Rising gas prices are the visible face of the current energy crisis, but the real impact on retail runs much deeper.

"Energy touches everything,” said our analyst Suzy Davidkhanian on “Reimagining Retail.” “It acts more like a tax on fixed costs like fuel and utilities, leaving less room for everything else.”

Here's what retailers need to know about the ripple effects of the energy shock.

Energy inflation hits differently than other price increases

Unlike tariff-driven or broad-based inflation, energy shocks leave consumers with fewer options to adjust their spending.

"Last year or in the last inflationary cycle, there were all sorts of levers that consumers could pull. They could trade down, they could switch brands, they could switch retailers," our analyst Zak Stambor said. "But when the price of gas rises or the price of natural gas rises, there's not much you can do about it. There isn't a private label natural gas brand you can go to."

This creates a fundamentally different dynamic for retailers. They can't expect consumers to simply trade down within their stores. Instead, shoppers are cutting categories entirely or consolidating trips to reduce fuel consumption.

Hidden costs extend far beyond the pump

The energy shock's impact extends into unexpected product categories through manufacturing and materials costs.

"Plastic is everywhere. It's in the Lego bricks that you buy your kids. It's in the packaging that the Lego bricks are packaged in," said Stambor. "It's in the manufacturing components. Actually in some brands of chewing gum, there's a type of plastic."

Fertilizer costs present another delayed impact.

• "The cycle is already over. They already have their fertilizer. It's the next cycle where the fertilizer will be expensive," Davidkhanian noted.
• This creates a lagging effect where food price increases will compound over time, affecting both fresh produce and animal feed costs.

The gig economy faces particular pressure, threatening the delivery infrastructure that many retailers depend on. Amazon Flex drivers and similar workers who fuel same-day delivery models may reduce hours as fuel costs eat into earnings, potentially creating "higher delivery costs, slower fulfillment, and overall capacity constraints," according to Stambor.

Consumer behavior shifts are already emerging

Lower-income households are showing the earliest signs of stress.

"More consumers are breaking up purchases, especially lower-income households. That could indicate that they just don't have the flexibility to handle those rising costs,” said our analyst Rachel Wolff, citing Jefferies analysis of March spending.

Restaurant traffic faces immediate pressure. Black Box Intelligence data shows that once gas prices hit $3.50 on average, restaurant traffic starts to decline, a threshold that current prices have "blown past pretty considerably," Wolff said.

Travel intent has also fallen significantly, with 33% of consumers planning to cut back on travel this year because of rising prices, according to a The Points Guy survey conducted by YouGov.

Discretionary categories will feel the impact first, but the squeeze will spread as energy costs remain elevated and work their way through supply chains.

Top-line numbers mask underlying weakness

EMARKETER's sustained energy shock forecast scenario, which assumes oil prices stay above $100 per barrel for an extended period, reveals a disconnect between headline retail growth and actual consumer purchasing power.

• "In the sustained energy shock scenario, we have a 4.8% increase in retail sales, but our base case is for 3.4%," Wolff said.
• However, when excluding auto and gas sales, the picture reverses: The base case projected 3.7% growth in retail sales without auto and gas, while the energy shock scenario shows just 3% growth.

This scenario doesn't project normalization until 2029, a full decade after the last period of relative economic stability in 2019.

What retailers should watch now

The affluent consumer segment holds the key to whether retail sees continued growth or enters a downturn.

"They really are the ones that are driving spending. And there have been some recent indications that maybe their confidence is slipping," Wolff said.

Retailers must also decide whether to prioritize margin protection or sales volume, and closely monitor their competitive set.

"You need to know how to compete. And as things continue to be uncertain, you are directly competing with that group that you think are your cohort," Davidkhanian said.

The most critical question: Are retailers providing opportunities for consumers to trade down within their assortment, or are they losing those sales to competitors?

"If you don't provide value for your consumers, they're just going to go somewhere else," Stambor said.

Listen to the full episode

We prepared this article with the assistance of generative AI tools and stand behind its accuracy, quality, and originality.

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