High Prices at the Pump May Send Consumers Online

Rising gas prices may be withering consumer confidence these days, but online retailers see a silver lining in the disturbing trend.

“People are going to be less inclined to drive to shopping centers,” Bernard Baumohl, executive director of the Economic Outlook Group in Princeton Junction, N.J. told the E-Commerce Times. “Instead, they’re going to stay at home and if they carry on their usual holiday spending patterns then they will do it more likely online.”

He predicted that the 2006 holiday season will be a banner year for online retailers.

“Right now, e-commerce represents about 2.2 percent of total retail sales, he said. “That number has been generally climbing over the last couple of years.

“I would expect that we’re going to see the biggest increase in online sales this season,” he continued, “precisely because of American households just not wanting to spend that much money driving around to malls and wasting gas.”

Consumers Inured to Increases

However, early indications are that consumers aren’t fretting about gas prices putting a crimp in their holiday shopping styles.

In a survey released earlier this month by NPD, of Port Washington, N.Y., 65 percent of consumers said that the price of gas would have very little or no impact on their holiday spending.

The survey found that the average consumer expected to spend US$681 on holiday gifts this year, a three percent increase over last year’s average of $655.

Most of the consumers surveyed by NPD — 67 percent — said they’d be shopping at discount stores, like Wal-Mart and Target — while 37 percent told pollsters they’d be shopping online.

“The added dynamic this holiday season for consumers will be the higher fuel prices and higher heating expenses we’re seeing in the market now,” NPD Chief Industry Analyst Marshal Cohen said in a statement. “Despite these challenges, retailers will fare well this holiday season and consumers will not let these distractions spoil their holiday shopping spirit.”

High Price of Shipping

Consumers, however, aren’t the only ones affected by rising fuel prices. Online merchants need to ship their wares to their customers and shipping requires fuel.

It’s common practice for shippers to pass increased fuel costs on to customers. Federal Express recently announced a 5.5 percent hike in its rates, effective Jan. 2, due to rising gas prices. And UPS passes fuel cost increases to its customers through monthly surcharges.

According to UPS Spokesperson Susan Rosenberg, the surcharge for ground service customers is 3.5 percent in October and will be 4.5 percent in November. The surcharge for air services, which is capped, was even higher — 12.5 percent for October, up from 9.5 percent in previous months.

She told the E-Commerce Times that fuel costs increased, year over year, 30 percent in the first quarter of 2005 and 45.3 percent in the second quarter.

Net Hawkers Holding Line

However, according to the Shop.org/BizRate Research Holiday Mood Study released last week, Net merchants won’t be passing their increased shipping costs onto consumers.

The survey revealed that 79 percent of online retailers plan to offer free shipping, with conditions, during the holiday season.

“Online shoppers are clearly motivated by promotions like free shipping, gifts with purchase, and special online offers,” Shop.org Executive Director Scott Silverman said in a statement. “These promotions will enable customers to save money while helping retailers maximize their holiday sales.”

He added, “Because companies have planned for them as part of their overall marketing strategy, these promotions will not come at the expense of profits.”

The mood study also disclosed that Net sellers were very optimistic about the coming holiday season. All companies responding to the survey predicted sales gains over last year, pollsters found. Some 19 percent of the merchants are expecting sales to double over 2004 and 54 percent estimated increases in the 20 to 99 percent range.