Swedish boutique retailer H&M is getting pounded this Monday morning in Europe after confessing that the cost of cotton is digging into its business. Watch for more stories like this ahead.
H&M, which trades fairly thinly in ADR form as OTCPK:HNNMY has investors worried that the rising cotton prices that depressed its fourth-quarter profit by 11%, is only the first taste of inflation working its way into the apparel sector.
For years, clothing prices have been sliding through a combination of overcapacity in the retail world and the glut of discount merchandise dumped early in the recession.
Cotton, in particular, has been a commodity that clothiers could source easily from Central and South Asia, until last year’s bad weather crimped many sources of supply.
As it is, between this news and Jones Apparel Group's (JNY), it may be time to watch the inflation story get a toehold throughout the U.S. retail space for the first time in ages.
HNNMY, JNY and Phillips-Van Heusen (PVH) are probably the first places to keep an eye on.
These are fairly high-end brand operators and so pride themselves on better materials. They have a choice of passing on their materials costs to buyers or simply eating the inflation, at least at first. Odds are good they will try going the latter route.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.