NEW YORK — Even as gas prices motored past $3 a gallon on Thursday and consumers panicked when some filling stations ran out of gas, analysts suspect retailers have no need to worry. Yet.
At least in the near term, retailers shouldn’t fret that sales will be outwardly affected by a crimp in consumer discretionary incomes due to gas prices. Even in what could be seen as a potential doomsday scenario, where gas prices eventually soar to more than $5 a gallon, analysts believe U.S. consumers eventually will adjust, albeit by possibly choosing to drive hybrid vehicles as opposed to gas-guzzling Hummers, for example.
“It’s going to take a lot more than this [$3 a gallon] to really pummel the consumer,” said Ken Wasik, director of the consumer products group at Houlihan Lokey Howard & Zukin, an investment banking services firm. “It doesn’t seem like this is going to be enough to change things.”
Wasik pointed to the fact that gas prices generally have kept up with inflation, and that the job market has improved.
At around $2.58 a gallon, according to David Schick, hardlines retail analyst at Legg Mason Wood Walker, gas prices are about 40 percent higher than last year, not including the impact of Hurricane Katrina. Schick said if gas prices reached $3.50 a gallon, about 2.6 percent of consumers’ pretax income would be affected. With a 2.6 percent drop in spending, earnings per share could be dragged down 4 percent in 2005 and 13 to 14 percent in 2006 among hardline retailers. This assumes a 260 basis-point decline in same-store sales, the analyst said in a Wednesday research report.
What about gas at $5 a gallon? Analysts said this scenario could be weathered by U.S. consumers, but not without some sort of sacrifice.
Mark Rein, senior manager in Capgemini’s retail practice, explained, “There are other areas of spending that are going to have to get cut when gas is at $5 a gallon. There are certain items that American consumers over the past five to seven years have really started to splurge on. I think you’ll see that type of splurging start to pull back because it doesn’t make sense anymore.” Some of the splurges could include $5 gourmet coffee drinks, $500 handbags or $50,000 kitchen renovations.
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Wasik said consumers generally will change their spending behavior “when there’s a sudden jolt” in gas prices. While U.S. gas prices are currently in what he called “a sudden change, not a big jolt” scenario, if gas prices were to quickly jump to $4 to $5 a gallon, due to a sudden oil refinery shutdown, for instance, it could be enough to scare consumers from spending. Indeed, gas prices reportedly already have risen to more than $5.50 a gallon in some remote areas, which most likely is due to profiteering.
Meanwhile, it is expected that consumers also face higher home heating costs, which stands to be another factor that could impact retail sales, especially toward the holiday season. A recent Standard & Poor’s report said oil prices are not likely to fall significantly before the coming heating-oil season.