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High Gas Prices May Hurt Video Industry

26 Sep, 2005 By: Erik Gruenwedel

The average price of a gallon of regular gasoline topped $3 following Hurricane Katrina and could go higher as a result of Hurricane Rita.

But gas prices have been on the rise in the United States long before the worst hurricane season in decades hit. And video rental stores — with the possible exception of stores in subway-dominated New York — are feeling the impact, according to an informal Home Media Retailing online poll. More than 49 percent of respondents said their customers were coming to the store less frequently because of gas prices. About 34 percent downplayed the impact, and less than 9 percent said customers were opting for online rentals.

A report released prior to Katrina from the International Council of Shopping Centers said 58 percent of households polled had cut discretionary spending on such purchases as entertainment and consumer electronics because of higher fuel costs.

The study reported 23.1 percent of households with incomes of less than $50,000 reduced spending in August as a direct result of rising gas prices.

A Lehman Brothers report said upwards of $75 billion in disposable income could be lost in the second half of the year due to higher gas prices.

On the Independent Dealers of Entertainment Association's (iDEA) Web site, several members of the Video Software Dealers Association expressed concerns over escalating pump prices. Dan Bagby, owner of Dee Bee's Video in Anahuac, Texas, said foot traffic in his store was down 25 percent compared to last year.

“How do I compete with something that is sucking every penny out of everyone's pocket just so they can go to work?” he wrote. “I have already been asked [by customers] when I may be raising prices. They know it is coming.”

Tom Hannah, owner of Video Quest in Joliet, Ill., admitted the money put into the tank wouldn't find its way into his store.

Adrian Hickman, manager of TLA Video in Philadelphia, told HMR what was once an “annoyance” has become “the driving force as to how the consumer spends their leisure money and time.”

That said, some retailers and analysts didn't believe gas prices would adversely affect business.

Executives on Circuit City's Q2 investor call said they hadn't felt any impact attributable to higher gas prices.

The Lehman Brothers report believed excessive media coverage of higher oil and gas prices had contributed to a negative consumer psyche among demographics not ordinarily affected by higher gas prices.

“It is not something that would be material yet,” said retail analyst Dennis McAlpine with McAlpine Associates, who defined “material” as “having a 10 percent impact.”

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