High Fuel Costs May Hit Retailers Harder Than Consumers
October 17, 2000
Despite high fuel prices, retail prices and shipping fees paid by consumers are likely to remain pretty consistent this holiday season, largely because of the intense competition between Internet and traditional retailers.
That's the prediction of a recent article in the Wall Street Journal
, which also said that what's good news for consumers is bad news for retailers. Fierce competition could mean that many will have to absorb, rather than pass on, increased fuel costs for trucks, trains, and airplanes. Disappointing numbers are bound to surface in February, when the retailers start reporting their fourth-quarter earnings.
"It's a conundrum retailers are facing," Carl Steidtmann, chief retail economist at PricewaterhouseCoopers, told the Journal.
"They've got huge cost pressures but no pricing power, because there's an oversupply of everything from apparel retailers to grocery stores."
The big wigs of the industry vow to keep pressure on the rest of the merchants by continuing their aggressive pricing strategies despite the higher fuel prices. For example, Wal-Mart, the nation's largest retailer, says the oil-price increase will have little effect on its retail prices.
"Our everyday low prices will stay everyday low prices," spokesman Tom Williams told the WSJ.
Merchants that ship goods directly to consumers, especially catalog and Internet retailers, are among the group that will feel the pinch the most. And thanks to fuel surcharges implemented by trucking companies, most will end up having to pay more to ship packages to customers.
Catalog companies have it much worse, considering they printed up their holiday catalogs months ago and many of them can't go back and change the prices.
Online retailers have more flexibility when it comes to changing prices on their web sites, but most are choosing not to do so, realizing that raising shipping costs is a sure way to alienate customers and send them to shop with a competitor, the article stated.
Higher fuel prices are causing big problems for retailers in two ways. They not only increase costs, they reduce consumers' disposable income, leaving little in their pockets to spend at stores.
There is no doubt that higher oil prices are taking their toll, the article says. Trucking companies, who handle the bulk of consumer goods, have been forced to apply surcharges as high as 6%. UPS, FedEx and the U.S. Postal Service, along with railways, have all been forced to take similar actions.
What complicates things, the WSJ reports, is that fuel prices have been so unpredictable. Since the article was published, prices have shot back up following violence and unrest in the Middle East.