• February 1, 2023

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Gas prices fell for the first time since March of this year and the national average in the United States is now under $4.00 per gallon. Retailers are just entering the peak back-to-school selling period and will slowly ease into the holiday season. Gasoline prices can significantly impact discretionary spending for non-essential items. As gas prices fall, consumers have more money to spend on other categories, fueling more robust back-to-school sales.

Gas prices impact customer spending

The drop in gas prices results from a decline in oil prices, tax suspension in some states and weaker demand. Gasoline prices have traditionally had low elasticity, meaning that fuel price does not significantly impact fuel consumption. However, as fuel prices rose above $5.00 a gallon, consumers stated that their behaviors were changing. According to AAA, 64% of surveyed U.S. adults have changed their driving habits or lifestyles since March, with 23% making “major changes.” Drivers’ top three changes to offset high gas prices are driving less, combining errands, and reducing shopping or dining out.

Consumer sentiment regarding high or low fuel pricing does impact how consumers spend on other categories. Additionally, a Gallup survey found that since consumers observe gas prices quite frequently, consumers’ sentiments change pretty quickly when prices change. A decrease in gas pricing is seen almost immediately by consumers. It is a dinner table topic across the United States, resulting in quick shifts in consumer purchasing, which should include increased back-to-school purchasing.

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Lower gas prices benefit retailers

Retailers will benefit from lower gas prices in terms of transportation costs (which will lead to lower prices for products) and consumers spending more on non-essential product categories. The back-to-school selling period has elongated over the past few years, running from July to October. Consumers are increasingly planning their back-to-school purchasing and will benefit from lower gas prices at the peak of the return-to-school selling period.

Back-to-school spending

According to the National Retail Federation (NRF), consumers have significantly shifted how they spend in specific back-to-school categories in the last three years. Expected spending on electronics accounts for half of back-to-school growth and nearly one-quarter of back-to-college growth since 2019, solidifying its place as a core category in the back-to-school shopping season. NRF senior director of industry and consumer Insights Katherine Cullen stated, “People are thinking about back-to-school and college the way they are other major spending events, like the winter holidays.”

Lower fuel prices are a win for retailers and consumers, but the trend may be short-lived depending on the uncertainty of oil pricing. While back-to-school sales can benefit, it may not be a constant positive factor leading into the holiday selling period.

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