NEW YORK – It might not be what you'd expect retailers to be wishing for during the holiday season: Warmer-than-usual weather — even if it means fewer purchases of sweaters, jackets and scarves.
It all has to do with energy prices. The success or failure of the nation's merchants this Christmas could rest largely on how much money consumers have left over to spend on gifts after they pay to heat their homes and gas up at the pump. Warmer conditions could mean lower costs on both fronts.
Next weekend is the official start of the holiday shopping season, when many merchants do as much as half of their annual business.
Expectations are for sales at retail stores open at least a year — the best gauge of a retailer's health — to rise 3 percent to 3.5 percent between Thanksgiving and the week after Christmas, according to the International Council of Shopping Centers.
That's an improvement over 2004, when sales increased only 2.3 percent. Those meager results were blamed in part on high gasoline prices, which ate away at disposable income, especially for poorer consumers.
Now consider this: Unleaded gas costs are up 14 percent in 2005, and the gains have been even bigger in natural gas and home heating oil, which are used to heat homes. If consumers felt the pinch in their pocketbooks in 2004, imagine their worry now.
It explains why the weather is proving to be a conundrum for many retailers, and why they might be focused on temperatures in a much different way than in the past, when cold weather could help boost winter apparel sales.
ICSC found that 13 percent of consumers surveyed expect high winter heating bills to be a financial hardship, and another 21 percent expressed concern about how they will pay for the extra cost.
"People this Christmas will spend what they have available, and that can be dictated by changes in energy prices, not the weather," said Michael Brown, a retail strategist at the consulting firm Kurt Salmon Associates. "If they see they are paying more on gas or heating, they might not take that extra trip to the mall or spend any extra money."
The good news for merchants is that some recent warm weather trends have resulted in growing stockpiles of heating oil and natural gas, which has sent prices lower.
Oil prices have fallen nearly 20 percent since their late summer peak and there has been a similar pullback in prices at the gas pump, where the national average for unleaded regular soared above $3 a gallon just a few months ago and now is at around $2.30.
According to the Energy Information Administration's November short-term energy outlook, home heating costs are now forecast to rise 27 percent this winter compared with a year ago, down from the 32 percent increase forecast in October.
The timing of this pullback is important because it means that many consumers won't get hit with over-the-top heating charges when their November bills arrive in their mailboxes in December, right when retailers could be counting on them most to do their holiday buying.
"Although home heating bills will be up, psychologically the decline in energy prices from its high could be a positive for consumer mind-set," said Merrill Lynch retail analyst Mark Friedman.
Other good news is that rising energy costs so far haven't trickled into other parts of the economy. There had been great concern that if oil prices stayed at their lofty levels or continued to rise, companies would feel pressured to pass the higher costs on to customers.
Retailers aren't in the clear yet. The holiday season is just getting under way and the first blast of frigid winter air was moving from the Midwest to the Northeast at week's end. That's good news for merchants heavily stocked up on colder-weather goods that they have been struggling to move off store shelves.
However, should that cold weather decide to stick around through most of the winter, as many forecasts predict, it could mean trouble once the holidays are over — when many merchants have grown accustomed to clearing out winter merchandise in a last-ditch effort to boost sales.
Wal-Mart Stores Inc. (WMT) CEO Lee Scott said that he expected the world's largest retailer to have a "good holiday season," but he noted that January and February could be difficult months when holiday and utility bills come due at once.
Ultimately, whether this holiday season turns out to be merry may have little to do what merchants have on store shelves. Much rests on what Mother Nature decides.