Higher energy prices will have an adverse effect on holiday spending this year, according to surveys released this week. However, the extent of that impact is still undetermined.
The National Retail Federation said on Wednesday that total holiday retail sales are expected to increase 5 percent over the previous year, bringing holiday spending to $435.3 billion.
NRF lists a number of factors for the modest increase over the 2004 holiday season, which rose 6.7 percent to $414.7 billion. Among them were the fuel costs.
“A combination of many factors, including energy prices, the job market, disposable income, and consumer confidence, will ultimately affect retailers’ sales this holiday season,” said NRF Chief Economist Rosalind Wells. “Though it might be easy to label gas prices as the make-or-break factor for the holidays, it is crucial for analysts to look at the big picture instead of isolating one economic indicator to project sales.”
Meanwhile a consumer survey from BIGresearch notes that more than 40 percent of respondents say they will spend less this holiday season because of high gas bills.
How will high gas prices impact holiday shopping budgets?
* 21.9% say it’s too early to know
* 5.7% plan on spending more
* 29.0% plan on spending the same
* 40.2% plan on spending less
One-fifth of retail industry sales (19.9%) occur during the holiday season, making it the most important time period of the year for the industry. The NRF says the effects of Hurricane Katrina and high prices at the pump play a role in the tempered outlook. However, NRF maintains that steady consumer spending and strong second and third quarter gains indicate potential for a solid holiday season.
“Consumers won’t have to wait until the last minute to get the best deals this year because retailers are expected to be aggressive in their pricing strategies throughout the entire holiday season,” said NRF president and CEO Tracy Mullin. “Stores are planning for holiday sales and promotions, so discounted prices won’t have a negative effect on profits.”
According to the BIGresearch survey, 80 percent of consumers say that fluctuating gas prices are having an impact on their spending, and as a result they are delaying or reducing expenditures on cars, TVs, furniture, groceries, clothing, dining out and vacation/travel. In addition, 77 percent of those impacted by gas prices say they will be driving less. Confidence in the economy is also lower for this group, only 28.8 percent are confident or very confident vs. 35.5 percent of all consumers.
Other ways those impacted by high gas prices are coping include:
* 70.8% say they are focused more on needs than wants •
* 56.6% are now more budget conscious *
47.5% say they plan to decrease overall spending *
89.2% say they usually or only buy clothing on sale
“The U.S. Consumer is not viewing fuel for their cars as a hard necessity, but between a need and a want, which has to be managed. This mindset will create spending impacts, which could have ‘a multiplier effect.’ In short, when the consumer has to think about gas for the American icon ‘family car,’ all facets of budget are put into question,” said Joe Pilotta, VP research, BIGresearch.