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Rising Gas Prices Have Retailers Reeling

NEW YORK -- Despite the slowdown of such macroeconomic indicators as durable goods, industrial production, total retail sales and employment, the percentage of retailers citing positive current and forecast conditions in the VNU Retail Index for current conditions showed a slight increase in June that held steady for July, though respondents have not recaptured the volume of positive evaluations reported in March and April.

That dip in confidence can be linked to rising fuel prices -- more than 63 percent of retailers surveyed cited fuel prices as having the most significant impact on sales. The national average for regular unleaded gasoline was higher than $2 a gallon in June, which equates to an increase of over $30 a month for consumers vs. a year ago. Retailers are clearly concerned about their customers' lost purchasing power.

Supermarkets were most likely to evaluate conditions as positive -- more than 70 percent did so in both June and July. C-stores were close to average for these months, with about two-thirds reporting positive evaluations in both months.

Perhaps not surprising is that the largest companies (those with more than 501 units) are more positive in their evaluations -- in July, for example, 77.8 percent were positive, compared to the average of 65.8 percent.

"Retailers generally appear more concerned over the impact of rising gas prices on an already tough retailing environment and with the key selling season approaching, the focus will be on the employment data as the strong stimulus in 2003 eases somewhat," said James Russo, director of ACNielsen Retail Services. "Keep an eye on the performance of major discounters and price-oriented formats in August and September as a bellwether for essential fourth-quarter results."

As for retailers' view of business conditions in the next six months, overall positive expectations dropped to 72.6 percent in July, compared to a high of 82.1 percent posted in April. "This may point to retailers' concern of a slow back-to-school and holiday selling season due to less stimulus and the impact of rising gas prices," said Russo.

The VNU Retail Index is an economic indicator designed to uncover new insights into retailers' assessments of their current and future business conditions.

The Index is based on survey results received on a monthly basis from a panel of more then 500 convenience, drug, grocery, mass and specialty retailers across the country. The survey contains six questions calling for an appraisal of current business conditions and operational challenges, as well as expectations regarding business conditions, hiring and store count in the next six months.

If you are a retailer interested in joining the VNU Retail Index panel, please contact Debra Chanil, director of market research, at [email protected].
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