By Josh Mitchell And Suzanne Kapner
American retailers are getting a gift just in time for the
holidays: a sharp drop in gasoline prices that is delivering a
welcome boost to the pocketbooks of U.S. consumers.
Savings at the pump propelled sales across retailers in
November, a new economic report showed, buoying hopes for the final
stretch of the holiday shopping season. The jolt to consumer
spending power, after years of weak wage growth and other
headwinds, appears set to continue after U.S. oil prices slipped
below $60 a barrel.
Cheaper gas--to just below $2.50 a gallon in many
places--coupled with job growth running at the best annual pace
since 1999 are converging to brighten the near-term outlook for
consumer spending, retailers said.
"Consumers are fairly optimistic," said Jay Stein, chief
executive of Stein Mart Inc., a Florida-based chain of 275
discount-clothing stores.
Overall U.S. retail sales climbed 0.7% in November, the biggest
jump in eight months, following a solid gain in October, the
Commerce Department said on Thursday. Americans stepped up
shopping, shelling out more for cars, gardening supplies,
electronics and clothing while also dining out more.
The outlook is by no means ebullient, and the choppy performance
of consumers in recent years underscores the challenge. Stein
Mart's same-store sales rose 4.8% last month. Mr. Stein said
although consumers are buying more, they remain determined to spend
carefully. "Splurge is a word we haven't heard in a while," he
said.
November's gain boosts the prospects of retailers bracing for a
sluggish holiday season after disappointing Black Friday sales in
late November.
Niraj Shah, CEO of Wayfair LLC, an online furniture retailer,
said his business is feeling a tailwind from cheaper gas. The
consumer "has a limited amount of discretionary income," Mr. Shah
said. "This should give them some more room to spend."
Back Yard Burgers Inc., a Tennessee-based restaurant chain
operator, posted an 18% sales gain during Thanksgiving week
compared with a year earlier. Sales have continued to climb
steadily in December, said CEO David McDougall.
"More discretionary income is available" because of lower gas
prices, Mr. McDougall said. "For the restaurant sector as a whole,
I think that bodes well for us." He believes there broader factors
are at play: faster job growth, improved consumer confidence and
his menu revamp with higher-quality products, including a $7.99
prime rib sandwich.
The average price of a gallon of regular gasoline has fallen by
more than a dollar since mid-June. That has freed up billions of
dollars collectively for consumers to spend on other goods.
Families on average had $42 more to spend in October compared with
June thanks to the drop, Bank of America Merrill Lynch economists
estimate.
Sharp drops in fuel prices historically occurred during a weak
economy, when consumers are downtrodden. In 2008, prices fell from
a peak above $4 a gallon in the summer to near $1.60 by December,
government figures show. But retail sales also tumbled.
This time, the U.S. economy is picking up, unemployment is
falling and consumers are gaining confidence. "We're through the
recession and the oil prices have fallen due to increases in
supply--that's a very different situation" than falling demand,
said IHS Global Insight economist Chris Christopher.
As a result, lower gasoline prices are giving consumer spending
an "upward jolt," he said. "It's at the right time of the year. The
fourth quarter is the consumer quarter."
When Wal-Mart Stores Inc. reported in November its first
quarterly sales increase since 2012, the chief executive of its
U.S. operations, Greg Foran, pointed to falling gasoline prices as
a factor.
The National Retail Federation, an industry trade group, said
November's gains were consistent with its forecast for a 4.1% rise
in retail sales for the holiday season, the strongest gain since
2011.
The trade group spooked investors and some retail executives
when it reported an 11% drop in retail sales over the Thanksgiving
weekend. Analysts said sales were likely pulled forward when
retailers offered holiday deals in early November.
November same-store sales at the handful of retailers who
release the figures rose 4.4%, more than the expected 3.4% gain,
according to Retail Metrics.
"We see signs that we might gain a bit more tailwind from
improved customer sentiment, higher employment, and lower gas
prices," Karen Hoguet, Macy's Inc.'s chief financial officer, told
analysts last month.
But Ms. Hoguet added Macy's was balancing those benefits against
the reality that customers were spending more of their disposable
dollars on categories that the retailer doesn't sell, such as cars,
health care, electronics and improvements to their homes.
Shelly Singh, a 39-year-old stay-at-home mother who lives in
Valley Stream, N.Y., said she plans to use the extra money from
lower gas prices to plan a family vacation. "The fact that gas
prices are lower will save me money," Ms. Singh said.
Write to Josh Mitchell at joshua.mitchell@wsj.com and Suzanne
Kapner at Suzanne.Kapner@wsj.com
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