “This is the quarter where companies are getting the benefit of the doubt of China. The People's Republic, far from being the destroyer of retail … can be its savior.”
The obvious question then is, how do you play it?
Well, it turns out luxury brands are seeing the most success in China, so that makes them the most logical place to start. Hence Cramer’s endorsement of Coach and Tiffany . But he likes Nike , too, for its growing business there and the worldwide footwear bull market.
Cramer also recommended a couple of food-and-beverage plays for those who want them: Starbucks and Yum! Brands .
“They love their KFC in the PRC,” he said.
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