Thursday, July 06, 2006
The overall trend, which is probably dominated by WMT and Costco, is down. I was quoted in this morning's local paper as saying $3 gas is here to stay rather than $2. Certainly I don't think we'll never get below $3 -- $2.50 might happen -- but dropping to $2 is not that likely and if so we still will keep $3 in the back of our minds now.
Wal-Mart, the world's largest retailer, said June sales at its stores open at least one year, the preferred performance metric among retail mandarins, were higher by just 1.2% compared with the same period a year ago. Though Wal-Mart, like other chains, faced a tough comparison with boffo sales last summer, gasoline prices were fingered as a factor behind the chain's tepid performance. Tom Schoewe, Wal-Mart's finance chief, said in a statement that customers were making fewer trips to the company's stores on account of high gasoline prices, and that those who did make it through the door were concentrating their purchases on food and other staples. "The priority in spending by our customers is on food and consumables," he said. That phenomenon wasn't limited to Wal-Mart. Dollar General, another discount chain that caters to a lower-income clientele, noted that consumers were buying more food and cleaning products and less clothing.
But not all low-price chains suffered last month, and those that lured higher-income shoppers who are better insulated from weekly ups and downs at the pump fared best. Target, which has aggressively marketed itself as a more stylish and shopper-friendly alternative to Wal-Mart, saw same-store sales increase 4.8%. In a note to clients, analysts at Morgan Stanley pointed out that Wal-Mart has placed many of its stores in lower-income and rural areas, while Target has focused on courting wealthier urban and suburban shoppers. Staying closer to population centers has allowed Target to maintain a high level of customer traffic in its stores, while the typical Wal-Mart shopper facing longer, costlier drives might think twice about leaving home. Further, in the face of tough comparisons with last year, when a warm June sent consumers on a clothing-buying bonanza, Target's success offered "a testament to their merchandising," analysts at Banc of America Securities wrote. Like Target, Costco Wholesale also made gains by wooing shoppers less sensitive to energy-price pressures. Costco's same-store sales rose 6%, as Wal-Mart's Sam's Club, Costco's biggest rival, saw such sales climb just 1.3%.
Economizing on trips to Sam's will occur, but if WalMart is selling mostly goods people want but want cheaper, it's hard to see how they are going to be hurt that much by the cost of driving. What it might say instead is that people who moved out to the countryside and drive into the city to work are being stretched more for their gas. Here's an update of a graph I used last year when we first discussed $2.60 gasoline, with an assumption that the price stays at this morning's $3.099, and uses the May 2006 wage rate of $16.59 per hour. Even in per-hour-of-labor terms, gas is now as expensive as in my lifetime. And if that's true, I see it as difficult to believe some stores are immune to this just because they "target" a different demographic.
I know I haven't panicked about oil prices yet, and I'm not yet -- but another 15% increase would have to get my attention, and yours.