Gas Putting the Brakes on Upscale Consumer Purchases
It was to be expected that rising gasoline prices would take a bite out of the dollars consumers at the lowest end of the economic ladder would have to spend at retail and foodservice outlets.
Until now, however, there has been little sales evidence to suggest middle-class consumers were letting the high price of gas get in the way of their retail purchases in any substantial way. That, it now seems, appears to be changing.
According to a Wall Street Journal article, retailers such as Starbucks, Whole Food, Williams-Sonoma and Panera Bread Co. have turned in disappointing sales numbers and “the chief culprit is gasoline prices.”
Dustan McCoy, chief executive officer of Brunswick Corp, a boat maker, told WSJ, consumers are spending a larger portion of their income on gas. “The sort of people who boat don’t drive around in compact cars. They drive around in big cars or fast cars,” he said.
P.F. Chang’s Chairman and CEO Rick Federico said sales have not been this off since the first Gulf War and the recession that plagued the country at that time.
“You do have to go back over 15 years to find an environment where the consumer has responded like they are today,” he said during a conference call last month. “We have lowered our expectations for the back half of the year to better reflect current trends in our business.”
Wendy Liebmann, president of WSL Strategic Retail, said there is clear evidence that consumers have gone from trading up to cutting back. More middle-income households, for example, are shopping at mass merchants rather than going to specialty stores to make purchases.
Michael Silverstein, senior vice president at Boston Consulting Group, said middle-income consumers are still trading up but perhaps not as often as in the past. These consumers, he said, are “making much more deliberate choices and being much more tough-minded about what they want.”
Beyond gas, the housing market is said to be having a dampening effect on consumer spending. With the market softening and interest rates having risen, consumers are less able to generate funds for themselves by refinancing mortgages, drawing from home-equity loans or selling properties.
Homebuilders are feeling pessimistic. According to the National Association of Home Builders, its index of builder sentiment has fallen to its lowest point since 1991.
Discussion Questions: Many strong retailers have reported
softer sales in recent weeks/months and/or lowered expectations for the future.
What have retailers done in the past to come through slower economic periods
to become stronger competitors when consumer spending rebounds?
Keep advertising. Numerous studies over the years have
shown that companies that keep the promotional pedal to the metal during slower
or recessionary periods come out stronger on the other end.
Curb Upscale Buying As Gasoline Prices, Housing Bite – The Wall Street
Journal (sub. required)