👜 Investors went on a Hermès haul

What’s going on here?

Data out on Friday showed that January was the slowest month for US retail sales in almost two years, with cash registers ringing silent as folk practiced self-restraint.

What does this mean?

Americans spent almost 1% less in January than December – a much bigger dip than the 0.2% that economists had predicted. And retail sales fell across the board, so it’s not like a particularly sore spot dragged down the average. Though it seems some Americans just chose to fill their stomachs instead of their shopping bags, as spending at bars and restaurants picked up a little. And, of course, last month’s wildfires in Los Angeles – as well as disruptive weather across the rest of the country – may have kept some shoppers from their favorite stores and forced others to rethink their priorities.

Why should I care?

For markets: There could be a credit crunch on the horizon.

Beyond weather and fires, consumers are contending with stubbornly sticky inflation and still-high borrowing costs. That’s making it harder for many to repay the loans and credit cards they’ve been relying on to make ends meet. Bear in mind, too, that as more loans go bad, banks become more selective with their lending. So while this data might just point to borrowers tightening their budgets, it could also be another canary in the coal mine – foreshadowing a potential financial and economic crisis.

For you personally: You’re voting with your wallet.

The US’s plans to impose a variety of trade taxes – a.k.a. tariffs – on goods from all over the world could end up forcing you to pay more for the same stuff. Remember, firms pass their rising costs onto their customers if they can. So if retail spending starts growing again, economists will have the challenge of figuring out whether folk are actually buying more items – or if everything’s just costing them more.

What’s going on here?

French luxury fashion house Hermès strutted out better-than-expected earnings on Friday.

What does this mean?

Marie Antoinette allegedly said “let them eat cake” – but perhaps she’d have been better off calling out the disconnect between the haves and the have-nots by saying “let them buy bags” instead. Of course, it’s not just the French known for defying a shrinking economy to treat themselves. Chinese shoppers, for example, have historically represented about half of the world’s demand for luxury products – despite the country’s economic challenges. But even knowing that industry pattern, investors were still pleasantly surprised by Hermès’ latest figures. The firm made 6% more revenue than expected last quarter, and its profit for the year was 2% better than predicted. Plus, sales are expected to catwalk up even further this year.

Why should I care?

Zooming out: Hermès is a Veblen stock.

Luxury lovers can spend years on a waiting list for a coveted Birkin bag. The iconic accessory is so limited-edition that would-be buyers are suing Hermès to make it more available – and for those able to get their hands on one, it’s not unheard of for price tags to hit millions of dollars. But that’s part of the appeal. See, usually products become less popular as their prices increase. But not “Veblen” goods like the Birkin: as these kinds of luxury products grow more expensive, they become even more desirable.

The Veblen tag could be leveled at Hermès’ stock too. It rose 4% on Friday after the update, taking the company’s total value to just 15% shy of luxury behemoth LVMH. That’s confounding: LVMH makes over five times more annual sales than Hermès, and three times more profit. All else equal, you’d expect Hermès’ total value to be three-to-five times smaller than LVMH’s. Perhaps the firm's investors have the mindset of its big-spending shoppers, perceiving higher value in the stock when its price looks more luxurious.