If you hold retail stocks, should you be concerned about the price of a gallon of gasoline?
That’s the question many stock investors are asking themselves, but the answers are all over the map.
Some say nothing short of $4 a gallon will stop consumers from spending, while others say $2.50 is the tipping point. But wherever gas prices go, one thing is clear — as yet, there is no significant impact on retail purchases from higher gas prices.
In reality, the question is more complicated than simply asking if high gas prices will lead consumers to rein in their spending. As most analysts will tell you, it depends on the retailer.
For example, Tiffany, Cartier and Prada cater to the wealthy, and so they are unlikely to see a big impact in their stock prices. The more important question is how big a spike in gas prices will it take to stop low-income consumers in their tracks?
Michael Cox, a senior retail analyst at Piper Jaffray, says he thinks approximately $2.50 a gallon is the level where consumers start to look at their pocketbooks — that would be a rise of roughly 25 percent year over year, he said.
“But what it really comes down to is the psychological impact of higher gas prices,” Cox said. “On an absolute dollar basis, job and wage growth that lower income consumers have experienced should offset rising gas prices.”
So spending a little more on gas is okay if you’re making a little more money on payday. Supporting that theory is a consumer survey conducted last month by BIG Research. The company asked 8,000 shoppers what they would forgo if gas prices keep going up.
Twenty-one percent of respondents said they’d spend less on apparel, while 28 percent said they’d spend less on travel. But 35 percent said that if gas prices continue to rise, they’ll actually begin shopping for a more fuel-efficient car. Proof, some say, that higher gas prices can serve as a motivating factor to go out and shop.
Independent retail economist Rich Hastings says there is one principal motivator in most consumers shopping behavior — force of habit. And one retail name in particular knows more about that habit than any other.
“Wal-Mart will reign supreme,” said Hastings.
The supermarket giant does more research internally and externally and partners up more effectively with consumer marketing research firms and with the big vendors, like Procter & Gamble, he said, so they are focused intently on consumer behavior patterns.
“Wal-Mart, under those circumstances, starts to muscle ahead much better than most other retailers,” Hastings said.
While Hastings, Cox and other retail analysts agree that gas prices are always reason for concern, they also remind us to look at the issue in context.
The cost of gas is 5 percent of a low-income consumer’s budget, but food is 20 percent. After adjusting for the normal seasonal move up in prices this year, gas would still cost about the same as it did a year ago — that’s much more palatable than last year’s spring gas price hike of 30 percent.
What’s more, U.S. gas consumption has actually picked up over the last month and some oil analysts are predicting that this spring and summer will produce higher demands for gas than ever before. So if the U.S. consumer is planning to cut back, there’s little proof of it yet.