Shares of several apparel retailers, such as Deckers Outdoor (DECK 5.08%), Gap (GAP 7.03%), and Abercrombie & Fitch (ANF 4.46%), rallied big on Friday, up 4.3%, 6.3%, and 3%, respectively, as of 2:37 p.m. ET, even as the broader markets plunged for the second day in a row. By contrast, the S&P 500 index was down an ugly 5.5% at that time.
As with most major moves in the markets these days, the outperformance of these apparel companies came down to a statement from President Donald Trump, spelled out in a midday post on Truth Social.
Of course, the post was about tariffs, specifically regarding Vietnam.
Retailers were rug-pulled, but may get a reprieve
All three of these retailers manufacture their clothes and shoes in East Asia, with a particular concentration in the country of Vietnam.
In its annual report, Deckers noted that due to the U.S.-China trade tensions during the first Trump administration, it had moved a significant amount of its manufacturing from China to Vietnam. Similarly, Gap noted in its annual report that 27% of its purchases now come from Vietnam, with another 19% from Indonesia — with these countries having the highest concentration of purchases among all nations. Meanwhile, 35% of Abercrombie’s vendors were sourced in Vietnam, followed by 22% from Cambodia.
Needless to say, all of these retailers received a shock when Trump announced that the U.S. would be slapping an egregiously high 46% tariff on Vietnam on Wednesday afternoon, not to mention higher-than-expected tariffs on the rest of Southeast Asian countries.
The 46% tariff was allegedly “reciprocal” relative to the tariffs Vietnam supposedly puts on U.S. goods. However, in interviews on Thursday, aides to Trump noted the figure calculated to signify the Vietnam tariffs on U.S. goods incorporated other intangible aspects of trade practices that weren’t easily quantified.
Given that many U.S. companies had dutifully moved their production out of China several years ago, apparently in accordance with Trump’s wishes, the new 46% tariff seemed like a betrayal and a surprise.
However, on Friday, Trump indicated he might be aware of the situation, and may be looking to cut a deal to relieve some or all of those reciprocal tariffs. On his social media platform Truth Social, Trump wrote: “Just had a very productive call with To Lam, General Secretary of the Communist Party of Vietnam, who told me that Vietnam wants to cut their Tariffs down to ZERO if they are able to make an agreement with the U.S. I thanked him on behalf of our Country, and said I look forward to a meeting in the near future.”
While the message didn’t specifically say Trump would be negotiating to completely remove the U.S. tariff, the fact that Trump posted this as the markets were cratering may be an indication these reciprocal tariffs won’t stick around as they were written on Wednesday. They may have just been an opening shot across the bow to begin negotiations. But again, the administration is less than clear on this front.
Play a recovery for Vietnam-sourced companies?
While Friday’s message was certainly encouraging, investors should still remain cautious with regard to consumer discretionary stocks. After all, even if the Vietnam tariffs are modified, that would help these companies out on the cost side. However, other tariffs are likely to stick, which could raise costs on consumers generally, depressing overall general demand.
And of course, branded shoe and clothing sales probably wouldn’t do great in a stagflationary scenario, which could still happen. So while Friday was a positive for these companies and investors may want to nibble on some of these struggling apparel names, it’s still too soon to give an all-clear.
Billy Duberstein and/or his clients have no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor. The Motley Fool has a disclosure policy.