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Gaming Guru

Chris Jones
 

Consumers Still Spending

3 August 2006

LAS VEGAS -- Consumers will continue to say otherwise, but rising gasoline prices aren't keeping Americans from shopping normally, a prominent retailing consultant said Wednesday in Las Vegas.

In recent months, worries surrounding fuel prices' negative effects on the economy have led more U.S. consumers to say they'll cut back at stores.

But that talk means little to most once it's time to crack open the wallet or pocketbook, said Marshal Cohen, chief industry analyst with the NPD Group.

"Boy, are we short-sighted, and have a very short memory, when it comes to what our promises are when it comes to our behavior," he told a group of trade show attendees at Mandalay Bay.

NPD is a 39-year-old consulting firm whose corporate clients include Toshiba Corp., EMI Music and toy maker Hasbro.

The Port Washington, N.Y.-based company regularly surveys retailers and their customers to monitor industry trends, and its data show that fuel prices are a top-of-mind concern.

In October 2004, 42 percent of consumers NPD surveyed said gasoline prices affected their spending decisions.

As prices rose, that percentage climbed to 76 percent this April. Despite the increase, Cohen said, retailers shouldn't be overly concerned.

"Seventy-six percent of consumers can say (fuel costs are) going to affect their spending, but that doesn't mean that they're going to react that way," he said. "It's generally about one-third of the people who (do) what they tell us they're going to do."

For example, federal data showed that Americans cut down on driving in September and October, shortly after hurricanes Katrina and Rita devastated parts of the oil-rich Southeastern United States.

By January, however, people across the nation were again driving at a record clip.

One gallon of unleaded fuel, on average, cost 71 cents more today than it did a year ago, according to AAA.

Based upon a smaller 60-cent annual increase, Cohen said the average 20-gallon fuel purchase still has a minimal effect on a typical household's budget.

"The consumer is spending $12 a week more" on gasoline, Cohen said. "Is that really going to sway your behavior?

"Are you going to stop shopping? Are you going to stop doing the things that you love to do, and (alter) the way you live, just for $12?"

Some believe that answer is "yes."

Wal-Mart reduced its earnings estimates for this year's fourth quarter because of fears that fuel costs would lead to reduced consumer spending.

Analysts have also projected that gasoline prices will cause flat or decreased profits for several small retailers, cruise lines and casual dining operators that greatly rely on discretionary spending.

Looking back, NPD's year-over-year data suggests spending in several key categories increased from June 2005 to June 2006 despite higher gasoline costs, Cohen said.

Cell phone sales rose by 15 percent, and footwear grew at a 10 percent rate, NPD found.

The largest growth involved large appliances, sales of which rose 22 percent.

"Front-load washers and French door refrigerators have captivated America by storm. The fastest-growing home improvement is the laundry room," Cohen said.

The only category to slide was toys, which slipped 4 percent. Cohen said that category is suffering as children -- or more precisely, their parents -- buy more electronics and video games instead.

Home pampering, which ranges from at-home spa treatments to massaging recliners, "is huge," Cohen said, as are outdoor kitchen products.

"There's a huge opportunity for retail, and for the brands that service the retail community, to take advantage of this," Cohen said of existing demand. "The consumer today wants one thing: more."

The U.S. Census Bureau on July 14 reported that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, totaled $363.8 billion.

That's a decrease of 0.1 percent from May 2006, but up 5.9 percent from the prior year.

"The government keeps telling us, every single month ... about how consumer confidence is up again," Cohen said. "But yet when you ask consumers what's going on, why is it that with all of this good news none of the consumers are telling us that they have more money?

"It's really a dichotomy of emotions here. The consumers hear that things are good, but they're not feeling like things are any better."

Still, they spend.

Cohen's comments came during a breakfast seminar hosted by the World Shoe Association.