Will Higher Gas Prices Curb Spending?

Will Higher Gas Prices Curb Spending?
Gas prices have risen above the $4 mark in some markets, including in San Rafael, Calif.

NEW YORK — As the spring season kicks into high gear, retailers are facing a new roadblock: significantly higher gas prices.

In a Deloitte survey released last week, 71 percent of consumers said the uptick could cause them to curtail spending in the coming months, leaving storeowners uncertain about how business will play out this summer.

“People are aware of it and that it will change shopping patterns in regard to how often we may see a customer,” said Mark Waldman, president of St. Louis-based Laurie’s Shoe Center. “They may come in less often, but hopefully they’ll be buying more.”

With gas prices in St. Louis averaging $3.67 at press time and expected to escalate, Waldman predicted the crunch will hit his middle-class shoppers the hardest.

“If a customer is spending so much on gas each week, there’s going to be an immediate emotional response,” he said. “But the consumer who’s used to better-grade products will probably continue to buy them, just not at the same frequency.”

Higher costs at the pump — and rising fuel prices in general — are an added worry for footwear firms in an inflationary environment.

“I already know there’s going to be a shoe price increase,” said Paul Carrozza, owner of athletic store RunTex in Austin, Texas. “With shoes costing more money, our customers will be wearing their shoes longer and delaying their purchases a bit. And gas prices force people to start thinking about their daily trips.”

While the average price per gallon was $3.60 in Austin as of last Thursday, Carrozza said he may have to run more sales promotions to encourage shopping if that number gets any higher.

Washington, D.C.-based store Major is also thinking of making adjustments. Owner Duk-ki Yu said that, depending on how high gas prices are in the coming months, he is considering trimming his vendor count and relying more on best sellers.

“[Higher gas prices] will definitely have an impact on [consumers’] willingness to spend money,” he added. “It puts us at a disadvantage against online retailers based in areas where the cost of living is cheaper.”

In Chicago, where the price per gallon has already broken the $4 mark, City Soles owner Scott Starbuck said escalated costs won’t matter much to the shoppers of his store this summer. “I’m not really worried,” he said. “In this city, there’s a lot of public transit, and it’s becoming more prevalent among my customers.”

What did worry Starbuck, however, was how tourist traffic might be affected by rising travel expenses. “We’re in a neighborhood where a lot of European tourists like to visit [in the summer], but we may get [fewer tourists] this year because flights will be more expensive,” he said.

Looking ahead, the City Soles owner said he believes harder times for the industry will come this fall, when higher sourcing costs will translate into higher-priced product.

Indeed, Jeff Van Sinderen, analyst for investment bank B. Riley & Co., predicted gas price increases could have a broader impact. “It’s a real concern for the whole industry,” he said. “Part of this is [that it affects] what companies pay for shipping and what factories have to pay for all their oil-related costs to manufacture product.”

However, some high-end retailers are less concerned.

“We’re fortunate to be at the higher end of the price category,” said John Weingarten, co-owner of Shoe Spa in Palm Beach Gardens, Fla. “I don’t think it’s going to hurt us as much as a moderately priced store in a moderate retail climate.”

With price points ranging from $80 to $600, Shoe Spa has seen a 30 percent increase in sales so far this year, according to Weingarten. “We’re fortunate, but we’re still concerned about how gas prices will affect retail overall,” he added.

There may be some harder times ahead, but Susquehanna Financial analyst Christopher Svezia said the shoe business is better off than other industries. “Footwear may be better positioned because it’s in a good cycle of innovation and freshness, so consumers will more than likely pay more for it,” he said. “We may not see immediate repercussions, but maybe trips to the supermarket will decrease, with private-label brands the first to get hit.”

Regarding consumers’ willingness to shop, Van Sinderen was a little more optimistic. “The consumer right now wants to go out and purchase things, be it shoes, apparel or other goods,” he said.

“There is a degree of frugality fatigue, having held back for a couple of years. If the merchandise is fresh and new, consumers will be willing to spend a little more too.”

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