Purdue News

October 20, 2005

Holiday shopping forecast: The good, the bad and the squeezed

WEST LAFAYETTE, Ind. – A Purdue University retail expert says consumers will have deals galore early and late as retailers adjust to gas prices that will likely limit shoppers' trips to the mall.

"While consumers have adjusted to $3 per gallon gas and have kept spending, high gas prices act like a tax on retail spending," says Richard Feinberg, director of the Purdue Retail Institute and Center for Customer-Driven Quality. "Retailers realize that fewer visits by consumers because of high gas prices mean they must offer bargains, sales and promotions designed to 'compel' spending."

Feinberg, who is a professor of consumer sciences and retailing, predicts consumers will spend 2 percent to 6 percent more overall than last year, but retailers will see an increase of only 1 percent to 4 percent, when they'd much rather be in the double-digit range. Internet sales will increase $5 billion from $20 billion last year, but Internet spending still represents only 5 percent of the $435 billion that will be spent this year.

"The effect of home heating increases will be much greater than gas prices," Feinberg said. "While the 25 percent increase in gas prices costs the average family $10 per week, heating costs will increase $150-200 per month.

"And because consumers tend to pay for gas with credit cards, the increased price tends to be hidden. But most people write checks for heating costs, so those increases are much more apparent."

The season's biggest heating bills won't arrive until after Christmas, which is good for retailers in the short run but bodes poorly for retail sales in January, February and March. There's even more bad news for retailers tucked into those home heating bills, Feinberg says.

"January has become a bigger factor in holiday sales – a total of 10 percent – largely because gift cards have become increasingly popular. Retailers can't book gift card sales until purchases have been made, so this hurts retail spending reports in the traditional holiday shopping period."

As energy costs and skittish consumers translate into a challenging season for retailers, Feinberg says big retailers will have an advantage.

"Wal-Mart can pressure vendors and manufacturers to sell them products at lower prices and, therefore, Wal-Mart maintains profit margins," he said. "Smaller retailers don't have that kind of leverage with suppliers, so this will translate into lower profits."

Feinberg says the squeeze on retailers also will affect seasonal employment.

"One way for retailers to attempt to maintain profitability is to control expenses. So there will be fewer seasonal employees hired this year, and those hired will work fewer hours."

Finally, Feinberg said retail fragmentation means analysts need to look differently at holiday sales.

"The traditional measure is same-store sales increase," he said. "But most national retailers have added outlets in the last five years, so retailers may have smaller same-store sales but higher overall sales."

Writer: Mike Lillich, (765) 494-2077, mlillich@purdue.edu

Source: Richard Feinberg, (765) 494-8301, (765) 491-5583 cell, xdj1@purdue.edu

Purdue News Service: (765) 494-2096; purduenews@purdue.edu


To the News Service home page

Newsroom Search Newsroom home Newsroom Archive