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Staycation and Inflation and Recession . . . Oh, my!

June 24, 2008

Last week during an interview for a trade journal, I was asked to address how “Staycations” were affecting my business. Great term that I hadn’t heard before. The term assumes that with the price of gas and food shooting up, people should opt to stay home instead of taking vacations. These “Staycations” would give the homeowner incentive to invest in their backyard to turn it into the resort they can’t afford to go to: thus, more furniture sales for us. Yippee!

That was last week, now this morning while driving in to work, I heard NPR reports about the following:
1.    The price of milk and food staples are rising so much; school districts are having a tough time balancing their lunchroom budgets. If changing the product mix and preparation methods don’t out weigh increased costs, they are going to have to raise the cost of lunch. The result, some children wouldn’t be able to afford a nutritious lunch anymore.
2.    The spiraling cost of fuel is causing police forces across the country  to cut back on the number of miles their patrol cars are driven. Many were going exceed the amount they had budgeted for fuel well before the end of the year. This meant fewer cars will be patrolling their districts.
3.    Finally, after taking 100 planes out of service earlier this month, United announced they were laying off 15% of their pilots. This means fewer flights serving the U. S. market.

So, let’s see, as I finished my half hour commute, I was convinced school children were going to starve, American cities were going to become hotbeds or crime for lack of patrol cars, and flying to Chicago for market was going to cost an arm and a leg that is if I could even find a flight. Gosh, with news that bad, why even bother opening the doors to my store???!!!

That put me to thinking, “Maybe there is something to this ‘Staycation’ idea.” But, I needed to put pencil to paper and really figure out what the increased cost of gas was going to do to my business.  I decided to start with LTL freight. Let’s make a few basic assumptions: a rig sells for about $80,000, has a 7 year depreciation, gets about 10 miles to the gallon, a driver makes $25/hour, and insurance is $5,000/year. Assuming the truck is driven 600 miles a day for an average of 3 days a week, the total monthly operating costs with gas at $2.50/gallon would be $10,400. At $5.00/gallon the operating costs goes up to $12,300. That’s a huge and frightening increase of about 19%.

But wait, last year, freight, as a percentage of my gross sales, was slightly less than 3%. Assuming freight companies will raise their rates by 19% to accommodate their increasing costs, this year freight could go up to 3.4% of my gross sales. Hey, that’s an increase but a lot less than the 19% raw increase.

So, I thought I would do the same exercise for a Disney World vacation for a family of 4. After all, this would be the consumer who would go on “Staycation” rather than vacation. Going to Disney is the MOST expensive vacation in the world. I think I could travel around the globe for less than a week or two at Disney. Many families think they can travel reasonably if they drive to Orlando and stay at economical hotels. Let’s make the following assumptions: the vacation is for 5 days at a Disney budget hotel costing $150/night, food costs $100/day for all four (I have them eating off property for every meal), park passes are $40/day, the family drives 1,000 miles one way to get to Disney in a car that gets 25 MPG, and the wear and tear on the car is $0.20/mile. The cost of the vacation with gas at $2.50/gallon would be $2,648. With gas at $4.00/gallon, the same vacation goes to $2,968, an increase of 4.21%. In the context of a 100% increase in the cost of gas, a less than 5% increase is very small. Only the Grinch would deprive their kids of a Disney vacation over a measly 5%!

As badly as the news made me feel after the morning drive, these few quick calculations made me realize the overall effect is NOT as bad as the news would lead us all to believe. Several years ago, when the stock market took a dive, the same psychology went to work. Everyone was supposed to feel poor because their portfolios had decreased in value by 50% or more. In addition, people were upside down in homes that weren’t selling anyway. Woe was us!! That’s when the home industry invented the word “cocooning” to describe how people would react to those “tough” times. Consumers would spend money improving their cozy woven cocoons rather than going on vacation or buying a new home. Again, more sales for us. Yippee . . . except, it didn’t work that way in our industry.

Specialty outdoor retail consumers aren’t as hard hit by a poor economy as are consumers who go to warehouse clubs or discount retailers to make ends meet. That is not to say some of our customers won’t tighten their belts. Many will because of all of the constant barrage of bad news.  But, I don’t expect my business to fail just because the news media is hyping “these horrible economic times.” If the economy is so bad we shouldn’t have had a couple come in this last weekend and drop $14,000 or another come in, buy $8,000 or furniture and ask us to deliver it before they went on their European vacation, but they did! That tells you something.

Staycation or cocooning, call it what you will, just don’t depend on it to increase business. Hard work, careful planning, training, excellent service, that’s what will keep you in business and make it thrive. But those are basics that we all practice in good times and bad. . . don’t we?

Yours in confused retailing, Bruce