A Cloudy Forecast
By Seth Mendelson
Published: July 1, 2012



Which way is the wind blowing now?

For the second time in eight months, the economy appears to be at a crucial juncture, one that could determine the fate of the retail pet industry during the vital holiday selling season.

Late last year, the economy was at a similar position. Gas prices were heading down­­—below $3 per gallon, in some cases­—and there was talk among economists that the dreaded double-dip recession seemed to have been avoided. Unfortunately, the reverse happened. Starting in January, gas prices zoomed up by about 25 percent, causing consumers in some states to pay in excess of $4.50 for a gallon of gasoline. By late spring, all anybody could talk about was a second recession caused by these higher energy prices and chaos in Europe that was bound to spread to the U.S.

Suddenly, however, commodity prices started to drop again. Gasoline is back up to the $3-per-gallon mark in some places, and now economists are again saying that the worst could be over.

So which is it? Will things continue to improve, or will the economy take a turn for the worse, just in time for the fourth quarter, when most retailers make a good portion of their sales and profits?

The answer will be previewed at the gas station and confirmed by watching the unemployment rate. All pet retailers and their suppliers have to do is watch the price of gasoline over the next four months. If it stays steady or declines, the holiday selling season should be a good one for the category. If it starts to rise again, all bets are off. Back that up with the unemployment rate. As we head into a presidential election, most economists hope that this rate will decline by a point or more, to around seven percent, by November. If it doesn’t, this could also send the economy into a tumble.

What we have learned from the latest economic downturn is that while the pet category has held its own, there are limits for some consumers. Retailers reported that they saw a slowing of sales in the pet care market, though pet food seems to hold on better. Consumers were also looking to trade down, based solely on price, to make ends meet and keep more money in their pocketbook during these tough times.

Unfortunately, there is not much retailers can do. At this point, consumers will decide if they are confident enough to make incremental purchases. Because of what has happened over the last four years, that mental state now applies to the pet category, and a few factors will determine the mood of the shopper going into the fourth quarter.

Stayed tuned.