Gas savings won't help retailers in 2016: Experts

How low can they go?

Fresh off the heels of a six-year low for national average gas prices, hope resurfaced that consumers might finally start spending their savings at retail in the new year.

But while skidding oil prices continue to be a boon for shoppers' wallets — in particular, those living in low-income households — analysts are skeptical that these extra dollars will find their way into the cash registers of traditional retailers.

A customer fills her vehicle with fuel at a gas station in Chillicothe, Illinois, on Dec. 11, 2015.
Daniel Acker | Bloomberg | Getty Images

Instead, as consumers grapple with higher housing and health-care expenses; spend more on eating out and travel; and continue working to pay down debt or shore up their savings, experts predict retailers' malaise will continue into 2016.

"I don't foresee a huge spike in discretionary spending in traditional retail categories," said Ken Perkins, president of Retail Metrics. "Gas prices have been down now for quite a while … I'm skeptical if [consumers] haven't started spending [their savings] by now they're really going to alter their pattern of what they're spending it on."

According to recent analysis by Morgan Stanley, lower prices at the pump amounted to roughly $80 billion in annualized savings for consumers this year. Meanwhile, what's shaping up to be the warmest year on record has cut down on Northeasterners' pricey heating bills. On the jobs front, more Americans are at work, with the unemployment rate holding steady at 5 percent in November.

As the labor market continues to tighten and minimum wage increases take effect, Morgan Stanley predicts that average hourly earnings will increase between 2.5 and 2.7 percent in 2016. While that's still below the 3.5 percent growth that's typically considered healthy, it's up slightly from an expected 2.25 percent gain this year.

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While all of those factors should add up to a more confident consumer, Morgan Stanley argued that wage growth, as opposed to gas savings, will be the "dominant driver of gains in real disposable income."

Why? The firm said that consumers are more likely to spend extra money that they view as permanent in nature, such as a pay raise, as opposed to something that can ebb and flow as much as the cost of gas.

Still, there are some analysts who argue that in 2016, cheap gas should benefit a handful of retailers who cater to low-income shoppers. These consumers spend a higher percentage of their income on fuel, meaning lower prices help them disproportionately.

In a note to investors this month, Nomura analyst Robert Drbul said Wal-Mart "should continue to be a major beneficiary" of lower gas prices, as should J.C. Penney. Separately, Cowen and Co. analyst Oliver Chen listed a healthier moderate- to low-income consumer, who is being helped by lower gas prices, as one reason for his recent upgrade of Ross Stores.

Still, PwC's Steve Barr remains skeptical.

"The households below $50,000 are still really struggling and have not felt the impacts of the economic recovery," he said. "The small additional savings from lower gas bills has been really helpful, but it's really been more helpful in their day-to-day living."

Retail Metrics' Perkins said the key question remains how much of these savings are being offset by inflation. He cited the rising cost of health-care premiums, education and housing as three headwinds that continue to weigh on consumers.

To his point, Morgan Stanley's analysis found that only 30 percent of renters in 2007 put 30 percent or more of their income toward housing; in 2013, that number was 52 percent.

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Consumers' interests are also shifting toward dining out and travel. According to a report by JPMorgan Chase in October, almost 20 percent of the gas savings it tracked were spent at restaurants.

Meanwhile, consumers are also pouring more of their dollars into their savings accounts — a trend that could continue if interest rates keep ticking higher. The personal savings rate hit 5.6 percent in October, compared to 4.5 percent in the prior-year period.

What's more, one of the biggest issues retailers are facing in 2016 can't be fixed by lower gas prices. With an influx of inventory still on their shelves, stores will be forced to run fire sales to clear the way for spring product. If they're left with discounted winter goods when the calendar changes, it will be all the more difficult to charge full price on new merchandise, because so much of the store is on sale.

"There's no question that the overall clear winner this holiday was the consumer," Barr said.