Having weathered a global tariff crisis, the consumer economy started off the year poised for enough growth that a scrum of retail chains were rolling out plans to add thousands of new stores to their fleets, plus major revamps of existing locations.
An early forecast by Coresight Research, which tracks such trends, predicted more than 5,000 new stores would open this year in the U.S., and that the number of store closures would fall to a three-year low.
Now, exactly six years since the chaotic onset of the Covid pandemic changed retailing forever, such optimism is in short supply. Retail industry execs once again find themselves trying to chart the future without a compass or a road map. How much longer will the Iran War and its disruptions continue, and how will it all affect consumer behavior?
No one can predict the former, but the outlook for consumer spending seems inevitable.
Already stressed by mega-trends (e.g., grocery inflation, unaffordable housing, AI eliminating jobs), the sudden hike in fuel prices alone is straining the nation’s wallet.
According to the U.S. Energy Information Administration, Americans burn about 375 million gallons of gas a day. The average price of a gallon of gasoline in the U.S. is currently just under $4.00, according to AAA. A month ago, before the war broke out, it was just under $3.00.
Thus, on an annualized basis, Americans are collectively spending $137 billion more on personal transportation.
While that is a small percentage of total personal consumer spending in the U.S. (about $21 trillion last year, according to Federal Reserve data), it has a much bigger impact on household budgets for essentials.
Total household spending on groceries and restaurants averages $1,546 a month, according to the most recent data from the U.S. Agriculture Department. Fed data counts 133 million households which, on average, would be spending an additional $1,000 or so a year on gas, assuming prices remain high. Natural gas for heating has also spiked and is approaching a record high set in 2023.
Energy prices don’t have to remain high for long to change consumer psychology.
Those big, bright gas station signs are powerful cues for how people perceive their financial situations from day to day.
High fuel prices will also add to the expenses of mass merchants who rely on trucks to move large shipments of inventory and the last-mile costs of e-commerce retailers. A sudden spike like the one we’re experiencing is a source of anxiety that should make all retailers nervous and prompt a pause in some of those expansion plans.
If there will be any winners in this scenario, it is likely to be off-price and budget brands.
Dollar General has said it expects to open 450 new stores this year, and Aldi has announced 180 new U.S. stores.
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