The Effect Of Falling Oil Prices To Clothing Retailers
Over supply and the reduced demand for oil has resulted into a significant drop from the previous $110 per barrel to about $49. This has boosted consumer spending because they have lots of leftover from the money that should have been spent on fuel. After the big couple of reductions another 50 cents is expected come February.
After the big 5.5% drop in December, domestic petrol prices fell by 9.9% in January. The continued growth in US fracking has substantially raised supply levels and OPEC or Organization of Petroleum Exporting Countries has not reduced their output in spite of the glut. The demand from China has softened as well as the European countries that are more involved in exploring renewable energy.
The biggest benefits accrue to consumers because they now have more money in their pockets while the biggest beneficiaries will be clothing retailers like TV Store online. Clothing retailers are set to benefit because over the past three years they have absorbed the effects of the weaker rand on imported goods and they have not passed the cost to their customers. It is expected that this unanticipated bonanza resulting from the drop in oil prices will allow the clothing retailers to replenish their margins. During the economic downturn, there was a protracted period of margin squeeze in the retail sector and the low transport costs that consumers are now enjoying will allow the retailers to replenish their margins to a certain extent.
Sharp declines in the prices of petrol are not unheard of because between July 2008 and early 2009, the local prices for fuel have fallen by 55% after a reduction in international oil prices. If the money spent for fuel is about 5% of total household spending, it will certainly provide a welcome relief for consumers. On the other hand, lower income groups will not exactly feel the low prices of fuel. Prices usually rise very quickly when there is an oil price hike but prices do not go down as quickly when fuel prices go down. Another additional advantage that can be expected is the very little chance for interest rates to go up for a long time.