Rising Gas Prices and the Future of Independent Retailing

Posted by Jay McAninch on February 29, 2012 in Business

There’s an emerging trend that could change the business dynamic for archery and bowhunting companies. Rising gasoline prices are no longer a periodic issue. They’re an ongoing problem. Recently released energy projections for 2012 predict that by year’s end gas will cost more than $4 a gallon at the pump everywhere, and nearly $5 a gallon in some locales. Nearly all forecasters agree gas prices will continue rising, especially with growing demands for fuel but also because of tightening supplies.

The model used by the “box stores,” or multichannel retailers, has been that cheap gas allows consumers to drive to a large department-style discount store while allowing mass merchants to move products great distances at relatively little cost. Meanwhile, many archery dealers have been forced to change their business practices when a major discount chain moves into their area. Some have gone out of business while others had to diversify their product line and/or find ways to increase revenues through service work and shooting opportunities. Some manufacturers help dealers by offering them exclusive products, which makes them the sole source of some brands.

During my years with the Archery Trade Association, we’ve searched for ways to help archery dealers and multichannel retailers thrive, because both are ATA members. Dealers have generally been the source of custom and labor-intensive bow-fitting and tuning, with products from the middle to high end of the cost spectrum supplemented by accessory sales as part of a complete bow package. On the other hand, multichannel stores are the chief source of low- to mid-range bows, a wide range of accessories, and many “cash-and-carry” products such as targets, tree stands and other bowhunting accessories.

In essence, this model gives dealers a low-volume but potentially high-margin product orientation, while chain stores focus on high-volume, lower-margin products. How will gasoline demands change the retail model? Clearly, more expensive gas will give local independent retailers a growing advantage in the marketplace. However, growing demands for gasoline are the primary price driver, and that has far more ominous impacts than gas prices alone.

Consider the following: In 2009, the United States had 750 cars per 1,000 people while China had four cars per 1,000 citizens. When China attains half the car-ownership rate of the U.S., it will mean more than 400 million new cars needing gasoline. With China’s economy growing at about 10 percent annually, its energy demands – coupled with a strong cash position in world markets – will drive up gasoline prices while reducing the fuel’s availability.

In other words, the United States is in for a rude awakening. Experts like Christopher Steiner, author of the book “$20 Per Gallon,” predict the world’s middle class will soon reach 1.8 billion people, and most of these folks will want what Americans have enjoyed for decades: affordable cars and travel that satisfies a wide range of desires.

So, will crude-oil supplies meet the world’s growing demands? Consider that after about 150 years of increasing crude-oil production to a peak in 2006, supplies have begun what experts like Steiner think is an irreversible slow decline. Nearly all the statistics say oil is getting harder to find and extract, leaving an ominous fact: We find one barrel of oil for every six barrels we consume. Furthermore, giant oil companies we know by name once controlled more than half the world’s oil production. They now control closer to 10 percent, thanks to countries like Iran, Russia, Venezuela and others developing state-owned companies. Those countries use oil both as an important asset and for political leverage. Where Iran once exported more than 70 percent of its oil, it now keeps more than 50 percent for internal use. Its leaders enjoy using their remaining reserves to gain a stronger stage in world affairs.

Although many Americans face a rude awakening, our society’s gas woes may be a boon for archery dealers. If gas increases to $5 per gallon and beyond, the cost to go anywhere will have greater impacts than saving a few bucks on a particular product. In addition, the cost of discount–store products must rise as costs for producing those products overseas increases, and as middle-class workers demand wages comparable to American wages. Meanwhile, the costs of transporting those products over air, land and sea will keep increasing. While relative price points across the spectrum might remain similar, the cost to get to stores will differ, favoring the nearby retail outlets.

So, are these changes certain to happen? Well, no one predicts otherwise. The experts differ only on when and how much gas will rise. Everyone worries about supplies. Because we’re at the point where the trend is unfolding, it makes sense to at least plan for possibilities while managing for the realities of today’s market.

Today, tomorrow, next year and five years from now, personalized customer service accompanied by higher prices and access to exclusive product lines will be the hallmark of independent archery dealers. The only change I project is that savvy dealers will stay even more in tune with their local markets, and find ways to attract more customers who increasingly value close, convenient access to professional archery retailers.