Guzzled Up by Gas Prices
Aug. 24, 2005 — -- For 30 years Mike Connally and his wife, Susan, have taught all types of dancers in their elite dance school -- jazz and ballet lovers of all skill levels -- some of whom have gone on to become professional dancers. Lately enrollment has dropped off sharply -- but not for lack of interest.
Enrollment at the Connallys' Dance Workshop in San Antonio has fallen by 50 percent over the last six months. The reason: sky-high gas prices. More and more students and their parents have decided they can't afford to make the drive four to six times per week, as their training and class schedules often dictate.
"We've got a lot of students who have to drive a long way to get here, one who even drives 70 miles one-way," Mike Connally said. "A lot of these people drive SUVs and they carpool to keep expenses down. But now the expenses have gone up exponentially and they've decided they just can't afford it."
The Connallys' school is just one of many small businesses struggling to handle the impact of high fuel costs. Gas prices have climbed to all-time highs this summer as the price of crude oil has traded steadily above $60 a barrel. The average price for a gallon of gas has jumped 24 cents over the past two weeks to a nominal record of $2.61 in the United States, according to the Energy Information Administration. The crushing expense of filling up a tank this summer has had a ripple effect through the business world, particularly for smaller companies that offer niche or luxury products or services.
Skipping Paychecks to Stay Afloat
The Connallys employ seven teachers, all of whom are degreed professional dancers, including Susan Connally and the couple's daughter, Karin. As enrollment dwindled from 300 to fewer than 150 students this summer, money became an issue. Susan, who serves as the artistic director in addition to teaching classes, didn't take a paycheck for five months earlier this year, and the Workshop was forced to let an instructor go last month.
"Not because she wasn't good, but because we couldn't afford her," Connally said. "It's like anything with the arts -- people treat it as a want rather than a need. And if it's between that and paying their mortgage, then there's no choice."
Michael Bazdarich, senior economist at UCLA's Anderson Forecast, said the rising price of gas has cut about 1.5 percent of people's spending power during the past two years. Though it's a seemingly small percentage of a monthly or annual budget, Bazdarich said any subtraction of income eventually slows spending on purchases consumers consider non-essential.
"By definition a luxury is something that is not a necessity. The companies that manufacture those luxury items or offer luxury services are going to take a bigger hit than general retailers," Bazdarich said.
Trouble Selling Luxury Products
A year ago, Alec Whitehouse left his job as an IT professional to start his own business making handmade soaps and other personal grooming products. He opened a small store called One-Der Bar Soap & Shea in Fredericksburg, Texas, a tourist town about 80 miles from his home in Austin. Whitehouse drove a pickup truck between Austin and Fredericksburg to haul supplies to the office every day.
At first, the heavy foot traffic through the German-themed vacation town brought in a steady stream of customers. The company grew faster than he expected, and Whitehouse added a retail Web site and hired two clerks to help with mail orders.
But even though sales numbers have continued to pick up, Whitehouse said he noticed that the size of the company's average order began falling considerably as gas prices rose. He said the problem is twofold. First, people are less willing to spend a lot of money on handmade bath products. It's a problem that he's seen not only in his own business, but with competitors as well.
"All indications are that fuel and energy costs are cutting into the sales of the whole industry," he said.
Second, high fuel prices have made shipping costs much more expensive. Shipping companies often tack on surcharges of up to 7 percent to offset the cost, and customers have been hesitant to pay the added charges.
"Six months ago our average purchase was about $40. Now it's more like $15 to $20, and that compounds the further they want the order shipped," Whitehouse said.
The expense for his daily commute went from about $50 per week to nearly $100, he said. He now spends a few nights a month sleeping in an apartment in the back of the store, and most of the time he coordinates sales and shipping arrangements from various Austin coffeehouses that have Internet connections. It's all in an effort to avoid the pricey fill-ups.
"There are plenty of freebie cafes in Austin. I can coordinate with my clerk over the phone and carry on all the activities of an office manager while sipping coffee," he said.
Even with the cutbacks, the first year of growth has encouraged Whitehouse that One-Der Bar will continue to attract more customers, even if they spend a little less in the store.
Dance Studio Still Struggling
The Connallys, on the other hand, aren't so sure. They have allowed some students to stay in class at reduced prices, many of whom come from low-income families and can't afford to continue paying. That may not be an option if numbers continue to shrink. And they are reluctant to let any more staff go.
"Their salaries stay the same, but our bottom line takes a hit. If we had to, we could cut down to three teachers, but that would be a tragic situation," Mike Connally said. "If you lay people off they'll find other work, and then they're not your faculty, they're your competitors. It's almost like donating your business to other people."
UCLA's Bazdarich said as long as prices stay high more people will likely cut back on spending.
"Most people have a buffer of savings that they'll turn to at first. But the more permanent the increased gas prices become, the more you'll see people alter their lifestyles," he said.
Connally said they won't consider closing the Workshop. At 70 years old, he has already retired and doesn't take a paycheck. Susan turns 60 this year, and the couple has no intention of shutting their doors or starting something new after 30 years in business.
"We're going to try to weather it out, but it's going to take some doing to get people back," Connally said. "It all comes down to how much travel they can afford to do every week. Ballet lessons aren't cheap, and we realize that it's not at the top of the food chain for everyone."