Gauging the Pump
By Seth Mendelson
Published: November 1, 2011

Continental Airlines was kind enough to upgrade me to first class a few weeks ago. It gave me the opportunity to sit down next to a leading economist who schooled me on a few things about the retail world as we traveled from one coast to the other.

First and foremost, he told me, retailers should pay extremely close attention to the price of gasoline. For every price increase or decrease of 10 cents, retailers gain or lose an average of one percent of sales, he estimated. So a dollar or so jump or decline in the price of a gallon of gas at the pumps can make a big difference in how a retailer will perform over the next few months.

Fortunately, the cost of oil appears to be heading down. As I write this column, the price of a barrel of oil is hovering around $75, far off its recent highs of more than $100 a barrel several months ago, but still above where oil traditionally traded five to 10 years ago. My new economist friend predicted that gasoline should be selling at under $3 a gallon in much of the country by early November, barring any unforeseen political or weather-related issues.

Gasoline is a tax on the American consumer, he stressed. Higher prices take money out of everyone’s pockets and dampen incremental spending, not to mention kill any enthusiasm most shoppers have for spending. Lower prices have the reverse effect. That means more money in the consumers’ pocket and, perhaps, a greater desire to spend some of that dough at such retail outlets as the neighborhood pet store. More importantly, the decline in gas prices, if they hold, could not come at a better time. The upcoming holiday season promises to be an unsteady period, and some industry observers are forecasting flat to little growth over last year’s performance.

Now, with potentially more money in consumer’s pockets, there is a glimmer of hope that they will get out of the homes and spend more at retail outlets for themselves, their relatives and, most importantly from our angle, their pets.
Just keep a close eye on the price of gas at the pump. If it keeps going down, we just might have a much greener holiday period.