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High Gas Prices + Warm Weather = Low Sales?

Retailers hit with one-two punch

Well, 2012 is certainly off to a wild start. While there’s been nothing quite as dramatic and earth shattering as last year’s tsunami in Japan, there are plenty of global events and outside influences affecting our industry. I’m talking about the increases we’re seeing at the gas pumps and the warmer-than-average winter we’ve been experiencing throughout the country.

To me, the biggest issue we’re facing is the price of gas. Rising gas prices can have a double-barreled impact on consumers: Fundamentally of course, the more money we have to put into our gas tanks, the less disposable income we have, but the bigger issue is how it affects consumer confidence — both lead to potentially quieter cash registers. It would be a real shame if the small-but-significant increase in consumer confidence that we have seen over the last few months–thanks to a somewhat better-than-expected holiday shopping season–gets stalled or even reversed by higher gas prices. What is even more of a concern to me is that gas prices have not only gone up, but they show no signs of leveling off and are, in fact, projected to steadily rise in the foreseeable future.

While retailers have reason to be concerned about gas price forecasts, it’s another kind of forecasting that’s had retail analysts shaking their heads this year: this all-too-unusual warm weather! While we normally think about the more extreme weather events impacting retail sales, a significantly warmer winter has certainly been problematic. Winter apparel is not exactly flying off the shelves, leaving retailers to do some deep discounting to get rid of the leftover stock. It’s a meteorological curveball that has more than a few retailers frustrated.

Together, these external factors make for an unfortunate one-two punch. In my opinion, these two phenomenon might be an early signal that late winter/early spring is going to be a little bit tougher for retailers than we might have anticipated a couple of months ago. Department stores and specialty apparel stores might be especially vulnerable, and there are already signs that discounters are not doing very well. What does this mean for retail real estate? I think that some of the expansion plans that were back on the agenda after a tough couple of years might end up on temporary hold as retailers wait to see how things shake out over the next few months. Unfortunately, these kind of big-picture trends are essentially out of retailers’ control; you just can’t predict when these things will happen. So, you can’t really prepare for them.

The bright side I see in all of this is that the news is not all bad. We recently saw the Dow close over 13,000 for the first time in years and the job market seems to have turned the corner. While the jobs momentum is encouraging, I think the stock market is still an abstract phenomenon for most consumers, but gas prices are all too real. I think consumer psychology is very important — after all, perception is reality. I suspect many retailers are crossing their fingers, hoping that the higher gas prices and warmer weather won’t completely ruin the first quarter.

What do you think? Please make a public comment below or feel free to e-mail me privately at jeff@jeffgreenpartners.com.


Click here for past columns by Jeff Green.

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