It has been well discussed that rising gas prices are going to hurt consumer spending but what will the financial impact of energy costs be on retailers?
Deutsche Bank analysts came up with a hard number. If gas stays around $3.47 for the rest of year stores are looking at a $67 billion impact that is expected to hurt operating margins more than sales.
From Deutsche Bank’s Mike Baker and Adam Sindler (emphasis ours):
We believe that transportation costs equate to about 2% of a retailers total costs, with perhaps half of that being diesel fuel. So, a 19% y/y increase, which is where we are currently tracking, would impact margins by about 20 bps directly. The indirect cost would come in product cost, which would rise as vendors try to pass along their own transportation increases, as well as raw material costs.
The retailers that will have to pass costs to their customers first predominantly serve low-income households including Dollar General, Family Dollar and 99 Cents Only. These stores had the highest negative correlation with rising gas prices followed by auto parts retailers and PetSmart.
Bed, Bath & Beyond, Radio Shack and Office Depot were found to be able to absorb margin costs more easily.
Retailers with big e-commerce operations including Williams Sonoma also showed high exposure to gas prices because of the impact on shipping costs. However, online retailers could benefit from consumers not wanting to get in their cars to shop because of gas costs but this will only happen if the retailer hasn’t passed on high shipping costs to them.