Taking the Energy Out of Retailers
Wednesday, August 17, 2005
The nation's retailers are growing increasingly worried that as consumers pour more money into their gas tanks, they will devote less to filling up their shopping carts, with industry bellwether Wal-Mart Stores Inc. yesterday blaming higher prices at the pump for its weakest quarterly performance in four years.
So far, the relentless climb of oil and gas prices has pinched discount chains and dollar stores, which cater to lower-income shoppers. But if prices continue to rise, the pain could soon spread to chains that have long considered their customers immune to the fluctuating price of fuel, retail analysts said.
With oil and gas prices hovering in record territory, retailers are feeling yet another pressure: Their everyday cost of doing business is surging. A Barbie costs more to make. A diaper costs more to distribute. And a store costs more to cool and heat.
"It is a perilous time in retail," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm, who says a combination of escalating gas prices, heavy consumer debt and low savings "will affect every retailer in America."
Wal-Mart, shopped by nearly half the country's population every week, fingered mounting gas prices yesterday when it cut its prediction for third-quarter profit. Wal-Mart chief executive H. Lee Scott. Jr., said he feels "good about the economy, but I worry about rising oil prices." Those prices, he said, could "erase improvements" in the economy for the chain's lower- and middle-income customers.
Those fears jolted the retail industry. "When Wal-Mart sneezes, retailing catches a cold," said Bill Dreher, a retail analyst at Deutsche Bank Securities Inc.
Consumers, stung by escalating gas prices, say they are switching from name brands to generic ones, avoiding pricier chains in favor of cheaper competitors and abstaining from impulse purchases.
The national average for a gallon of regular unleaded gas hit $2.52 yesterday, according to the auto club AAA.
Shopping at Ross Dress for Less in Alexandria yesterday, Shirley Lee, a retiree from Mount Vernon, was tempted to buy a lunchbox and container of gumdrops for her granddaughter.
Then she thought about filling her gas tank -- a $40 task -- and took a pass on the gifts. "I'm trying to cut down," she said.
Or, as Janine Whitfield, a teacher from Tysons Corner, put it, "we are going to have to rethink how we spend money and how we drive."
With oil and gas prices hovering in record territory, retail executives said shoppers are shying away from many purchases, such as bedding and curtains, and focusing instead on basics, such as clothing and laundry detergent -- "needs versus wants," said Kiley F. Rawlins, a divisional vice president at Family Dollar Stores Inc., the nation's second-largest dollar-store chain.