Analyst Corner

Obamacare Is Destroying Retail, Among Other Things

Categories: Uncategorized

OK, now that I have your attention and 50% of you are ticked off at the assertion and the other 50% agree with the headline…let me pull a kids prank and say, “Ha, Ha, made you look!”  This is not about the merits for or against the Affordable Care Act.  But seriously, hear me out..  Regardless of one’s political views or inflammatory headlines, there is a real economic issue affecting the lives of consumers and how their spend has changed.

There are a couple of things baffling economists, TV pontificators, and even some retailers.  Why isn’t the drop in gas prices translating to more retail sales?  About 5 years ago we did the math.  The average drop of 1 penny sustained for a year in gas prices saved American consumers about $1.7Billion USD.  Gas prices have clearly been down well over a dollar from highs for more than a year.  I didn’t try to figure out the math again, but let’s say roughly $200 Billion is saved on gas prices in the last 18 months.  Yet January and February Retail Sales were down, not up just as gas prices went down even further. (See here) Where has that savings gone?

What happened?  Well anyone that pays their own healthcare costs saw a rise from 8% to as high as 36% in their healthcare premiums.  In Tennessee, the average increase was 35.2% in the Affordable Care Act Plans.  $50-100 in gas savings doesn’t go very far when the insurance bill goes up $400+ for a family of four.  But that’s just part of the squeeze for consumers.

Yes, the government unemployment numbers that get bantered around are rosey.  But the underemployment rate remains at 14.7% and has only once dropped below 14% in 7 years!!!!  So combined with unemployment, 1 in 5 people are either out of a job or working in a job well below the pay they are trained to do.

So with healthcare, higher education, rents, and other expenses up, and 1 in 5 people not working in the jobs they are qualified for and thus receiving that level of paycheck, it is no surprise that retail sales are down.  The big surprise is they are not down much more….Kudos to the industry for doing so well.  Seriously, if you simply look at the economics of it, retail should be getting killed.

But that being the reality, the big question is what are you as retailer, or you as a vendor, or you as an individual going to do about it going forward?

We are very fortunate to be working in the IT side of Retail where expenditures are growing at a very healthy side of a 4.5% annual increase.  And that investment can lead to great efficiency for retailers.  But gas prices are going to be going up, the consumer is going to be increasingly pinched, and healthcare, rents, and higher education costs are not going down anytime soon.

Having a strategy that factors all of these into your plans as an industry, corporately, or personally is the only prudent action.  The thought that they are just saving that money and it is sitting in an account to be used for retail spend is not prudent.  So how do you increase your wallet share, your business, in a market that is increasingly squeezing consumers?  It’s not a political solution.  It’s a strategic solution for your customers, your company, and yourself as beholden to both.

OK, now you can go back to your regularly scheduled day of rooting against or for Trump, Clinton, Sanders, Rubio, Cruz and Kasich…or filling out your brackets for RetailROI March Gladness…and just laugh when the pundits say people are just saving more.  Sure they are….