September 21, 2006

Dropping Gas Prices Fuel Online Retail Visits

On Tuesday the National Retail Federation (NRF) released its forecast for holiday retail sales, expecting U.S. retail to increase by a very moderate 5% over the previous year. This article from CNN Money, makes the point that declining fuel prices will likely have little effect on this year's holiday retail sales.

I decided to revisit a chart that I created last year that showed the effect of rising gas prices on online shopping visits to see if the recent drop in pump prices was having any effect on consumer shopping activity. First, here's a chart that shows a year-over-year comparison of visits to our Retail 100 index (top 100 online retailers).

As we've seen before, there tends to be great similarity in year-over-year seasonality of visits to the Retail 100. That being said, visits to online retailers have been lagging this year compared to last (in second quarter 2006, retail visits were down an average of 3.3% in the U.S.).

In this next chart, I focused in on the time period between March and September, again comparing market share of visits 2005 to 2006 in the U.S., but this time, overlaying mean U.S. retail gas prices (all grades) to show the effect of gas price fluctuation on retail visits.

For the first time this year, we are seeing a year-over-year increase in online retail visits as of the first week of September, which coincides with a drop in retail gas prices. To make the relationship between these two data-sets clearer, I created the following chart.

Above, the bars indicated the difference in retail visits for the Retail 100 index between 2005 and 2006, with the mean retail gas price figure plotted in red. The correlation between the two appears to be strong. Regarding causation, an argument could be made that even though gas purchases amount to only 7-8% of household budget, gas prices are a key factor in consumer sentiment, and that if the relationship between online shopping visits and gas prices continue to fall we may be seeing a stronger growth in online retail for the 2006 holidays.

Posted by Bill Tancer at 12:53 PM

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