Vietnam Strike = Bad Bad News

Here's a major call out for you. 5,000 workers at a Vietnam footwear manufacturing plant went on strike shortly AFTER getting a 14% wage increase (by 100,000 dong to 800,000) -- noting that it is not enough to offset inflationary pressures. With consumer prices in Vietnam up 21% versus last year, I can see the logic. Is it any coincidence that this happened simultaneously with a 325bp overnight hike in rates in Vietnam? Not a chance.

Vietnam might seem like a rounding error relative to China, but it is not. It's the number 3 producer of athletic footwear, and is a perennial top 10 apparel maker. Though share is only 5% compared to China's 85% in footwear and 40% in Apparel, Vietnam serves as an important buffer for the industry when Chinese prices go up. (Recall that the same dynamic holds true for India, and as I noted last week, price trends are decoupling from what we've seen historically vis/vis China).

The bottom line is that growth is slowing in Asia, at the same time costs are headed higher. This plays into our key theme in Apparel and Footwear that an 8-year margin bubble is bursting. The US retail industry has only seen the beginning of the pain that is to come...

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