High-end U.S. Retail Starts off 2012 with a Cautious Note

Ominous signs about the economy have started early in 2012…

A high-end retail sector company that weathered the 2008 and 2009 financial crisis quite well is now buckling under the pressure of a slowing economy in both Europe and the U.S.

Tiffany & Co. (NYSE/TIF), the world’s second-largest luxury jewelry retailer and a major player in the U.S. retail sector, has already cut its earnings and sales forecast for 2012, citing a pull-back in consumer spending on the part of its well-heeled customers, as demand for fine jewelry in both its U.S. and European outlets fell short of expectations during the holiday season.

The news sent the Tiffany retail sector shares down just over 10% Tuesday. The company’s stock price has fallen from $80.00 in late October 2011 to under $60.00 yesterday. Ouch.


We all know that if the U.S. economy is going to deliver a meaningful rebound, the U.S. consumer (especially within the high-end retail sector) is going to have to pick up the pace of spending. Remember, consumer spending in the U.S. accounts for 70% of GDP!

I’ve been saying that 2012 is going to be a difficult year (many thanks to imported woes from Europe). Tiffany’s warning on its retail sector profit and revenue this year is just the first of many signs I believe we will get that the U.S. economy is slowing.

The wealthier consumers continued to spend in 2010 and for the better part of 2011 at the retail sector level. Something has changed, however, which has them reining in their spending. Confidence is everything in the retail sector. Tiffany’s early warning shows that even the wealthy don’t feel confident about their situations and the direction the economies in both the U.S. and Europe are headed.

Granted, this is only a small sign coming from the retail sector, but it further highlights my argument that the U.S. economy cannot grow with the problems in Europe gaining momentum. Retail sector company Tiffany noted in its report that Asian shoppers also pulled back on purchases during the holiday season, as their economies are cooling.

Introduce a slowing Chinese economy into the equation and it is almost impossible to see the U.S. escaping the slow economic grind it will face, as economic growth in both Europe and China erode.

Back to those high-end retail sector stocks…I liked them for most of 2010 and 2011. For 2012, I’m not sure I want to be in them.

Where the Market Stands; Where it’s Headed:

Not much for investors to complain about. Less than two weeks into the New Year and the Dow Jones Industrial Average is up two percent for 2012. The bear market rally that started in March of 2009 continues along its merry way.

Dear reader, we know better: a huge top is being put into place for the major market indices.

What He Said:

“Any way you look at it, the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in PROFIT CONFIDENTIAL, August 27, 2007. A dire prediction that came true.