Transportation Expenditures and Retail Sales: An Analysis of the Consumer Response to Increases in Gas Prices

Abstract

With the retail landscape becoming increasingly competitive, firms are desperately seeking ways to understand their target shoppers and maximize their profitability. One particularly important consideration for consumers is that of gas prices, and this exogenously determined variable may affect consumers differently depending on their income level. To investigate the relationship between apparel retail sales and gas prices, this study used panel data from 1997 to 2017 and implemented log-log regressions using clustered standard errors to account for heteroskedasticity. The results of the regressions indicated that gas prices do appear to have more of an effect on mid- and low-income consumers, as a 1% increase in gas prices was associated with a 0.575% increase in mid-tier retail sales and a 0.251% increase in low-end retail sales. Though counterintuitive, these results may indicate that consumers, especially those frequenting mid-tier retailers, are potentially choosing to bundle their shopping purchases more, reducing the number of trips made but increasing the amount purchased per trip.