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Will Falling Gas Prices Pump New Life Into Retail Sales?

Retail Trend Watchers Predict Upcoming Surge in Consumer Spending

Across the U.S., drivers are doing the happy dance at the gas pump. And they’ve got cause for celebration. Between September 25, 2014 and January 5, 2015, the average price of gas fell every single day, dropping nearly a full dollar from July levels and delivering a reported total savings of $50 billion to consumers in the fourth quarter of last year. But where will all those dollars go? Retailers have high hopes for a first-quarter surge and the retail real estate industry is optimistic about what’s next.

Retail sales for November, just four months into the gas price decline, saw a gain of 0.4 percent. December brought some good news with non-store holiday sales (indicator of online purchases) growing 6.8 percent according to the National Retail Federation. Restaurants and bars enjoyed a gain of 0.8 percent over their November performance, while food and beverage stores, pharmacies and other health and personal care stores reaped higher sales. Full year figures for consumer spending show retail sales rising 4 percent for the year. Considering the massive savings in energy, some wonder if the numbers could have been higher.

Steve Barr, retail and consumer sector leader at PricewaterhouseCoopers, suggests that the picture might have been even better except for the “the conflicted consumer” factor. These are the cautious shoppers who may still have been struggling to balance cost of living expenses with recent gas savings. But with the added factor of the strengthening national economy and continued low energy costs, this conflicted consumer may soon feel much less conflict.

Consumer Confidence Is Gaining Traction Fueling Retailers Optimism

“It’s a no-brainer. It’s going to be a better year for the consumer in 2015,” predicts Paula Campbell Roberts, consumer analyst at Morgan Stanley, citing the $80 billion dollars in savings from lower gas prices projected for Q1 of 2015. Terry Lundgren, Macy’s CEO and Chairman, agrees. Addressing the National Retail Federation earlier this month, he said, “I think we’re in a place right now where consumption can return back to what we’ve seen in the past.” So with an additional $550 to $750 in their wallets during the coming year, Americans may be about to go on a long-delayed shopping spree.

Younger Demographic and Lower-to- Middle Income Households To Benefit Most

Households with lower-to-middle disposable incomes will feel the biggest economic boost from cheaper gasoline. This includes members of the large 18-34 demographic, who are inclined to spend even when their budgets are tight. This group may lead the anticipated retail spending surge. In a recent National Association of Convenience Stores Survey, a third of the 18-34 year old respondents said they would use their gas savings to make more discretionary purchases beginning in January.

Rising Wages and Employment Help Brighten the Retail Outlook

The American Automobile Association, whose Daily Fuel Gauge recently reported gasoline at $2.08 per gallon, predicts that low prices will remain stable for the first half of this year, with a moderate rise post-summer. The price-per-gallon is expected to remain under $3.00. That mid-year uptick in gas prices should be offset by rising wages and declining unemployment in a recovering national economy.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, sums it up. “Consumers real disposable cash flows are surging, confidence is high and rising and the labor market is recovering at an astonishing rate.” That’s good news all around, especially for retail real estate.