TORONTO – Savings at the pump may allow many Canadians to shell out more for gifts this holiday season and boost sales for retailers, analysts say, particularly as a weaker loonie prompts fewer shoppers to venture south of the border.
Oil prices have fallen well over 40 per cent since the summer, leading to a major sell-off of energy stocks, but it has also translated into savings for motorists filling their tanks.
And that’s likely to spur lower- to middle-income Canadians to splurge more on Christmas gifts said Mark Satov, president and founder of Satov Consulting.
Weakness in the loonie also means fewer Canadians will go across the border to do their holiday shopping, Satov added.
“When you do a price parity comparison and you go and see what that jacket is selling for in Buffalo, it’s getting more and more expensive as the Canadian dollar drops,” he said.
While all Canadian retailers are likely to benefit from Canadians having more disposable income in their pockets, RBC analyst Irene Nattel says convenience stores are “on the front lines of this new spending opportunity,” especially those attached to gas stations.
“Savings at the pump are likely to drive the purchase of small indulgences in the short-term,” Nattel said in a note to clients.
Steve Tennant, the vice-president and general manager of Hasty Market, said lower gasoline prices will motivate Canadians to do more driving.
“If there is an increase in people driving, that means more frequent stops at the gas station,” Tennant said.
Some of the money saved at the pump will likely go to paying down debt, said Tennant, but not all of it.
“Hopefully we can sell a few more lottery tickets because there’s more disposable income in everybody’s pocket,” he said.
Lower gasoline prices will also reduce the fuel surcharges that retailers pay to have goods shipped to their stores, said Tennant.
Alex Scholten, president of the Canadian Convenience Stores Association, said gas stations are also likely to see fewer incidents of customers driving off without paying.
“When the price of gasoline goes down, customers don’t feel the pinch as much, and as a result our experience has always been that the incidence of those drive-offs goes down significantly.”
But retailers could end up suffering if low oil prices persist for a long time and leave the economy battered, Satov noted.
“What you could see is further downward pressure on the stock market, and on the economy in general, because we’re so resource based, which would lead to lower consumer confidence, which would lead to lower retail spending,” Satov said.
“So short term, for Christmas, I think we’re probably fine and maybe even positive. Longer term, depending on what happens, I think you could see an economic downturn to some degree, and retail never does well in economic downturns.”